If you waited more than a month for the IRS to process your tax return and get a refund last year, you’re in good company.
While the IRS prevented $2.7 billion in refunds from being issued to fraudsters between Jan. 1 and Sept. 30, 2019, more than a few legitimate tax returns were held up in the process, according to a recent report from the Taxpayer Advocate Service, an internal watchdog for the IRS.
The tax agency debuted a new fraud algorithm — Filter X — last year that suspended about 1.1 million returns through Sept. 26, 2019.
These taxpayers were flagged because they claimed the earned income tax credit, the additional child tax credit or they had incomplete wage and withholding data on their Form W-2.
Approximately 275,000 of these tax returns were held for more than 40 days, resulting in financial hardship for people who relied on those refunds.
Even tax pros aren’t exempt from refund delays.
Dan Herron, CPA and principal of Elemental Wealth Advisors in San Luis Obispo, California, has been waiting close to a year for an $800 refund from the taxman after filing his 2018 return.
Initially, the IRS sought more information on the accountant’s return, which he filed in March 2019. The agency said Herron’s return was flagged for potential identity theft, he said.
The return included a Form W-2 that reports Herron’s wages, a Schedule K-1 from his backpack manufacturer side-business and a Form 1099-B, which spells out gains and losses from the sale of investments.
The accountant has spent the last 10 months supplying the agency with hard copies of his return and supporting documents via certified mail, plus hours on the phone wading through call center menus and speaking with different staffers.
“Welcome to my nightmare: I get paid to do this, and I’m going through it,” Herron said. “Nobody is immune.”
Fending off scams
Andrew Harrer | Bloomberg | Getty Images
Filter X isn’t the only program that has caught up legitimate returns during the 2019 tax year.
Other refund fraud filters have had a false positive rate of 71%, the Taxpayer Advocate found. It took an average of 38 days to process those returns.
While delayed refunds may be a nuisance for some, many taxpayers rely on those checks.
Welcome to my nightmare: I get paid to do this, and I’m going through it.
CPA and principal of Elemental Wealth Advisors
“If refunds for lower-income people are being held up as an enforcement matter, that’s not even where the revenue savings are,” said Steve Wamhoff, director of federal tax policy at the Institute on Taxation and Policy.
Indeed, households that claim the earned income tax credit or the additional tax credit — and who are thus likely to be low-income — already have their refunds delayed until late February, due to additional screening by the IRS.
“The tension between preventing fraud and expediting refunds has been a constant, especially in the earned income tax credit program, for many years,” said Pete Sepp, president of the National Taxpayers Union.
Improvements in 2020
For its part, the IRS plans on taking steps to get refunds out faster this year, including checking daily — instead of weekly — for third-party information from employers and other parties to verify the data on filers’ returns, according to the Taxpayer Advocate.
Nevertheless, here are a few steps you can take to give yourself a better chance at having your return processed in a timely fashion.
Gather all of your documents. Just about every reporting form you receive to complete your return, be it a Form 1099-MISC or a W-2, has a counterpart sent to the IRS. You’ll need all your paperwork to properly report each source of income on your tax return.
Don’t wait. If you have a simple return, file it quickly. This way, you beat scammers who are submitting phony returns and you buy yourself time to resolve any potential issues with the IRS.
Know where your money is. The IRS issues most refunds in fewer than 21 days. Track your check from the taxman as early as 24 hours after e-filing here.
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