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William Perez

TIGTA Reveals Cause of Refund Delays that Occurred in Early 2012

By November 13, 2012

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Many taxpayers reported excessive delays in the IRS processing their year 2011 tax return and issuing their federal tax refund in early 2012.

The IRS wasn't very forthcoming about the reason for the delays. The most the agency has said was, "The one-week delay for some refunds relates to fine-tuning IRS systems to adjust for new safeguards put in place this tax season to provide stronger protection against refund fraud.  The IRS is providing additional screening for fraud this year before issuing refunds, but the vast majority of taxpayers can still continue to expect to receive their refunds in a timely fashion."

Now, a new report from the Treasury Inspector General for Tax Administration (TIGTA) brings to light the causes behind the delays experienced by taxpayers. TIGTA reviewed the Internal Revenue Service's processing of 2011 tax returns during the peak filing season from January to mid-April, 2012. TIGTA found, among other things, that:

  • The IRS experienced problems with its identity fraud detection filters, and
  • The IRS experienced problems with the ability of its Modernized E-File system to create properly-formatted data files.

The IRS implemented "new identity theft filters" which screen incoming tax returns for the possibility of fraud. The new detection filters were identifying false positives, in which some tax returns were identified as being potentially fraudulent even though they were legitimate tax returns. This resulted in the tax returns being held for further screening. "Once the IRS made necessary adjustments to these filters, the problem was corrected," TIGTA reports.

The Modernized E-File System, which is used to receive and process electronically-filed tax returns, also had programming problems that "resulted in the creation of incomplete and/or duplicate output files using the accepted e-file data," notes TIGTA. The output files, having not been properly formatted by the Modernized E-File System, were unable to be used by further IRS computer systems to finish processing the tax return and issuing refunds. "The programming problems delayed the processing of approximately 7.8 million tax returns."

The processing delay problems were resolved by February 18, 2012, TIGTA reports.

By using the new identity theft filters to screen incoming electronically filed returns, the IRS was able to identify potentially fraudulent tax returns claiming $6.4 billion in refunds. The IRS prevented $6.1 billion of those potentially fraudulent refunds from being issued. Even so, an earlier investigation by TIGTA found that the IRS had failed to discover an additional $5.2 billion in potentially fraudulent refunds.

From the TIGTA Web site:


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