Refund Delay – Maybe Not Such a Bad Idea?
The IRS recently announced that 2016 tax refunds that include the earned income tax credit (EITC) and/or the additional child tax credit (ACTC) will not be issued before February 15, 2017. Hold your horses, now! Before you start grousing about that darn IRS, read this carefully: The refund delay is required by law — the PATH Act, to be precise. So go ahead and gripe if you feel the need — but whine about Congress, not the IRS.
Feel better? Now take a deep breath and consider what this means. The idea of the delay is to give the IRS extra time to verify the identity of early filers and make sure that the right refund is going to the right taxpayer. This could be an improvement for many families claiming the EITC/ACTC and help avoid the "first come, first served" approach to these child-related refunds. And doesn't heading off identity theft problems early in the season sound like a step in the right direction?
At this time, it is not clear exactly how IRS will use the extra time. It appears that:
- IRS will run the usual fraud filters to detect identity theft — hopefully much improved filters that will avoid the high number of false positives reported in the Taxpayer Advocate's mid-year report. The timing of this scrutiny is unclear, but presumably this step could occur as soon as a return is filed.
- Tax year 2016 W-2s have an accelerated due date — due to the government by January 31, 2017, a month earlier than in years past. That means that IRS will have W-2 data to run against the tax returns of early filers and perhaps discover refund fraud and identity theft.
Although these steps will delay everybody's EITC/ACTC refund a bit, the overall effect should be to avoid further problems down the road.
Let's look at how this delay might affect VITA operations for the 2017 filing season.
Before February 15
VITA operations can help spread the word about the refund delay. The idea is to let taxpayers know what to expect and to help them understand that the delays are not caused by VITA preparers. The IRS and the Taxpayer Advocate Service are developing outreach campaigns. VITA can help disseminate the IRS materials and promote the following messages:
- The delay will apply to ALL EITC/ACTC refunds.
- The IRS will delay the entire refund, not the just the credits.
- There are no exceptions. No paid preparer can get one of the affected refunds from IRS any faster.
- The delay applies only to returns filed early — those refunds that in past years might have gone out before February 15.
- Taxpayers should go ahead and file as soon as they have all of their tax information. There is no advantage to waiting until closer to February 15.
- Taxpayers should NOT file without the EITC/ACTC just to get withholding back and then later file an amended return to get the credits. This plan is a stinker. It means more tax preparation work — really doing two returns, 1040-Xs take forever (6, 8, 10 weeks?) to process and amended returns invite more IRS scrutiny. So this plan just asks for trouble.
Your local Taxpayer Advocate may be able to help you spread the word by providing materials and messages. There's at least one in every state and more offices are being added.
After February 15
The plan is that pretty much everybody who files early and is not flagged for any problems will get their refund on or shortly after February 15. The reality is that everyone who files early will not receive their refund by February 15. So what about February 16 and beyond?
- All tax returns take a while to process. So someone who files February 12 won't get a refund on February 15. The current message from IRS is that most refunds will take less than 21 days — probably much less in most cases.
- Taxpayers who filed in January and have not received their money by February 15 will need to go through the normal routine: check Where's my refund? and wait for correspondence.
Yes, all of this additional scrutiny is worrisome. That's why the Taxpayer Opportunity Network is in ongoing communication with IRS SPEC and the Taxpayer Advocate Service regarding the timing and content of correspondence to taxpayers who are flagged and to determine how VITA sites can help taxpayers who may be affected by the new screening processes.
Coda to the Get Transcripts! story…
Regular readers of the Dispatch may recall my efforts to get my own tax transcripts from the IRS. The sad story of my failure to get through the online security process resulted in me mailing a hard copy order (Form 4506-A) on May 27. I received the transcripts on July 5. I had ordered one of each kind of transcript, and they were all there and reflected all of my information as described on the IRS website. So the process works if you're not in a hurry.