AICPA cautions IRS on transition away from paper checks

The American Institute of CPAs hopes to smooth the transition away from paper checks at the Internal Revenue Service.

The AICPA sent a letter last week to the Treasury Department offering feedback and recommendations on the implementation of President Trump's Executive Order 14247, "Modernizing Payments To and From America's Bank Accounts." The order requires the Treasury to stop issuing paper checks for all federal disbursements, such as tax refunds, and requires all payments made by the federal government to be electronically processed. 

The order also mandates that issuing paper checks for federal disbursements should cease by Sept. 30, 2025, and that all federal receipts should be processed electronically as soon as practicable to the extent permitted by law. That seems like too abrupt a transition, however.

The AICPA acknowledged that the adoption of an electronic system for federal disbursements and receipts would increase efficiency, reduce costs and significantly diminish the occurrence of lost or stolen checks. The AICPA noted it has supported the transition to electronic payments for federal disbursements and receipts, but pointed out there are challenges with implementing a system that imposes a mandate on taxpayers to have a U.S. bank account in order to participate. Requiring a U.S. bank account for electronic tax payments could exclude vulnerable taxpayers such as seniors and the "unbanked" population, while international banking rules currently limit automated clearing house transfers with non-U.S. financial institutions.

"For many years, the AICPA has advocated for and supported the modernization of the IRS and its payment systems; although this executive order is a step in the right direction, there are many considerations before implementing changes, which means updated processes and carefully tailored rules will need to be developed," said Daniel Hauffe, senior manager for tax policy and advocacy with the AICPA, in a statement last Thursday. "The AICPA's recommendations allow for the modernization of the IRS' tax payment systems while mitigating the impact of the administrative burden on taxpayers, tax practitioners and the IRS that could be caused by this executive order."

The AICPA's letter cites a report from the Treasury Inspector General for Tax Administration on the 2024 filing season saying that, for the most recent tax year, nearly 7 million taxpayers were issued refunds through a method other than electronic payment.  

The AICPA asked the Treasury consider the following recommendations:

• Implement exceptions to the order for individuals and business entities not physically present in the U.S. that do not have a U.S. bank account. 
• Exempt temporary non-U.S. individuals — such as short-term business visitors – from electronic payment mandates, allowing them to receive tax refunds by paper check. AICPA also recommended allowing individuals without a Social Security Number or individual taxpayer identification number to make tax payments by check until their taxpayer identification is issued, helping them meet their obligations and avoid penalties. 
• Expand Electronic Federal Tax Payment System capabilities, which would enable business accounts to submit payments on behalf of individuals for Form 1040 and 1040-NR, including estimated tax payments, extension payments and balances due. There should be no cap on the number of individual transactions a business account can process. 
• Exempt all trust and estate income tax return filings from the requirements of the order until Form 1041 has been updated with the appropriate information and that implementation of the order be delayed for trusts and estates until Treasury and the IRS can address certain issues concerning the administration of an estate or trust. In addition, the AICPA recommended the Treasury and the IRS allow trusts and estates to pay via IRS Direct Pay, rather than have to set up an EFTPS account. 
• Provide specific guidance regarding how exceptions will be applied for and granted to qualified taxpayers to whom this order would present an undue burden, including individuals over the age of 65 and taxpayers who are unable or unwilling to obtain U.S. bank accounts. The AICPA also recommends that taxpayers granted an exception have the option to receive tax refunds as a paper check or through a direct express card. 
• Extend the timeframe for implementation of the order or that, at a minimum, the Secretary offer meaningful transitional rules when facilitating the transition of the federal disbursement and receipt system to being exclusively electronic. 
• Consider seeking statutory authority for the mandates outlined in the executive order, which would provide a solid foundation for this transition to electronic payments. 
• Convene a group of stakeholders, including the AICPA, to assist with the establishment of rules and processes for implementing the order.