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.
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So this review process is different from an audit by the IRS? I’ve always dreaded an audit every year, especially since I am a small business owner. But this sounds like something different, and not quite as pervasive as a full audit?
My return got snagged, tagged and bagged — they converted it to a full-blown audit — and I had to PAY almost $8,000, instead of getting back the $4000 I expected. Plus pay my accountant an hourly fee for the audit. From now on, I’ll claim a bazillion deductions, in order to keep as much money as I can – then pay anything I owe at the end of the year.
So, when you say to “Adjust your withholding accordingly” – what exactly does that mean? We don’t have a choice in how much they take out of our paycheck, right?
Yes, you do have a choice. If you normally receive large refunds, you are permitted to add more exemptions on your Form W-4 so that your take home pay will be greater and your tax refund smaller. Just be sure that you don’t add too many, and then owe a large balance at the end of the year. You can annualize the withholding numbers to check the results.
Hi Gust! Thanks for this. Great post. I’m a new reader to your blog so I thought I’d just drop a quick thanks.
Very good article!
A delay of 6 months is quite frankly outrageous, this tax refund system needs to be better.
Unfortunately if IRS decides to audit you, there is not much you can do about it.
Wow this is a really great post,as a small business owner i did not really think or consider audit but after reading this post i think it will serve as an eye opener to my business and i will give audit a second thought. Thanks
Tax refunds are a beast. I’m glad mine finally went through, but it took a few weeks. I need my money now, please. Thanks feds!
Tax season is the devil. I wish it DID NOT exist. Too much work and stress involved. I hire a preparer every year, though I think that’s even a big waste. Ridiculous.
Thanks for the comment, and I agree. There’s a lot to be said for the “flat tax”. You would file your tax return on a post card size form and no refund or no balance due. very simple. Problem is, Congress and the House are full of lawyers who formulate the tax code to suit present needs or desires.
Wow. We’ve had a few tax returns over 5k due to student bills and other expenses, but never got audited for it. Then again we use Turbo Tax and just check off all the boxes as it tells us we’re eligible for stuff. We haven’t had a big return like that in a couple of years though, so maybe it was different in the last few years.
Thanks for the article!
How does one adjust their income tax so as not to reflect a large refund? Does it raise a red flag to IRS?
Just change the exemptions on a W-4 form to increase the take home pay. A large refund doesn’t necessarily raise a red flag, but what it sometimes does is flag the return for an identity check. There are so many fraudulent tax returns being filed that the IRS filters are set very tight and the return could be pulled to be sure that it is in fact okay.
Just wanted to drop by and tell you how much I like the style of your blog posts, particularly this one. Using a storyline is very engaging!
This is some scary stuff. I really don’t want to jump through all those TAS hoops. I’ll take your advice to keep my return down. Thanks for the heads up!
Great Article. As a Newbie Blogger, I gained so much knowledge! Thank You so much for sharing all these valuable Information.
I have recently gone through the process of income tax refunds… very horrible process.. finally am out of it… I like your post. Your post can help the newbies who are scared of these things…Doing great job i must say.
I’ll be letting H&R Block deal with my mountains of paperwork this April, thank you very much. Taxes definitely aren’t my thing!
Daniel Defoe, in The Political History of the Devil, 1726:
“Things as certain as death and taxes, can be more firmly believed.”
Great post, Gust!
I never knew that the I.R.S. had a separate form of scrutiny for you if you were accepting a large refund. I always thought it was an audit.
It’s also sad they think that they are catching 93% of the fraudulent returns, as there are many people who get away with fraudulent returns. This, compounded with the fact they are catching legitimate returns as well, means that even more deviants slip through the cracks. Our tax system is a fickle, flawed beast…Made in Man’s own image.
Keep up the great blogging!