IRS Considers Delaying All Refunds Until Summer

Refunds Delayed Till Summer?

According to a recent report, the IRS risks issuing $26 Billion in fraudulent tax returns over the next 5 years.  In 2011 alone, the IRS received 2.2 Million fraudulent returns, costing taxpayers $6.5 Billion.  True to form, a “quick fix” idea has gained the most traction with the IRS & members of congress, and naturally it is at the expense of the taxpayer.  Rather than investigate the root of the problem, the IRS wants more time–i.e. YOUR time–to review tax returns to combat fraud.  Thus, the IRS would like to delay all refunds until the Summer time.

The rational is that the IRS would be able to “compare returns” to combat fraud. According to National Taxpayer Advocate Nina E. Olson. 

“Such a shift would allow the IRS sufficient time to review every suspicious return. More importantly, the IRS would have at its disposal the full arsenal of information reporting databases- including complete data on wages and withholding, interest income, dividends, capital gains and partnership income – and could better detect and resolve discrepancies and questionable returns…”

Ms. Olson also noted that this would be a huge “cultural shift” and could potentially hurt early filers; specifically those that depend on their refunds simply to pay the rent or put food on the table.

“Alternatively, if we prefer not to delay the processing of refunds for six months but still insist on greater fraud detection than the IRS is currently able to manage, then Congress would need to authorize significantly more funding for the IRS,” Olson said. “It is unrealistic to expect the IRS to keep up with its increasing workload without either allocating a corresponding increase in resources or extending the timeframe in which to conduct the necessary wage and withholding verification.”

It does not bode well for the average taxpayer if the National Taxpayer advocate is already on record essentially saying give more funds to the IRS or we’ll have to delay refunds for everyone.  Something that neither the IRS, Congress nor Ms. Olsen mentions is the huge amount of interest revenue delaying refunds would generate.  The IRS & various states have instituted delays before, but never on a scale this large.  For example, in 2011 the IRS issued over $193 Billion in refunds.  Using that figure even at 1% A.P.R., (prorated to 6 months) would equate to over $965 Million in interest.  Taking this into account, the only surprise is why Congress & the IRS haven’t tried to implement something like this sooner.

Source: NBC