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As we suspected


Catherine
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They destroyed millions of docs; in theory, mostly informational. God help us pulling transcripts in a couple of years as there will be nothing on file.

IRS Destroyed 30 million paper tax documents  (link to site; text copied below)

An audit by the Treasury Inspector General for Tax Administration (TIGTA) has found that the Internal Revenue Service made an intentional decision "to destroy an estimated 30 million paper-filed information return documents in March 2021." TIGTA says the agency did this because of it's inability to catch up on backlogs of paper-filed returns.

The report does not say that actual 1040 income tax forms from filers were destroyed, but only that information returns used to support tax filings were. "The IRS uses these documents to conduct post-processing compliance matches to identify taxpayers who do not accurately report their income."

Common information returns include forms W-2, 1099 and 1098, among others.

With the supporting documents destroyed, the IRS will likely be missing many of the documents it requires to adequately screen for accuracy of returns, and may also end up lacking sufficient materials for tax audits. However, the IRS can request taxpayers provide relevant proof or copies of documents used to support their income tax returns, including copies of files the IRS may have destroyed.

TIGTA previously reported that there were actions the IRS could take to reduce paper filings and/or convert paper tax returns into an electronic format. In addition, TIGTA reported that, while the electronic filing (e-filing) of business tax returns continued to increase, the e-filing rate still lags behind that of individual tax returns. Finally, repeated efforts to modernize paper tax return processing have been unsuccessful.

In other findings, TIGTA reported that has taken several steps to increase e-filing, but that the pandemic amplified the backlog of paper tax returns and records. This, TIGTA noted, suggests that the IRS needs to create an agency-wide "strategy to further increase e-filing."

TIGTA made three overall recommendations as a result of its audit:

Develop a Service-wide strategy to prioritize and incorporate all forms for e-filing;

Develop processes and procedures to identify and address potentially non-compliant corporate filers;

Develop processes and procedures to ensure that penalties are consistently assessed against business filers that are non-compliant with e-filing requirements.

The report from the Treasury Inspector General for Tax Administration is at:https://www.treasury.gov/tigta/auditreports/2022reports/202240036fr.pdf

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I have three clients right now who have to file 1310s. All are anxious to get the decedents' final returns filed so they can finalize everything.  One thankfully will not have a court-appointed fiduciary, which means we can efile.  I'm still waiting to hear from the others on this issue.  If there is a court-appointed rep, no efile, and those refunds will take forever.  These poor folks might be able to make final distributions in 2023 if they're lucky.  The TIGTA's recommendation that more forms become efile-able is spot on.  If I can attach pages and pages of crypto transactions, why can't I attach a PDF of a court appointment???

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19 hours ago, cbslee said:

My understanding is that these were mostly 1098 & 1099s plus some 1095s.

That is my assumption from the text, as well. However, mortgage interest, consolidated 1099s, and 1095s are all important documents on transcripts for clients who "lost" (i.e., threw out) those documents.

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It's weird that I receive a hand written 1099 from a law office and it was scanned incorrectly by the IRS. But they did scan it.

It's the small companies who file information that is lost - that's why it's only 30m pieces. I file paper payroll forms for a few tiny offices (mine included) - were those all just destroyed? They need to immediately stop requiring 1099's be on the original red ink forms.

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I do payroll for some small companies and have always given them paper 941's to file.  I have had several of them receive requests stating their form was received for third quarter but was not available to IRS, please resubmit.  So I am reasonably sure that 941's were among the forms destroyed. 

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5 hours ago, Gail in Virginia said:

I do payroll for some small companies and have always given them paper 941's to file.  I have had several of them receive requests stating their form was received for third quarter but was not available to IRS, please resubmit.  So I am reasonably sure that 941's were among the forms destroyed. 

Not new.  A few years back, I had a significant % (far too many to be a coincidence) of customers asking how to reprint 941 forms... most shared the same IRS 941 mailing addresses.  Most were not compliant (in keeping paper copies for the required time frame), but reprinting was not an issue since they were from the prior year.  Some had used a third party to efile...

 

Abby Normal: "This is all a prelude to forced efiling of all forms. And really, it's about time. Computers have been part of everyday life since the 80s, or almost 40 years. It's long past time to modernize the entire system."

Mailing with proof of mailing AND printing and retaining a paper copy, is not an unreasonable process.  I don't know of any truly free efiling method for 94x at present.  Vendors (such as those who offer to read payroll data from software) who offer to process such filings have a cost of about $5 per form.  The IRS is or at least is not at present, setup (willing?) to adapt to an employer, or even programmer, friendly efile system.  They would need, IMO, an easy online method for the very small employer, and an easy CSV, TXT, or MMREF type file structure for the rest (instead of what they offer now.  The other issue is those who efile in bulk, like a software vendor, have to go through an "approval" process as the IRS wants to put the efiler, even if a software vendor, in the liability chain.  There is a way out, but it still takes time.

It has been a few years since I dug deep, but I have not seen any update to the electronic record retention regs.  They were onerous enough that non one who read them would ever stray from paper.  The flaws were essentially, by not keeping paper records, you are giving the IRS free search and seizure ability because you have to positively prove you can recall any required records, which the IRS can test at will, including access to or seizure of your hardware.  Also, you have to positively report any possible data loss, so a computer change would likely have to be reported, power outage, etc (unless you re-verified all data each time).  Absolutely, no one likely follows said rules, but those in the business, holding records for many clients, would not likely want to expose all client data to warrant-less search.  I remain open to new regulations, as I stopped researching this issue as no one was interested in what I found!

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Seems to me for small firms, you could do one of two options for delivering electronically.

 

1. have us upload via EFTPS. If I can pay the tax via eftps, why not have us upload a copy of the form to include with payment? Then in February I upload the W2s or 1099s. Basic pdf software can go into it and read what you've submitted if it needs more information. It could quickly add up all your numbers.

2. have a fax number which automatically scans, reads and routes the form to your account. I work with a firm where we fax in new account forms, W9s, IRA agreements and the software routes it to the client's account and the software marks off that you've delivered the form.

 

If their current machines scan 1099s in this way, they should be able to eliminate all that and just have the software scan the pdf you've delivered.

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17 minutes ago, mcbreck said:

If their current machines scan 1099s in this way

The scanning technology that IRS uses for paper-filed 1099s is very old though and that is why the service requires those be prepared on forms printed in red dropout ink.

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Why is e-filing the 941s so complex and separate? That form certainly isn't complicated compared to the 1040 series,  the 1065s, or 1120 series. Why can't a version of it be included in MeF?

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29 minutes ago, jklcpa said:

Why is e-filing the 941s so complex and separate? That form certainly isn't complicated compared to the 1040 series,  the 1065s, or 1120 series. Why can't a version of it be included in MeF?

I have no idea. Some old timers say the incentive is for complication because some of the decision makers are looking to cash in once they get to private practice. Could be no one has incentive to rewrite what surely is outdated code in a dead language. We have no idea of the actual reason, but the optics sure are bad when a simple text style file works so well for SSA and most states. 

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36 minutes ago, jklcpa said:

Why is e-filing the 941s so complex and separate? That form certainly isn't complicated compared to the 1040 series,  the 1065s, or 1120 series. Why can't a version of it be included in MeF?

I doubt they would include a payroll form with general tax forms. Likely separate divisions within the walls of IRS.

IIRC the 94x efile data structure is xml. Not the best choice unless they planned on a web based input and read, and even then, it wastes bandwidth with the trade off of having field names, start and stop included. XML is a lose for small uses as no one is going to manually create an xml file, where most can create a csv/txt file if they are inclined to.

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When e-file of 941s became possible, I looked into the requirements. Halfway through reading them, I demurred and have never looked at it again.  Way more onerous - and potentially dangerous to me as a professional - than paper.  If they want the *&^ forms electronically, they can make it easier and less dangerous to do so.  Until then, they're getting paper.  Which they can then fold until there are lots of stiff hard corners, and shove where the sun don't shine.  I am sick and tired of mandates that make their lives "easier" but put me, my practice, and my clients at greater risk.

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7 hours ago, joanmcq said:

Umm, does no one here use ATX payroll? Super simple to efile 941 & 940s.

I used it for many years including 2 years after I switched to Drake for tax returns.

However they kept increasing the price. 

In addition they didn't keep up with the changes to my state payroll taxes.

At that point, it made no sense.

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