Although it’d be easy for me to get business this way, it’s not your tax preparer’s fault. I’m going to mention some anecdotal information. Then I’m going to support it with statistics.
Your first step:
Start by signing up for an IRS.gov account and check for any communications the IRS sent. You’ll see communications faster online, and it will serve as a backup if a letter gets lost in the mail.
Respond right away to any requests. After the IRS makes a request, nobody is working the case until you respond. The ball is back in your court, so get it back as soon as possible to add it to a Tax Examiner’s queue.
In my personal experience, calling the IRS doesn’t help unless the IRS needs something from the taxpayer. In all of my dealings, the human Tax Examiner reviewing the refund claims was the bottleneck, and there’s nothing a client or I as a preparer can do. You’ll probably be more frustrated if you try to call; IRS employees only answered 11% of calls in 2021, the worst rate ever.[1]
Call the Taxpayer Advocate, not the IRS, if you want to call someone. The Taxpayer Advocate is a government agency, but its mission differs from the IRS’s mission. The IRS is there to collect revenue, while the Tax Payer Advocate is there to help taxpayers. The Taxpayer Advocate has a page dedicated to held or stopped refunds with resources to get help.
In some cases, the Office of the Taxpayer Advocate can work with the IRS on your behalf to expedite your refund, especially if the delay is causing financial hardship.
My personal experience with delays:
I worked with a new client who qualified for the Earned Income Tax Credit. It helps low-income families get a bigger refund, but it’s also a common target for abuse.[2] This was their first year filing. They had a small amount of self-employment income in the past, which didn’t get reported.[3] Their income had no paper trail (small transactions with customers), and it was their first year filing.
It took the IRS eight months to issue their refund. I called the IRS, and the client called the IRS, and the response was always, “We are currently processing your refund.”
Fortunately, the IRS pays interest, but unfortunately, it’s not that much. On their $8,000 refund, they only received about $200 in interest. They had a credit card balance that charged them a lot more. You can find the current information on interest payments from the IRS interest notice.
Why is the IRS so slow?
We’ll never know the exact reason in the less obvious cases, but we can guess the reason is probably that a manual review is involved. It might have been flagged for additional review by an IRS computer, maybe even randomly; there might have been a problem with that batch of direct deposits; or an automated function may have crashed.
The IRS won’t share that information.
Everything is now waiting on a manual process in any of these scenarios. That means a human Tax Examiner has to look at something and click a button that allows the IRS to send out money. These IRS agents are cautious because you get fired if you send out money when you shouldn’t. They are also overworked. This brings me to my final point.
Is this happening to everybody?
Yes
The IRS faced the same challenges as any other business during the pandemic (adjusting to work from home and budget cuts), but the amount of work significantly increased.
As shown in the chart, the amount of refunds significantly increase for 2020. This is related to the Economic Impact (Stimulus) Payments.
Source: IRS Databook Table 1
Another factor is that the IRS is now contacting more taxpayers. In some instances, they work with individuals who only file a tax return to get their stimulus payments which is reflected in the dramatic increase in call volume.
Source: National Taxpayer Advocate Annual Report to Congress Figure 1.2.5
While the data isn’t available for 2021, the IRS is still administering pandemic support, including the expanded child tax credit and the Economic Impact (Stimulus) Payments; therefore, these problems persist.
In my opinion, the IRS will only get harder to deal with. Prepare for future delays that get extended whenever congress asks the IRS to take on another project.
[1] Source: National Taxpayer Advocate Annual Report to Congress 2021, pg. 11.
[2] It’s a common target for abuse because you can get money back even if you didn’t pay anything into the system–also known as a refundable credit. Earned Income Tax Credit is a refundable credit. People can still get a tax refund with other types of credits (non-refundable), but your refund is a return of the money you had withheld from a paycheck or estimated payment. I think of it as a non-refundable credit can take your tax liability to $0, but not to a negative number. refundable credits happen no matter what.
[3] If you are curious, we filed the past-due tax returns. If you are an auditor, WE FILED THE PAST-DUE TAX RETURNS!!!!
The information contained in this article is for educational purposes only and is not intended to offer recommendations or tax advice. Tax advice will only be given after a client engages our services and shall be subject to the terms and conditions therein. The information is of a general nature and should not be construed as advice. Market data, articles, and other references in this presentation are based on publicly available information and are believed to be reliable.