Delays in tax refunds could continue as backlog of tax returns grows, says tax lawyer

The IRS is lagging behind in processing millions of tax returns, potentially delaying refunds for many Americans.

According to the Taxpayer Advocate Service, an independent arm of the IRS focused on filer rights, the agency holds nearly 31 million returns for manual processing just before the May 17 tax filing deadline. That backlog has grown by 2 million returns since mid-April, national taxpayer lawyer Erin M. Collins told CBS MoneyWatch.

“I was hoping it would go down, but I’m not optimistic,” she said of the standoff. “Taxpayers will continue to experience unusually long delays. I don’t think anyone wants to hear this, but they do.”

Collins had reported the problem in a April 22 blog post, when the number of tax returns withheld for manual processing had reached around 29 million. Some of these returns are paper tax returns from 2019, which the IRS has delayed in processing due to the Coronavirus pandemic Last year. But a large chunk of the backlog also consists of 2020 tax returns, which continue to flow into the IRS.

Some of those newly filed tax returns are being flagged by the IRS due to issues with recent tax changes and federal stimulus checks, Collins said. One of those is the “collection remission credit,” the line on Form 1040 that allows people to adjust their stimulus payments if they have not received all of the funds to which they were entitled. Some people do not complete this line correctly, usually claiming the incorrect amount on the form.

In such cases, the IRS marks the return for review – requiring an employee to verify the return against the agency’s stimulus payment history. All of this can add time to the processing of a tax return, which, in turn, causes delays for taxpayers in getting their refunds.

Collins expressed concern that the filing backlog will continue to grow ahead of the May 17 filing deadline. So far, around 121 million tax returns have been filed out of the more than 160 million expected.

With over 40 million taxpayers yet to file, it’s likely that some of those returns will eventually be flagged for review – leaving those taxpayers with an unknown wait for their refunds, rather than the usual three-week deadline.

“My tax professional said he was shocked if I didn’t see my refund in 10 days, and it’s been over two months,” said Hillary Osborne, 41. She filed her 2020 tax return on February 27. “I check” Where is my refund? “And it says it’s still being processed. I called the IRS after 21 days and you can’t contact anyone.”

Osborne, a single mother who works as a project administrator in Tennessee, said her repayment is expected to be more than $ 4,400, which would cover about four months of rent. She said her taxes were pretty straightforward, but wondered if something about the stimulus checks had blocked her return.

For now, she remains in limbo, with Osborne telling CBS MoneyWatch that she couldn’t reach anyone at the IRS. “I’m not happy,” she said. “I depend on this money.”

In limbo for a year

Some taxpayers are still in the dark because of tax returns filed last year, when the IRS closed its offices as the pandemic took hold. Paper tax returns filed for the 2019 tax year were stored in trailers until IRS employees could access them. In March, the agency had an order book of 2.4 million paper returns of the 2019 tax year to be processed.

The IRS is also facing the unprecedented health crisis with far fewer employees and less funding than it was ten years ago. The number of operations staff has declined by nearly a third since 2010, while overall funding has declined by more than 20%, according to the Center on Budget and Policy Priorities.

The IRS said the agency is now opening mail within “normal times,” and noted that it is making progress in processing tax returns filed last year. As of April 23, it had a backlog of 1.3 million individual returns filed before 2021 to complete processing, an IRS spokesperson told CBS MoneyWatch in an emailed statement.

One of those taxpayers is Eileen Mahoney, 63, an American who lives in London and who mailed her tax forms last year. She is still waiting for her tax return to be processed. Although Mahoney has said she should not be reimbursed, she fears the problem will delay her second and third stimulus checks – $ 600 and $ 1,400, respectively – which she has yet to receive.

“It’s money I could do well with,” Mahoney said, noting that she was fired from her paralegal job before COVID-19 hit. The stimulus checks would allow her and her husband to repair their home in London and put it up for sale, fulfilling the dream of moving to Galway, Ireland. She contacted lawmakers and spent four hours and about $ 60 in telephone charges overseas trying to contact the IRS, but was unable to find out where her 2019 tax return is. or when it could be treated.

“The fact that I may have to wait 12 to 18 months for this to drive me crazy,” Mahoney said. “It’s not my fault – it’s the IRS.” “

Other taxpayers who spoke with CBS MoneyWatch about their delays in processing returns also expressed frustration. Many have been unable to reach IRS employees, an issue that was carried over from last year, when only one in four callers have contacted a real person.

Everyone expressed a desire to have two questions answered: where is my tax return and when will it be processed? Knowing certain information – even if it’s learning that their tax return won’t be processed for several months – is better than nothing, they said.

Collins of the Taxpayer Advocate Service agrees. “The IRS should do a better job of being more transparent, even though that’s bad news,” she said. “Being in limbo is worse.”

Avoiding manual review?

Taxpayers who have not yet filed should consider the issues millions of taxpayers are currently facing, tax experts say. For one thing, file electronically if possible, which the IRS also urges taxpayers to do given their backlog of paper tax returns.

If you need to file via paper – a requirement for people who live outside the United States, as well as in some other cases – be sure to send it by certified mail with a signature required, said Lisa Greene-Lewis, a certified public accountant and TurboTax tax expert. Without it, you might not know if the IRS received your return, she added.

People applying for the recovery refund credit should also check their records to make sure they are accurately recording the amount they received, Greene-Lewis said. If you can’t find the letters the IRS sent to confirm payment (Forms 1444 and 1444-b), check your bank and deposit records, she recommended.

“One thing I would say to people is that if they haven’t already, it’s to make sure: a) you file electronically, b) check for errors, and c) if you do the remittance recovery credit, go back and watch the bank deposits to make sure line 30 is up to IRS records, “Collins said.” We see people putting in the wrong amount, “and this will get a flagged tax return for review.

But some issues can be more difficult for taxpayers to control. Returns are being reported due to the earned income tax credit and the child tax credit, in part because the government stimulus package signed in December came too late for the IRS to adjust its forms and its computer systems. The stimulus package provisions allow taxpayers to claim the credits based on their 2018 income instead of their 2019 income if that turns out to be more favorable to them – but such ‘rollbacks’ force employees in the IRS to verify income for 2018.

“A human has to go back and extract the information and verify it,” Collins noted.

The IRS has said the backlog will likely improve later this summer, she added, but by then taxpayers may have to prepare for longer waits.

“There is no guarantee that the money will arrive tomorrow,” Collins said. “They should plan for continued delays accordingly.”