Delays In Getting Your Income Tax Refund
WARNING: A Large Income Tax Refund May Result In Delays
Well, you finally got around to filing your 2012 tax return, and you hope that an income tax refund will be forthcoming. You spent the better part of a weekend, gathering tax documents and receipts for your itemized deductions that your accountant will need to prepare your return.
You drive to his office on the day of your appointment, and proudly hand him all of your tax records, all properly organized. He, too, is surprised, and yes, pleased, that you spent so much time gathering all of the information and even organizing it for him.
After your brief meeting, having answered the few questions that he had, you leave and patiently wait to see what the results will be this year. A couple of days later, he calls and gives you the good news.
You breathe a sigh of relief when he tells you that there is a $5,100.00 income tax refund due on your Federal return. Your accountant says that he is going to e-file your return and use the direct deposit option, and the refund should be in your checking account in about ten days to two weeks.
Oh boy, you are thinking, that will really come in handy when your credit card bill comes in for recent dental work that had to be done. You sign the e-file authorization form for the accountant and leave his office feeling great.
About eight days later, a letter arrives from the Internal Revenue Service. They tell you that they have received your tax return and are going to conduct a thorough review of your return. They go on to say that they will be reviewing all income; income tax withholding; tax credits; and any business income that you may have reported.
After stating that they will be contacting other individuals to verify your information, you are advised that your refund will be delayed at least sixty (60) days during this review process. The letter is signed by Integrity & Verification Operations, Program Manager (No name)
This letter must be a hoax you say because your return only had one W-2 form from an employer where you have been employed for the past ten years. You call your accountant and fax the letter to him to check out.
A few hours later he calls you back and informs you that the letter is not a hoax. Your tax return was selected for review due primarily to the size of the income tax refund, and basically you will have to prove that you are who you say you are. Your income and withholding will also have to be verified before any refund is issued.
It seems that you are not the only taxpayer with this problem. After some research, you come across a copy of the 2012 Annual Report to Congress submitted by the Taxpayer Advocate Service. (TAS)
The TAS is an IRS watchdog if you will, and will intercede for a taxpayer who has been unable to resolve an issue with the Internal Revenue Service. This particular document was a scathing report on IRS methods of operation in dealing with suspected fraudulent returns.
The basic problem is that IRS personnel are inundated with suspected fraudulent returns and simply can’t resolve the issue in the seventy (70) day period they promised to follow. This has been going on since 2005, and each year, more and more fraudulent returns are being filed.
The filters on the IRS software are very tight, and they estimate that they are “catching” about 93% of the bad returns. Unfortunately, these filters are also ensnaring legitimate taxpayer returns, and the delay in some cases can reach six (6) months.
The TAS report was especially critical in situations where the IRS could not get the verification completed in that 70 day window. They simply put a permanent freeze on the refund, and in many cases, caused undue hardship for the taxpayers who needed and counted on their income tax refund to pay bills.
As of this writing, there is no fix for this problem. Plus, with the sequester now in force, the IRS has notified all of its 89,000 employees that approximately 7 furlough days will be observed in 2013.
We don’t know what this issue will cause in terms of additional problems, but we do know that con men who submit these fraudulent returns are not affected by the sequester. For them, it will be “business as usual”, so expect a record number of fraudulent returns this year, and probably more delays in the verification process for those taxpayers selected.
The best solution that we know, is to be certain that you don’t get a large income tax refund. Adjust your withholding accordingly so that you come close to a break even, or have a small balance due.
Gust Lenglet is the CEO of HBS Financial Group, Ltd., an accounting & tax preparation firm in Maryland. He has more than 25 years of experience in the banking and financial industry. Gust started his career as a loan officer at a major national bank, and then moved on to become controller of a major law firm. In recent years, he has written many financial articles that have been published on Ezine Articles and many websites.