Personal Finance

Some still waiting for IRS to send tax refunds

When Dinorah Carballosa filed her income tax return electronically in early March, she planned to use her refund of just over $1,500 to repair her car and pay for dental care. Nearly five months later, the 66-year-old widow from Miami hasn’t received her money.

“I’m desperate,” said Carballosa, who supplements her Social Security income by working part-time in her daughter’s drugstore. “I depend on it penny by penny. It might seem that $1,500 is nothing, but to me right now it’s a lot.”

The only information she’s gotten from the Internal Revenue Service: It’s “still in process.”

Tax preparers say a number of clients who filed their returns on time have been waiting months for refunds this year. Ramped-up identity theft checks have caused a spike in delayed refunds, according to an independent taxpayer advocacy group. IRS staff cuts and furloughs have also contributed to delays — and long wait times to get help — according to the union that represents IRS employees, although the federal tax agency denies that budget cuts have impacted service. In addition, tax season started late this year, after Congress passed a last-minute bill changing a number of tax rules on Jan. 1.

The IRS processed 587,000 fewer returns and issued 1.44 million fewer refunds as of May 10, compared to the same time last year, although it’s unclear to what extent delays account for the drop.

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Nicolas Villageliu, Carballosa’s accountant, said more than 20 of his clients have faced unusually long delays getting refunds. IRS representatives told one client there was no problem with his return and they couldn’t explain the hold-up, he said.

“The system is not working right,” said Villageliu, whose practice is based in Miami. “They’re having hardships, some people who are sick or a member of their family needs help. It hurts the economy, too.”

Gabriel Rodriguez, an accountant at Advantage Income Tax Service in Miami, estimates that 1,000 of the approximately 6,000 clients his firm assisted this year have waited three to six months for a refund, largely due to identity theft concerns. Some clients with identity theft cases are still waiting for refunds from last year, he said.

“It sucks for the individual taxpayer, because they count on this money for their life,” said Rodriguez, whose company primarily serves low-income clients. The delays have also hurt the firm, which draws most of its fees from the refund checks, he said.

Bottlenecks extend to higher income brackets, as well.

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“We’ve been experiencing tremendous delays,” said Scott Berger, tax principal at Kaufman Rossin & Co, one of South Florida’s largest accounting firms. He said at least a dozen clients have been waiting up to four months for refunds.

“I can’t tell you if it’s the identity theft, I can’t tell you if it’s the IRS furloughs. Every time I try to reach the IRS there’s such a backlog on the phone,” he said. “There’s a tremendous slam throughout the whole system.”

The holdups have affected business, Berger said.

“It’s created additional work for our clients that we may or may not get paid for,” he said. “It also adds to credibility issues, because now they’re asking, ‘Is it something that you did? Did you make mistakes?’ ”

The IRS sharply intensified efforts to fight identity theft and refund fraud this year, including substantially increasing the number and types of filters used to catch potential fraud before refunds are issued. The agency now uses dozens of identity theft screens to detect false returns. The IRS doesn’t disclose what it looks for, but red flags include being a first-time filer, an unusual bump in the refund amount and an unexpected W-2 form, according to Dustin Stamper, director in Grant Thornton’s national tax office in Washington, D.C.

These new filters “ensnare far too many legitimate filers,” according to the National Taxpayer Advocate, an independent branch of the IRS. In its report to Congress in June, the group raised “serious concerns about the currency and effectiveness” of the filters. Using these screens, the IRS marked 356 percent more returns as “unpostable” — meaning a delay of about six weeks in processing — through May 9, as compared to the same period last year, according to the report. Nearly 90 percent of these flagged returns were eventually found to be legitimate.

Delays only affected a minority of taxpayers, with nine out of 10 receiving refunds within three weeks, according to IRS spokesperson Julianne Fisher Breitbeil.

“There’s a careful balance here to make sure tax returns are processed to people who are rightfully owed their money with preventing as many of these fraudulent refunds from going through the system as we can,” she said.

The agency suspended or rejected 4.6 million “suspicious” returns in 2013, said IRS Principal Deputy Commissioner Danny Werfel, speaking at a nationwide tax forum in Dallas on Tuesday.

In 2012, the agency prevented $20 billion in refunds from going to fraudulent returns, compared with $14 billion in 2011.

Congressman John Mica, R-Winter Park, said the IRS should do more to both ensure timely refunds and address fraud.

“IRS failures to address identity theft are evidently hurting taxpayers on two fronts — holding up legitimate returns and still paying thousands and thousands more in fraudulent returns at billions of dollars of costs to taxpayers,” said Mica, a member of the Committee on Oversight and Government Reform who will lead a hearing on fraud related to identity theft on Friday. “Victims of identity theft can’t get the refunds or their credit restored, sometimes for years.”

Once identity theft is detected, the IRS has set a benchmark of six months for resolving cases, and it more than doubled the number of staff dedicated to identity theft issues to 3,000 between 2011 and 2012. Yet the agency still takes six months to a year to resolve most cases, based on data from fiscal year 2012, which is “simply not acceptable for the hundreds of thousands of victims, and almost guarantees that these victims will be caught up in IRS processes for a second filing season,” according to the National Taxpayer Advocate’s report.

“Identity theft has been a complex problem for the IRS, and we’ve made a number of attempts to quicken the response time, such as adding staff and training people, but each case stands on its own,” said Florida IRS spokesman Michael Dobzinski.

Spending cuts and furloughs have pushed back refund processing times, according to the National Treasury Employees Union. The agency’s budget was slashed by nearly $1 billion in two years, including more than $600 million from sequestration, which took effect in March. In the most recent tax season, the IRS had 8,000 fewer employees than two years ago, even as the number of returns increased.

“It is abundantly clear that budget cuts – including those from sequestration – have had and continue to have serious detrimental impacts on timely service to taxpayers, including matters dealing with identity theft and expected refunds,” union president Colleen M. Kelley said in a statement.

In response to the budget crunch, IRS froze hiring and has implemented three furlough days, starting this summer, with another scheduled for late August.

“Those are days when taxpayers could not seek assistance and IRS employees had to put aside critical work,” Kelley said.

The IRS denied that budget cuts have held up refund processing or other services.

“I don’t know of any delays that are being caused as a result of budget cuts or sequestration,” Dobzkinski said.

Taxpayers calling the IRS hotline for help are facing longer wait times, and there are now fewer local Taxpayer Assistance Centers — more than 40 percent of which now have only one or two staff members — according to the National Taxpayer Advocate’s report. The agency failed to answer nearly 30 percent of customer service calls between October and late May, the report noted.

When Congress passed a bill changing numerous tax rules on Jan. 1, the IRS started processing returns about two weeks later than usual, and it didn’t accept certain returns until March 4. In addition, a glitch in software some taxpayers used to prepare their returns delayed refunds up to four weeks. The glitch affected about 660,000 people claiming education tax credits last February.

Last year, Carballosa’s refund arrived within a week. The IRS has offered no explanation about why this year’s check is in limbo, she said. Carballosa tried calling the agency’s taxpayer hotline three times but hung up after waiting on hold for more than an hour at a time.

“I’m so upset. I feel powerless,” she said. “It’s as if I don’t exist.”

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