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MSP #10: REFUND DELAYS

Taxpayers Whose Legitimate Returns Are Flagged by IRS Fraud Filters Experience Excessive Delays and Frustration in Receiving Their Refunds

TAS Recommendations and IRS Responses

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1.

TAS RECOMMENDATION #10-1

Offer taxpayers with refunds flagged during the fraud screening processes an electronic option that provides them with:
a. More accurate estimates of when they can expect to receive a refund (e.g., offer estimates before the refund is approved instead of just afterward);
b. What specific information the IRS needs to verify;
c. Whom the taxpayer can contact with questions; and
d. How to upload identity verification information (e.g., by using a cell phone or camera) without first passing through Secure Access.

IRS RESPONSE TO RECOMMENDATION:

a) We have submitted Unified Work Requests (UWRs) to request programming to update the Where’s My Refund tool to provide taxpayers more specific responses based on the reason their return was flagged for review. However, the UWRs are subject to funding limitations and competing priorities.

b) During the initial hold we place on returns during the fraud screening process, we do not ask the taxpayer to provide any information because we are awaiting third party data to be provided by the employer. We will submit a UWR to request programming to provide taxpayers a message in Where’s My Refund that the return is being reviewed and they will be sent a letter if specific documentation is needed. If the return is moved to a treatment stream, we send the taxpayer a letter asking for the specific information needed to resolve their account.

c) The IRS agrees that keeping taxpayers informed of their case status is important; however, with our systemic Questionable Return Program process, we are unable to identify specific contact information regarding the site or employee at that time.

UWRs have been submitted to update Where’s My Refund to provide more specific responses based on the reason a return is flagged and direct the taxpayer to the proper telephone line. (e.g., if there is a delay due to Taxpayer Protection Program (TPP) filters, the taxpayer is referred to the TPP line, or if there is a delay due to a Return Integrity/Verification hold, the taxpayer is referred to the toll-free line.) The UWRs have been denied due to funding limitations. Our letters to taxpayers do provide a contact number to call for additional assistance. In addition, the Wage and Withholding and Automated Questionable Credit letters also provide an eFax number the taxpayer can use to submit their supporting documentation electronically.

d) We continually explore ways to improve the overall taxpayer experience and the authentication process. For example, we are aggressively looking at ways for taxpayers to digitally transmit documents to the IRS. Specifically, we are exploring a capability that may allow taxpayers to send unsecured information that could be uploaded via irs.gov. This capability is still in the research phase, but we are excited about the potential of this feature and how it will improve the taxpayer experience.

COMPLETION DATE: Implementation is dependent on the availability of funding and resources.

CORRECTIVE ACTION:

a) We have submitted Unified Work Requests (UWRs) to request programming to update the Where’s My Refund tool to provide taxpayers more specific responses based on the reason their return was flagged for review.

b) We will submit a UWR to request programming to provide taxpayers a message in Where’s My Refund that the return is being reviewed and they will be sent a letter if specific documentation is needed.

c) UWRs have been submitted to update Where’s My Refund to provide more specific responses based on the reason a return is flagged and direct the taxpayer to the proper telephone line.

d) We are exploring a capability that may allow taxpayers to send unsecured information that could be uploaded via irs.gov.

TAS RESPONSE:

a) TAS is pleased that the IRS agrees to update its Where’s My Refund tool to provide more accurate estimates of when taxpayers can expect a refund. TAS understands there are funding constraints and competing priorities that affect when such updates may be available but continues to advocate for prioritizing this project, allowing for the implementation of such upgrades.

b) TAS is encouraged that the IRS has agreed to submit a request to modify the Where’s My Refund tool to inform taxpayers that their return is being reviewed and they will receive a letter if more information is needed. This change will better observe the taxpayer’s right to be informed. Additionally, these changes may have the added benefit of reducing taxpayer phone calls inquiring as to when they can expect their refunds.

c) TAS appreciates that a request was submitted to update the Where’s My Refund tool to provide more specific responses based on the reason a return is flagged and direct telephone numbers to the proper IRS telephone lines that taxpayers should call for more specific information. We are disappointed to hear that this request has been denied and ask the IRS to reconsider our proposal. We understand that the IRS provides contact numbers on its notices but including this information on the Where’s My Refund tool would be yet another way taxpayers would know whom to contact regarding the status of their refunds.

d) TAS is encouraged by the IRS’s continued interest in providing modern options by which taxpayers can submit documents to the IRS. The IRS’s continued efforts to leverage modern technology will ultimately improve the taxpayer experience when interacting with the IRS and will likely promote voluntary compliance. TAS looks forward to continuing to work with the IRS to develop systems that offer more technologically advanced capabilities.

ADOPTED, PARTIALLY ADOPTED OR NOT ADOPTED: Adopted

OPEN or CLOSED: Open

DUE DATE FOR ACTION (if left open): Implementation is dependent on the availability of funding and resources.

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2.

TAS RECOMMENDATION #10-2

Make permanent the temporary procedures that allow taxpayers to submit identity verification documents by eFax, at least when other modes of communication are unavailable.

IRS RESPONSE TO RECOMMENDATION: We will continue to assess the availability and status of in-person and telephone communication channels and continue to provide the eFax option as appropriate.

CORRECTIVE ACTION: N/A

TAS RESPONSE: TAS is encouraged that the IRS appears to be open to further extending the eFax option for taxpayers to submit documentation. Continuing to offer this option for taxpayers to upload documents while the IRS continues to explore and develop technology that will allow taxpayers to upload documents electronically is yet another way by which the IRS can improve the taxpayer experience.

ADOPTED, PARTIALLY ADOPTED OR NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): 

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3.

TAS RECOMMENDATION #10-3

Upgrade IRS systems so the taxpayer is automatically informed of the status of his or her case when it moves to another treatment stream (e.g., Examination) or when a case is automatically opened in those downstream functions, and so any authorized IRS employee can see the status of the case and related taxpayer correspondence.

IRS RESPONSE TO RECOMMENDATION: We are transitioning to an Enterprise Case Management (ECM) system, the benefits of which include allowing authorized IRS employees to gain the ability to see an individual taxpayer’s entire range of issues, relevant case data, and communications to effectively resolve cases. As a result, IRS representatives will be able to resolve more inquiries in a single contact and identify when a taxpayer is already working with another employee to facilitate handoffs, thus improving the overall taxpayer experience.

The ECM multiyear enterprise solution aims to support the goals of the IRS Integrated Modernization Business Plan by consolidating more than 60 systems into a single platform. This will enable authorized IRS employees a real-time, 360-degree view of a taxpayer’s history, relevant case data, and prior communications to more quickly resolve cases. IRS Information Technology (IT) is transforming delivery of ECM by using a commercial off-the-shelf (COTS) platform and cloud computing strategy. This facilitation of case resolution and improved customer service is also crucial in the IRS’s objective of putting taxpayers first. ECM Release 1 went into production at the end of calendar year 2020, providing IT and business foundational capabilities as well as case management capabilities for the Tax Exempt & Government Entities (TE/GE) Exempt Organizations Customer Service group. Subsequent releases will deliver case management capabilities to a widening circle of business units across the IRS. The ECM Program has developed a sequencing strategy and release plan structure to support the delivery of future ECM releases for FY 2021 and beyond.

CORRECTIVE ACTION: We are transitioning to an Enterprise Case Management (ECM) system, the benefits of which include allowing authorized IRS employees to gain the ability to see an individual taxpayer’s entire range of issues, relevant case data, and communications to effectively resolve cases. As a result, IRS representatives will be able to resolve more inquiries in a single contact and identify when a taxpayer is already working with another employee to facilitate handoffs, thus improving the overall taxpayer experience.

The ECM Program has developed a sequencing strategy and release plan structure to support the delivery of future ECM releases for FY 2021 and beyond.

TAS RESPONSE: The IRS’s move toward a more modern system, which brings a number of IRS systems under one large umbrella, will allow more access to taxpayer information to each IRS function, thereby providing the IRS enhanced capabilities in helping taxpayers resolve their outstanding tax issues. Although this is a significant undertaking, and full implementation is still years in the future, it is encouraging that the IRS is closer to making this improved system a reality to improve tax administration and taxpayer service.

ADOPTED, PARTIALLY ADOPTED OR NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Open

DUE DATE FOR ACTION (if left open): Ongoing

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4.

TAS RECOMMENDATION #10-4

Fund technology upgrades to expedite legitimate refund requests while continuing to modernize and replace obsolete IRS systems.

IRS RESPONSE TO RECOMMENDATION: IRS Agrees with TAS Recommendation but Cannot Implement It Currently Due to Funding Limitations.

We continue to invest significant sums in the technology used for screening, verifying, and processing both ID theft and non-ID-theft (e.g., wage verification) pre-refund cases. This includes advanced analytics to improve our filters and selections, case process automation, data matching improvements, and tools for taxpayers to provide additional information and transparently view the status of their refund. As resources are available, the IRS will take additional steps to expedite legitimate refund requests and modernize the systems involved in this process. In the future state, the IRS’s Enterprise Case Management system will meet many of the requirements that the National Taxpayer Advocate highlights – including accepting scanned or electronic information from taxpayers and employers, systemic referrals between functions, automated workflows to release refunds and communicate with other systems, and integrations between information return systems, fraud systems, and correspondence systems to reduce manual entry and procedures.

CORRECTIVE ACTION: As resources are available, the IRS will take additional steps to expedite legitimate refund requests and modernize the systems involved in this process. In the future state, the IRS’s Enterprise Case Management system will meet many of the requirements that the National Taxpayer Advocate highlights – including accepting scanned or electronic information from taxpayers and employers, systemic referrals between functions, automated workflows to release refunds and communicate with other systems, and integrations between information return systems, fraud systems, and correspondence systems to reduce manual entry and procedures.

TAS RESPONSE: Although the process to update IRS systems is long and arduous, the National Taxpayer Advocate is encouraged that the IRS continues to take steps toward implementation of this modernization plan and believes that advances such as allowing taxpayers to upload documents electronically will improve taxpayer interactions with the IRS, ultimately resulting in taxpayers getting their refunds faster and having their issues resolved quicker.

ADOPTED, PARTIALLY ADOPTED OR NOT ADOPTED: Adopted

OPEN or CLOSED: Open

DUE DATE FOR ACTION (if left open): 7/31/2022

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5.

TAS RECOMMENDATION #10-5

Update procedures so CSRs can provide specific information to taxpayers about how to expedite a refund (i.e., identify a specific discrepancy) and ask that RIVO employees respond to the taxpayer’s inquiry.

IRS RESPONSE TO RECOMMENDATION: The Systemic Verification process will automatically release the refund once the return information is verified. Systemic Verification relies on Information Return Processing data, which can change daily. It is dependent on the timeliness of the third-party employers submitting their Form W-2, Wage and Income Statement, documentation. Since the COVID-19 pandemic, we have updated several sections of the Internal Revenue Manual with instructions for the CSR to provide the taxpayer with an eFax number to send their documentation, which could assist in releasing the refund quicker.

CORRECTIVE ACTION: N/A

TAS RESPONSE: TAS is in full agreement that systemic processes are an efficient way to administer the refund fraud program, ultimately resulting in a faster release of refunds. Despite systemic processing improvements, taxpayers are all too often unable to obtain information from CSRs regarding the status of their refund and what they need to do to expedite the refund. TAS once again encourages the IRS to reconsider its current procedures and provide CSRs with as much information as possible regarding the status of taxpayer refunds and what taxpayers need to do to assist in its release. In addition, RIVO should establish procedures for its employees to respond directly to taxpayers upon receipt of a referral from another IRS function, outside of the current process to issue an interim letter requesting additional time for review.

ADOPTED, PARTIALLY ADOPTED OR NOT ADOPTED: Not Adopted – IRS states they have already implemented this recommendation in part. However, TAS disagrees per the information in the TAS Response above.

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): 

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6.

TAS RECOMMENDATION #10-6

Measure and evaluate W&I’s performance based on how many taxpayers with legitimate refunds its fraud filters flag and how many must wait more than 60 days to receive their refunds.

IRS RESPONSE TO RECOMMENDATION: Roughly 98% of refund returns are not selected by fraud filters. The remaining 2% often have reported information that may not adhere to known patterns and may not have the information returns needed to validate reported amounts. Without proper validation, the IRS risks issuing improper refunds.

We understand the concern of how refund delays can impact taxpayers, and strive to balance this concern against the risk of issuing improper refunds. To this end, the IRS continually evaluates changes in the tax system and makes improvements to our refund fraud detection methods, including refining our filters. We continue to improve the filters using a variety of methodologies, algorithms, data sets, and techniques to help stay ahead of fraudsters. We evaluate and monitor the performance of each filter on a weekly basis and adjust filters that are not performing as expected. We apply lessons learned from confirmed cases and consider emerging trends. We will continue to rebuild and refresh our filters and models each year to better detect emerging schemes, taking into account historical patterns.

CORRECTIVE ACTION: N/A

TAS RESPONSE: TAS understands the IRS’s concerns regarding the issuance of improper refunds. However, if information on the return cannot be verified, it is important for the IRS to monitor how long these refunds are being held until the IRS makes a decision on how to proceed (i.e., release the refund or transfer the return to one of the IRS’s treatment streams for assignment). While it is not appropriate to issue refunds where the information on the return cannot be validated, it is equally unacceptable to hold refunds in perpetuity. The IRS, while holding a case in suspense and awaiting the next compliance action, needs to keep the taxpayer informed and track the amount of time the case is being held.

ADOPTED, PARTIALLY ADOPTED OR NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open):