Changes to the tax laws at the beginning of the year resulted in a delayed tax season in which the average tax refund declined slightly, according to a new government report.
The report, released Thursday by the Treasury Inspector General for Tax Administration, found that the average tax refund decreased slightly to $2,894 in 2013, compared with $2,944 during the same period last year.
The tax filing season is a critical period for the IRS since it is during this time that most individuals file their tax returns and contact the IRS if they have questions about specific tax laws or filing procedures. In its report on “Interim Results of the 2013 Filing Season”, TIGTA reviewed the IRS’s performance through early March. A final report that reviews the entire filing season will be issued in September.
“This filing season is a particularly challenging one for the IRS,” said TIGTA Inspector General J. Russell George in a statement. “The IRS had a very tight time frame in which to update tax forms, instructions and publications and reprogram its computer systems before accepting returns.”
Enactment of the American Taxpayer Relief Act of 2012 on Jan. 2, 2013, reduced the time the IRS had to implement the tax changes the law contained. The IRS began accepting many tax forms and schedules only eight days after the originally planned start of the filing season, but some taxpayers had to wait until March 4 to have their tax returns processed because of delays in a number of popular tax forms (see IRS Allows Remaining Tax Forms to be Filed). In addition, the Budget Control Act of 2011 required federal agencies, including the IRS, to implement mandatory budget cuts if Congress did not enact a fiscal year 2013 budget by March 1. On March 5, the IRS announced that it would have to make significant cuts in all of its major programmatic areas, including customer service, for the remainder of the fiscal year.
As of March 9, the IRS had received more than 65 million tax returns, representing a decrease from the nearly 72 million returns filed during the same period in 2012. More than 59 million (91 percent) of the returns were filed electronically, down from 64 million e-filed in 2012. The IRS issued more than 53 million refunds totaling nearly $155 billion as of March 9th, compared to 59.2 million refunds totaling more than $174 billion in 2012. The average refund decreased slightly to $2,894 in 2013, compared with $2,944 during the same period last year.
This is the first year in which the IRS has relied solely on the Modernized e-File system to receive and process individual tax returns, and more taxpayers are filing electronically this year: 91 percent. TIGTA found that a significant number of taxpayers are using the option to split tax refunds between multiple bank accounts. Through March 7 of this year, the report found that 527,872 individuals elected to split their tax refunds, totaling more than $2.3 billion, between two or three different checking and savings accounts, compared with 662,983 tax returns with refunds totaling $2.9 billion last year.
TIGTA identified 288,187 tax returns using split refunds that requested direct deposits totaling more than $113 million into 31,934 bank accounts as of March 7. Each of the 31,934 bank accounts TIGTA identified had refunds deposited from three or more taxpayers. Sixty-one percent of the returns were prepared by paid tax preparers.
Other significant findings include:
Taxpayer Assistance Centers: Due to reduced staffing, the IRS planned to assist only six million taxpayers at its walk-in offices in 2013, 11.8 percent fewer than in 2012.
Toll-Free Telephone Assistance: As of March 9, IRS assistors had answered 8.3 million calls and achieved a 67.8 percent level of service, a slight improvement compared to 66.8 percent in 2012.
Internet Self-Help Assistance: In spite of the late start to the filing season, as of March 9 the IRS reported a 21.1 percent increase in the number of visits to IRS.gov Web site over the same period in 2012. It also reported a 41.7 percent increase in the number of taxpayers obtaining their refund information online via the “Where’s My Refund” option found on IRS.gov.
In addition, the IRS is offering more self-assistance options through various forms of social media including its mobile application IRS2Go, YouTube, Twitter, Facebook and most recently Tumblr. As of March 21, the IRS has had more than 1.9 million new downloads of its IRS2Go mobile application, more than 1.5 million new views of IRS YouTube videos, and a 31 percent increase in Twitter followers.
Fraudulent Refunds: The IRS is continuing to expand its efforts to detect tax refund fraud. As of March 9, the IRS reported that it identified 220,821 tax returns with $1.86 billion claimed in fraudulent refunds and prevented the issuance of $1.79 billion (96.2 percent) of the fraudulent refunds. This includes 85,385 fraudulent tax returns involving identity theft and 87,817 potentially fraudulent tax returns filed by prisoners for screening.
Earned Income Tax Credit: Many paid tax return preparers continue to be noncompliant with Earned Income Tax Credit due diligence requirements. As of March 7, TIGTA identified 80,585 paid tax preparers filing 616,622 tax returns claiming nearly $1.9 billion in EITC without the required Form 8867 attached to the tax return. This equates to more than $306 million in penalties that can be assessed by the IRS.
American Opportunity Tax Credit: The IRS is continuing to issue potentially erroneous education credits. As of March 7, TIGTA identified 18,061 taxpayers who filed tax returns claiming education credits totaling $30 million for students who were of an age that are unlikely to be enrolled in a four-year college degree program (see 600,000+ Tax Refunds Delayed by Education Credit Glitch). In addition, an error in tax preparation software packages caused further delays for individuals claiming the credit. TIGTA did not make any recommendations in this report.