Will You Have a Longer Wait for Your Refund Next Year?

We all know there are a lot of scammers committing tax fraud.  The IRS reports that $3.1 billion in fraudulent refunds were issued during the filing season in 2014.

The IRS has stated that they need to be ahead of the scammers in order to stop the fraud.  The plan they and Congress have come up with means that millions of families will have  longer waits to get their refund.

Congress passed the PATH Act of 2015 (Protecting Americans from Tax Hikes) which was signed into law on 12/18/15.  A part of that bill requires the IRS to wait until February 15 to issue refunds to tax payers who claim the  earned income tax credit (EITC) or the child tax credit (CTC).  This is a week or two longer than many experience now.

There is evidence that suggests that the earliest refunds are skewed towards the taxpayers claiming the EITC or the CTC or both.  From my experience, I don’t think there is any doubt of that.  These refunds often reach 6 or 8 or $10,000 dollars, which is a large percentage of the annual income for these families.  Of course they want to get that money as soon as possible.

The big tax chains, like H&R Block, hire a great many tax preparers to help in the early weeks of the tax season when these types of returns are prevalent.  Then they lay off a lot of the preparers as demand wanes, usually around the end of February.  The returns are generally very easy to prepare requiring little in the way of experience for the new preparer.

All tax preparers have been subject to increased due diligence procedures to help stem the fraud.  We have to ask a lot more questions (and document the answers) regarding these credits and require more in the way of proof of eligibility to file returns that claim the credits.  Not meeting the due diligence requirements can subject us to penalties.

These procedures did not stop the scammers that file bogus tax returns using stolen identities.  Often the tax return is filed and the bogus refund claimed before the identity theft victim knows anything has happened.  A first notification of something wrong might be the dreaded 5071-C letter from the IRS.

To help stop this, the PATH Act forces a slowdown, allowing the IRS more time to better match information returns with taxpayer data.

And that is why your refund might take longer than usual.