The Internal Revenue Service needed to put the brakes on its tax refunds this tax season when newly installed filters to prevent tax fraud and identity theft held up processing for a week or more.
The IRS sent out a notice to tax professionals last Thursday apologizing for the delay (see IRS Warns of Tax Refund Delays). The IRS noted that the delay only affects some early filers, and taxpayers whose returns were accepted by the IRS on or after January 26 would not experience the delay. Their tax returns would be processed normally.
However, a number of taxpayers who filed early were dismayed to see the estimated time of arrival in the Where’s My Refund tool on the IRS.gov site shift back a week or even two weeks, or they encountered error messages when they tried to access the tool. Readers left comments on the Accounting Today site expressing their frustration and how it was going to make it harder for them to pay their bills. One of them was a taxpayer facing eviction if she didn’t receive the tax refund that she was counting on.
Tax prep chains like Jackson Hewitt and H&R Block have been fielding calls from anxious customers whose refunds have been caught up in the delays. Fewer tax prep chains offered refund anticipation loans and rapid refunds this tax season because the IRS eliminated the debt indicator last year, and banking regulators put pressure on typical RAL providers to get out of the business of offering the loans to tax preparers, so more taxpayers have been left waiting for the tax money they were promised.
The IRS has been accelerating its efforts this tax season to prevent identity theft and tax refund fraud by installing new filters in its computer systems to try to catch identity theft attempts before issuing refunds (see IRS Steps up Efforts to Combat Identity Theft). The agency has come under pressure in Congress and from the National Taxpayer Advocate and the Treasury Inspector General for Tax Administration to do more about the growing problem of identity theft that has kept taxpayers from getting their refunds at all.
Typically the thieves have been filing for tax refunds early in tax season so they can claim the money before the real taxpayers can get it. The new identity theft screening filters are supposed to improve the IRS’s ability to spot bogus tax returns before they are processed and before a refund is issued.
The IRS is also putting identity theft indicators on taxpayer accounts to track and manage identity theft incidents. Those efforts have led to a series of arrests, indictments and search warrants around the country. On Tuesday, the IRS and the Justice Department announced that they conducted a massive nationwide sweep, rounding up 105 people in 23 states (see IRS and DOJ Bust Identity Thieves across U.S.).
While the IRS has been taking steps to crack down on identity theft, the effect on its computer systems shows that the agency is going to need to do more testing before rolling out the “real-time tax system” envisioned by IRS Commissioner Doug Shulman. He wants to create a system that will automatically match tax returns as they’re filed against the third-party information returns that businesses have filed, such as 1099s, in order to do cross-checking before issuing a tax refund (see IRS Commissioner Doug Shulman Wants a Real-Time Tax System).
As he described it to Accounting Today senior editor Roger Russell last year, Shulman said, “The broad outline of that is having a tax system in which we load our system with information returns before the filing occurs. We do a lot more matching work, potentially blocking work, and helping taxpayers correct their return as it comes in. Consequently, instead of interacting with people after the fact, which is quite burdensome, we get accurate returns in the first place. If this is executed correctly, and this is a long-term execution, we would see a tax system with a lot less burden on the American taxpayers and with much higher compliance.”
While a real-time system could help cut down on the lengthy back-and-forth during IRS audits and examinations, which can last for years, there is a danger too in rejecting tax returns before processing them, as shown in this tax season’s tax refund delays. The IRS has already experienced many problems and delays over the years with the roll-out of its Modernized eFile system. It will need to do careful testing of any new system that performs extensive amounts of filtering if it wants to prevent tax refund delays that could last a lot longer than a week.
Otherwise tax clients will be making many worried calls to their tax preparers asking, “Where’s my refund?” If the date for that answer keeps shifting on the IRS’s online refund-tracking tool, or produces an error message as it did for some taxpayers earlier this season, that’s going to leave tax practitioners struggling to answer their clients’ questions in future tax seasons.
10 Comments
And the sad part is, if we owed a dollar, IRS wouls be right there with their hand out, collecting. I filed on January 26th. I already received my State refund, and my federal is no where in sight. So much for direct deposit, any good that did. It amazes me, how no-one gives then heaps what happens to anyone, or their situations.
Posted by: CorrectionsAz | February 22, 2013 12:32 PM
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The IRS has clearly screwed up the early filers who need their refunds fast (to get caught up on paying their bills, etc.). Last year, the IRS limited the RAL product to $1500 and took out the debt indicator, so most banks stopped processing RAL's altogether. The 5 banks who kept offering RAL's last year probably had higher decline rates hurting the taxpayers. Now, this year is even worse for the taxpayers. Due to IRS pressure, only ONE bank offers RAL's (still limited to $1500), there still is no debt indicator, and refunds are being delayed by IRS an extra week. Some of our clients are upset and they should be.
Posted by: Cdw1975 | February 5, 2012 11:10 AM
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Of course our the Nascar section of our government on Captial hill could solve all this by simplifying the tax code and eliminating all the welfare credits that don't belong in it and letting the proper agencies handle them...
Posted by: taxking | February 5, 2012 9:41 AM
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Failure to plan is planning to fail and that applys to both the IRS and taxpapers
Posted by: taxking | February 5, 2012 9:32 AM
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I think that we as tax payers should charge interest on the delay. You and I both know that if we own and we are just one day late of the due date, then intereste starts adding up. I think that it is only fair game.
Posted by: eproell2 | February 4, 2012 10:02 AM
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I am outraged that the IRS can do this to people. They stated when they eliminated the debt indictor it was so we the tax payers wouldn't have to pay that large amount of a RAL. I think its my choice if I want to pay for a RAL how dare they take my choices away. And now we have to depend on them to get our money.
With an RAL I would have had ALL my money now minus the fees. What I have now is NOTHING! Oh I do have something my house at sheriff sale that I could have paid cash for if I got the rest of the money from the IRS on Jan 31, 2012 like they said. Oh no it's a processing delay. I won't be able to buy my house now. Its under water and was selling for LESS$ and I would have had that it IF I got the last $8,000.00 from the IRS in time.
I lost my Job and was using ALL my retirement and 2012 income tax to buy my home of 12years. THANK YOU SO MUCH IRS. This is a big joke to them.
And for the people from other sites that say change your W2. I did and I use to be able to get ADVANCED EIC but the government stopped that in 2011. They just want us to relay on them. THIS IS JUST WRONG. BRING BACK THE DEBT INDICTOR GIVE ME MY CHOICES BACK!!!!!!!!!!!
Posted by: kwarner231 | February 4, 2012 8:06 AM
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I have yet to see anything that the federal government and I mean every branch of the federal government. but I have yet to see them try any thing new or implement some kind of system without screwing it up now ,you would think that these guys would have at there disposal everything they need to get a new system right, but oh no not the government they could screw up boiled water!there is absolutly no sense in what the i.r.s has done! they have the power to simulate every kind of system in the world but because some up and coming butt kisser wants a promotion or impress his boss they try this damn fraud filter out during tax season not caring that if it messed up peoples refunds would be delayed. a week to some people is a death nail they have no electricity, no home, no water but the people implementing this fraud filter are sleeping like babies in there warm bed tonight with a pocket full of money.
Posted by: sls9971 | February 3, 2012 6:33 PM
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I BEEN WAITING FOR MY TAXES FOR 15 DAYS I WORK SO HARD I AM BEHIND IN ALL MY BILLS MY LIGHT OFF I DON'T HAVE NO FOOD I AM A SINGLE PARENT I WORK TEN HOURS A DAY AND ATTEND SCHOOL AT NIGHT WHY IS THIS HAPPENING TO ME MY CAR PAYMENT IS BEHIND MY TAG HAVE EXPIRES AND THEY WILL PICK UP MY CAR FRIDAY FEBRUARY 3,2011 THANK YOU SO MUCH IRS MY LIFE IS A MESS AN MY SCHOOL NEED A PAYMENT AND I CAN'T RECIEVE MY BOOKS THANK ALOT WHY DO I PAY TAXES YOU TAKE YOUR MONEY OUT OF MY PAYCHECK EVERY TWO WEEK .
Posted by: sheilaeoliver | February 2, 2012 8:23 PM
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So much for the faster refunds that were promised after the debt indicator was taken away. Just another way the government is interfering in people's lives. Most people are intelligent enough to make a decision if the RAL was worth the extra bank fee to have the money in their pockets in less than 8 hrs. When are we, the majority, going to stand up to the 2% minority that like to dictate our lives?? This is a free country, isn't it?
Posted by: DEB1040 | February 2, 2012 9:59 AM
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I have seen quite an uptick in news media articles about tax refunds and taxpayers' anticipation of same impacting their abilities to pay bills or meet other financial obligations. I believe it is imperative on us, as tax professionals, to help our clients more accurately complete or update their W-4s so they are not so over-withheld at year-end. I know some folks like to use their "refunds" as a sort of savings account. However, they have to realize this is an interest-free loan to Uncle Sam; with sophisticated payroll systems allowing deposits into more than one bank account becoming more prevalent as the years go by, taxpayers should be advised by practitioners to use savings accounts instead of withholding to set money aside. I advise all my clients that have a history of large refunds to implement such a strategy, and I have received many thanks from those folks.
Posted by: mvpd01 | February 2, 2012 8:38 AM
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