IRS delays tax refunds, stimulus checks amid identity fraud suspicion

on Jun13
by | Comments Off on IRS delays tax refunds, stimulus checks amid identity fraud suspicion |

Samuel Corum/Bloomberg via Getty Images

Jeff Lavigne plans to use a tax refund this year for long-delayed medical help.

Yet his refund, almost $2,700, has been in limbo since mid-March, when Lavigne filed his tax return, records show.

The IRS flagged the return for potential identity theft — as it did for nearly 2 million Americans last year.

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The money has been withheld until Lavigne can verify his identity. The process has proven difficult — phone lines are clogged and online authentication is unavailable.

Lavigne, 42, has chronic back pain that makes work difficult over sustained periods. The former restaurant manager doesn’t have a full-time job or health insurance. An extra $2,700, which includes pandemic stimulus funds, would help pay for monthly premiums and let him visit a specialist.

“I started making plans in my head, in terms of getting the help I need,” said Lavigne, who lives in a suburb of Dallas. “I’m trying to take one step at a time, and this is step one.”

Delayed tax refunds

Jeff Lavigne, 42, filed his federal tax return in March. He hasn’t yet received his refund. The IRS flagged the return for potential identity fraud.

Jeff Lavigne

Ultimately they might get their money but they’re not getting their money now.

Nina Olson

Executive director and founder of the Center for Taxpayer Rights

While the IRS ultimately issues the money (with interest) in these cases, taxpayers sometime wait months. About 18% of refunds flagged for identity verification took longer than 120 days to arrive, according to the Taxpayer Advocate Service. (Most take less than 21 days for online filers or six weeks for mailed returns, the IRS said.)

Refund delays were among the top 10 most serious taxpayer problems in 2020, the Taxpayer Advocate Service said.

Dan Herron, a certified financial planner and accountant, waited almost a year for a tax refund after filing his return in 2019, which got flagged for possible identity fraud.

“It was a pretty lengthy, drawn-out process,” said Herron, a principal of Elemental Wealth Advisors in San Luis Obispo, California.

“I wish [the IRS] had something more streamlined,” he added. “They’re so archaic in the way they do things.”

Delays were likely exacerbated by the Covid pandemic since the IRS had to temporarily suspend some of its in-person operations, according to Nina Olson, executive director and founder of the Center for Taxpayer Rights.

And the wait may cost taxpayers more than usual this year. The IRS is using 2020 tax returns to determine eligibility for pandemic stimulus checks and advanced payments of the child tax credit, which will be paid monthly starting in mid-July.

The agency uses information (such as annual income) on a 2019 return if a 2020 return hasn’t been processed. But that may lead to reduced payments — or no payments — depending on a taxpayer’s situation.

“Ultimately they might get their money but they’re not getting their money now,” Olson said.

‘Insufficient resources’

Taxpayer advocates don’t dispute that stopping thieves from ripping off individuals and the government is a worthwhile goal.

“Identity theft has been on this upward curve since 2005,” Olson said. “It’s a huge issue.

“And thieves are getting smarter.”

The IRS fraud measures protected $3.5 billion in revenue in 2019, according to the agency. (About $2.5 billion was due to identity theft filters.)

And 98% of tax returns claiming a refund aren’t ensnared by the process, the agency said.

Mark Mazur, deputy assistant secretary for tax policy at the Treasury Department.

Andrew Harrer/Bloomberg via Getty Images

The IRS has had insufficient resources to meet enforcement and administrative challenges and to deliver customer service to taxpayers.

Mark Mazur

deputy assistant secretary for tax policy at the Treasury Department

“You are setting a goal to stop fraud, but not setting a goal to minimize false positives,” Olson said of the IRS. “And good systems do both.”

While fraud letters request a response within 30 days, the IRS will continue to work with taxpayers regardless of the amount of days that have passed, according to the IRS.

The IRS budget — which largely covers personnel — has fallen by 20% in real terms over the last decade, Mark Mazur, deputy assistant secretary for tax policy at the Treasury Department, said Thursday during a House of Representatives hearing.

“The IRS has had insufficient resources to meet enforcement and administrative challenges and to deliver customer service to taxpayers,” Mazur said.

Technology upgrades would also improve service, by letting taxpayers communicate with the IRS in a “clear, timely manner,” he added.

A stroke of luck

Lavigne had been thwarted at each juncture by the time CNBC initially spoke to him on Tuesday.

He was unable to verify his identity online and couldn’t reach a phone representative due to a high volume of calls into the agency. He hadn’t been able to schedule an appointment at a local branch.

Lavigne wasn’t even sure he could physically attend an in-person meeting — traveling for long stretches is prohibitive due to his spine problems, he said.



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