Over 1.4M taxpayers now facing tax refund delays

Approximately 1.4 million taxpayers have received notices from the Internal Revenue Service that their tax refunds are being delayed because the IRS wants direct deposit information instead of sending out paper checks. The number is growing by 300,000 each week, according to lawmakers.

Two Democrats on the tax-writing House Ways and Means Committee sent a follow-up letter Tuesday to Treasury Secretary Scott Bessent after asking him for an explanation earlier this month when the number of taxpayers facing delayed tax refunds was around 830,000, due to an executive order from President Trump mandating electronic payments. Bessent still hasn't responded to the lawmakers' earlier letter on March 9, prompting another request from House Ways and Means Worker and Family Support Subcommittee ranking member Danny Davis, D-Illinois, and Oversight Subcommittee ranking member Terri A. Sewell, D-Alabama, after their original deadline for a response passed. 

Last March, Trump signed an executive order saying the continued use of paper-based payments by the federal government, including  checks and money orders, imposes unnecessary costs and delays, and the risk of fraud, theft and lost payments. In August, the Treasury Department announced it would stop issuing paper checks for most federal payments on Sept. 30 and confirmed the phaseout last September. The IRS has been sending notices to taxpayers who failed to provide direct deposit information with their tax returns and the number of notices has now surpassed 1.4 million.

At a Ways and Means Committee hearing earlier this month with IRS CEO Frank Bisignano, Democrats asked for a copy of the notice, but say they were sent an altered version for unknown reasons. 

"During a recent hearing, we requested a copy of the notice, state-by-state data on the notices sent, and an answer as to when the processing clock begins to run for taxpayers who respond to the notice," Davis and Sewell wrote to Bessent. "However, we only received an altered version of the notice cleared by the Department of the Treasury (Treasury). The altered version is different from both the actual version sent to taxpayers and the version we obtained from the Treasury Inspector General for Tax Administration (TIGTA). We are troubled by the differences."

"Our first and foremost concern is that taxpayers could face a 10-week wait for their paper refunds," they added. "This is not clearly stated on the notice. Nor does it warn taxpayers that a paper check could take another six weeks beyond the 30 days given to respond."

They pointed out that taxpayers have trouble reaching IRS customer service representatives at the phone number provided on the notice or a way to request a check. 

"The IRS has no publicly established process for taxpayers who lack an online account to request a timely check," they wrote. "The IRS telephone number provided in the notice does not connect to a live assistor. Instead, an automated recording notifies callers to set up an IRS online account. By listing a telephone number, the notice gives taxpayers a false impression that they have the option to request their refunds by phone."

Davis and Sewell described the discrepancies between the actual notice being sent to taxpayers and the altered copy of a Notice CP53E they received from the Treasury Inspector General for Tax Administration. They noted the altered version was entitled Refund Direct Deposit Issue Notice (Summary Version) and contains Notice CP53E in the bottom corner, but differed from the TIGTA version sent to actual taxpayers. But the altered version was missing a key piece of information: "Note: IRS employees cannot update bank account information."  

The altered version also contained other discrepancies and a warning at the top: "Sensitive But Unclassified (SBU) data: Share only with authenticated authorized persons with need to know."  

"There is nothing sensitive about the Altered Version," wrote the lawmakers. "The warning is misleading because the Altered Version does not contain sensitive data.  It is an example of this Administration trying to muddle information provided to Congress.  The fact that we were asked not to share the Altered Version is outlandish considering the actual IRS Notice CP53E has been sent to 1.4 million taxpayers so far."

They pointed out that last year, National Taxpayer Advocate Erin Collins reported that over 10 million individual taxpayers received their refunds by paper check and may be unbanked, have impairments, or face systemic or geographic challenges that make providing electronic deposit information difficult. As a result, this year, more than 1.4 million taxpayers have received CP53E notices from the IRS that their refunds are being held and delayed, some for more than two months, because they didn't provide the required banking information. They demanded answers from Bessent and the Treasury Department by April 6. 

Tax professionals have been hearing from clients this season about the problems and warning them about the delays unless they provide bank deposit information. Last week, the National Association of Tax Professionals attended a National Public Liaison meeting convened by the IRS where the topic came up. While the IRS wants to be able to pay tax refunds by direct deposit, it's still making some exceptions and sending out checks after a delay as well as accepting tax payments by check.

"From the NATP standpoint, and also myself as a practitioner, I've been coaching my clients since last fall that we're going to have to get away from the paper remittance to the IRS, but certainly we know they want to get away from the paper check issuance," said Tom O'Saben, director of tax content and government relations at the NATP, during a press call Tuesday. 

He believes tax professionals need to let taxpayers know about the extra wait time if they don't provide banking information for a direct deposit. 

"If we don't manage the taxpayers' expectation, and we have that normal four- to six-week expectation of a check coming in the mail, then what they get is a letter," said O'Saben. "They're going to be really upset. And what the letter is going to say from the IRS is basically this: You didn't provide any direct deposit information, and therefore you need to contact us. They're not going to allow you to just call them with banking information. You're going to go into an online account, which many taxpayers don't have, and enter banking information, or if there isn't any response, within about 30 days, the IRS then will go ahead and process a paper check. They are making an exception, but they're looking at another four to six weeks before they get the refund."