The tax refund delays this tax season could be tied not only to new identity theft detection filters, but also to overly tight business rules written into the IRS’s Electronic Fraud Detection System.
National Taxpayer Advocate Nina Olson, who heads the Taxpayer Advocate Service at the IRS, wrote about the problem in a report to Congress last month (see Taxpayer Advocate Sees Threat from Increased IRS Automation and Workload). The Electronic Fraud Detection System is a data-mining program that automatically screens all tax returns with refund claims in an effort to identify dubious-looking wages, withholding credits, number of dependents and other suspicious items.
Each tax season, the IRS writes new business rules for the EFDS based on the patterns of fraud it detected last time around. This tax season, the IRS stepped up its efforts to deter identity thieves who typically try to claim refunds early in tax season before most taxpayers file their returns. The agency installed new screening filters that were designed to improve its ability to spot illegitimate tax returns.
However, that effort led to tax refund delays of a week or more for early filers whose returns got caught in the system (see IRS Warns of Tax Refund Delays and IRS Refund Delay and Real-Time Tax System).
But even before this tax season, many legitimate claims for refund were getting delayed by the filters in the EFDS. Olson’s report noted that last year, the system flagged 1,054,704 returns for further review, a 72 percent increase over 2010. However, because the IRS has automated this process, it does not have nearly enough people on hand to weed through all the cases that are automatically directed to its Accounts Management Taxpayer Assurance Program when a refund claim is flagged.
As Olson’s report noted, “There is no easy way to distinguish proper claims from improper ones. Filters are, at once, both under-inclusive and over-inclusive, and inevitably block large numbers of proper refund claims. When that happens, the IRS must have sufficient personnel to assist the legitimate taxpayers who are harmed. If, for example, the IRS stops one million refund claims and has a 90-percent accuracy rate, it would need sufficient personnel to quickly work through the claims of 100,000 legitimate taxpayers who were inadvertently caught up in the net.”
Instead, what happens is that many taxpayers end up bringing their complaints to their tax preparers or to the Taxpayer Advocate Service. In fiscal year 2011, TAS received more than 21,000 pre-refund cases. According to a TAS study, 75 percent of the taxpayers ultimately were found to be eligible for the blocked refunds, but taxpayers had to wait an average of nearly six months to receive them. The average amount of the blocked refunds was upwards of $5,600.
Now, with many taxpayers who filed early this season still waiting for their tax refunds, it’s likely that the IRS will need to do a lot more fine-tuning of its filters and business rules, if not a complete overhaul, to prevent similar delays and taxpayer anguish next tax season.
4 Comments
BN123 and ladylibra,
It's true that you and people like you benefit from the EITC and it isn't a bad program, but tazman1963 is also correct that eliminating the EITC would reduce fraud. I work in the tax industry, specifically with tax software. Over 90% of fraudulent refunds involve some kind of earned income or other credit.
There is no easy solution. Eliminating the EITC would help prevent a lot of fraud, but it would also hurt good people such as yourselves who have served your country and need some help. Perhaps everyone can take comfort in the fact that the government is working hard to improve their fraud prevention techniques without eliminating much needed benefits.
To address the issue of waiting 6 weeks for a refund, I think it is ok. If the government prevents millions of dollars in fraud by making the honest people wait a few extra weeks, then that's alright with me.
Posted by: nhall2678 | May 8, 2012 11:45 AM
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I agree with BN123, tazman1963 you are the very uneducated one. No one purposefully takes a job that doesn't make enough money, if that was the case 90% of the lower enlisted soldiers would have chosen another career field, I spent 13 years serving this country and every year I received the EITC. Tell all of those soldiers that fought in Iraq and Afghanistan that they need to go back to school or take some more job training! I can see that mentality that you have in regards to welfare, I actually feel the same way, but if the government give all of these companies tax breaks to hire people and pay them minimum wage then I would say that the fault is with our government. If our government stated to businesses: we will give you tax breaks if you pay your people enough money so we don't have to pay them and you too, then things would be a lot better for everybody! Plus don't you know it's impolite to scream on message boards? oh you are uneducated let me school you: Capital letters equates to screaming. Oh and my husband and I don't qualify for the EITC anymore because I left the military and became a computer programmer, but if everyone do my move then who in gods name will defend our country? Not those college graduates who can make more money in the private sector.
Posted by: ladylibra | February 13, 2012 3:07 PM
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Tazman, the only uneducated one is you. Let me tell you something. My husband & I have four children. We have been together for twenty years. We have never qualified for EIC before. My husband & I both work. We live in a modest home & take care of our children. We do our best to NEVER rely on anyone. My husband was laid off from his job a couple years ago. In an instant we lost everything! Our income, our health insurance, our sense of security etc. His unemployment ran out. It has been a struggle to say the least. My husband took a job making $16.00 less an hour because it was all he could find at the time even with a license in his trade. What you said is not true about everyone that gets EIC. I had to swallow my pride apply for food stamps, government health insurance, low income discount on our utilites. We couldn't pay our bills because the money coming in was just not there anymore. We are driving around in a car on it's last leg, we got so far behind with our bills. We had shut off notices for everything & anything you could think of. This year we qualified for earned income credit and let me tell you it's a life saver for us. We will finally be able to catch up and purchase a decent and safe car for our family. Thankfully my husband got another job in his trade a few months back and he's making good money again! He also has his HEALTH back because let me tell you he was so stressed out I thought he was going to have a stroke. If it wasn't for the help we received I don't know where we would be right now. I am forever thankful. It's still a struggle but things are finally looking up. I will probably never in my life get EIC again but I'm thankful for it this year. I know I posted a lot, but I thought you should know. Think before you speak because not everyone is looking for a handout!
Posted by: BN123 | February 9, 2012 11:53 PM
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GETTING RID OF EITC. THAT WOULD ELIMINATE AT LEAST 50% OF THE TAX FRAUD PROBLEMS. THESE EITC PEOPLE WILL KILL EACH OTHER TO GET THAT MONEY. THAT'S WHAT "FREE MONEY" DOES TO PEOPLE.AT THE VERY LEAST HAVE A TIME LIMIT THAT THEY ARE ELIGIBLE TO BE ON EITC. MOST OF THE PEOPLE NEVER IMPROVE THEMSELVES TO GET THEMSELVES OFF OF EITC. THEY HAVE AN ENTITLEMENT MENTALITY TO EITC AFTER A WHILE. THEY TELL ME THAT "THEY EARNED THAT MONEY". VERY UNEDUCATED FOLKS. I WOULD SAY 4 YEARS AND THEY HAVE TO BE TAKING CLASSES OR JOB TRAINING. AND I DON'T BELIEVE THEY CAN'T FIND SOME GOVERNMENT PROGRAM TO SEND THEM TO SCHOOL. THESE PEOPLE HAVE NOTHING ELSE TO DO BUT FIGURE OUT HOW TO GET FREE MONEY. JUST A FEW THOUGHTS TO SOLVE PROBLEMS. JEFF
Posted by: tazman1963 | February 8, 2012 10:45 AM
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