IRS Considers Delaying Refunds To Combat Fraud

Acting IRS commissioner Steven Miller recently sat before a congressional panel and hinted that the best way to combat the explosion of tax fraud may be to either delay the tax filing season, or wait to release all refunds until after the filing season concludes on April 15th.

The reasoning goes something like this:  The vast majority of fraud involving income taxes occurs early in the filing season (January & February). Delaying the filing season will reduce fraud because a) It gives the IRS a chance to cross reference filed tax data with what employers are required to send to the IRS and b) There will simply be less time to perpetrate fraud and thus less cases.  Looking simply at the black & white numbers, yes this would seem like a good idea.  However, like the tax code, this is not a black & white issue.  Millions of honest taxpayers file their returns as early as possible because they really need the money.  These are usually lower-income taxpayers who depend on their refunds to pay bills, rent, and put food on the table.  When you consider the money spent for the holiday season, the urgency for these refunds is magnified.   Delaying the start of the filing season could seriously put these taxpayers at risk.

Another proposal involves waiting until after April 15th to issue all refunds.  That way every tax return can be reviewed and verified before refunds are released, and would virtually eliminate the majority of fraud cases.  However, under current IRS regulations, the government would be required to pay taxpayers interest on their delayed refunds.  This cost of combating fraud could outweigh the cost of the fraud itself.

Either way, it is very early to speculate proposed changes and whether or not they will be implemented. Nevertheless, if either of these proposals are ultimately implemented in full or in part, it appears the group that will be affected the most will be the lower income taxpayer.

Source: Chicago Tribune