Kyle Flischel, CPA
An Inside Look at the IRS (Spoiler Alert: It’s not as Glamorous as you may Think)
Have you ever wondered what your tax return goes through after you file your taxes? Maybe you picture this efficient system where everything is automated, streamlined, and ready for processing immediately.
Unfortunately, that’s not it.
Instead, what you should picture is piles of papers stacked wall-to-wall, in stacks taller than most adults piled in every room including the cafeteria. You should envision 10 million tax returns not yet processed, and waiting their turn, because that’s what happens at the IRS.
Scary, sure, but it’s the truth.
What Goes on Behind the Scenes
Here’s the problem.
Those paper tax returns you send in aren’t scanned and automatically processed. Instead, a clerk is inputting every number, one key at a time.
Even if you aren’t one of the few millions that send in a paper return, you might still deal with the IRS’ archaic systems. If there are any issues with your return, guess how they contact you?
You guessed it, paper.
You’ll get a notice in the mail, and you must respond via mail or fax, worsening their paper hoarding habits.
How Tax Returns are Processed
So what really happens behind the scenes when you send in your tax returns?
When you send in your tax returns, it must be processed. For example, if you send in a paper return, the manual process includes the following:
IRS team members manually evaluate your tax return, marking any missing or incorrect information with a red pen
If a taxpayer sent the form from the wrong year, the IRS team member must renumber the entire tax return so the computer can process it
If there are issues with the tax return, it’s flagged with a colored note
An IRS employee manually enters the information from the tax returns
If the file gets kicked back for human or computer error, it must go back through for processing
The IRS sends notifications to taxpayers if there are any issues
They sit at the processing center for nine to ten months, and then it’s sent to archives at the Federal Records Center for six years
As you can see the entire system is quite archaic. It depends on manual processing, which can take months or longer depending on the workload. In addition, there isn’t a system to track the returns for taxpayers, even though the IRS has its own stamping and tracking they use internally.
The Inflation Reduction Act provided the IRS with funding to potentially bring some of the process back into modern ages, but there’s talk about eliminating or reducing it. Most experts, however, believe it won’t happen.
Either way, it’s a long process that your tax paperwork goes through. So now you know why it might take a long time to hear back about your tax returns or receive your refunds. Until the systems are less antiquated, all taxpayers can do is be patient, learn to sit on hold for long periods, and hope for the best.