Samuel Corum / Bloomberg via Getty Images
Jeff Lavigne plans to use a tax refund on long-delayed medical assistance this year.
Yet his nearly $ 2,700 refund has been pending since mid-March when Lavigne filed his tax return, records show.
The IRS has reported the return for possible identity theft – as it did last year for nearly 2 million Americans.
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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 not available.
Lavigne, 42, has chronic back pain that makes work difficult for long periods of time. The former restaurant manager is neither full-time nor health insurance. An additional $ 2,700 that includes pandemic stimulus funds would help pay the monthly premiums and get him to see a specialist.
“I started making plans in my head to get the help I needed,” said Lavigne, who lives in suburban Dallas. “I try to take one step at a time and that is the first step.”
Late tax refund
Jeff Lavigne, 42, filed his federal tax return in March. He has not yet received his refund. The IRS marked the return as possible identity fraud.
It is unclear how many taxpayer refunds were delayed during the 2021 filing season. But it’s an issue for a growing number of Americans.
According to the Taxpayer Advocate Service, an independent organization within the IRS, the IRS reported 5.2 million tax refunds for fraud in the past year, an increase of nearly 50% from 2019.
Of these, around 1.9 million were flagged for identity verification. (The rest was earmarked for income verification.)
Basically, the IRS wants to make sure a crook doesn’t use a taxpayer’s identity to claim a tax refund. The agency sends letters (either a 5071C or 6331C letter) to taxpayers if it suspects foul play. The IRS cannot process a tax return or issue a refund until the person responds.
However, most labeled returns are not fraudulent. In 2019, 63% of refunds verified for identity theft proved legitimate, according to the Taxpayer Advocate Service.
Ultimately, they may get their money, but they are not getting their money now.
Managing Director and Founder of the Center for Taxpayer Rights
While the IRS ultimately spends the money (with interest) in these cases, taxpayers sometimes wait months. According to the Taxpayer Advocate Service, around 18% of refunds flagged for identity verification took longer than 120 days. (Most take less than 21 days for online filers or six weeks for returns, the IRS said.)
According to the Taxpayer Advocate Service, refund delays were among the top 10 most serious problems facing taxpayers in 2020.
Dan Herron, a certified financial planner and accountant, waited for a tax refund for almost a year after filing his 2019 tax return flagged for possible identity fraud.
“It’s been a pretty long process,” said Herron, a director 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. “
According to Nina Olson, executive director and founder of the Center for Taxpayer Rights, the delays were likely exacerbated by the Covid pandemic as the IRS had to temporarily suspend some of its personal operations.
And the wait may be costing taxpayers more than usual this year. The IRS is using the 2020 tax returns to determine eligibility for pandemic stimulus checks and upfront child tax credit, which is paid monthly starting in mid-July.
The agency uses information (e.g. annual income) on a 2019 statement when a 2020 statement has not been processed. However, this may result in reduced payments – or no payments at all – depending on the taxpayer’s situation.
“They may end up getting their money, but now they’re not getting their money,” said Olson.
Taxpayers advocates do not deny that deterring thieves from robbing individuals and the government is a worthwhile goal.
“Identity theft has been on that upside since 2005,” said Olson. “It’s a huge topic.
“And thieves are getting smarter.”
The IRS’s fraud measures protected $ 3.5 billion in revenue in 2019, according to the agency. (About $ 2.5 billion was attributable to identity theft filters.)
And 98% of tax returns that request a refund don’t get tangled up through the process, the agency said.
Mark Mazur, Deputy Assistant Secretary for Tax Policy, Treasury Department.
Andrew Harrer / Bloomberg via Getty Images
“We understand concerns about how refund delays can affect taxpayers and continue to work with internal and external partners to refine and automate refund fraud filters as necessary,” the IRS said in response to a report from the Taxpayer Advocate Service to the congress last year.
Without proper validation, the IRS risks making improper refunds, the agency said.
However, IRS systems, staff and processes are combined to delay too much of the refunds, said proponents of taxpayers.
For example, many people have the option of verifying their identity online through an IRS website. To do this, they must first go through an authentication process called “Secure Access”. However, less than half will be successful in 2020, according to the Taxpayer Advocate Service.
These taxpayers will then need to contact an IRS agent by phone or at a field office to find a solution. Right now, the IRS doesn’t have enough staff to efficiently manage the volume, Olson said.
IRS technology doesn’t use machine learning either – which means the system can’t automatically adjust if it trips too many legitimate taxpayers, she added. It requires manual correction.
The IRS had insufficient resources to address the enforcement and administrative challenges and provide customer service to taxpayers.
Deputy Assistant Secretary for Tax Policy in the Treasury Department
“Their goal is to stop fraud, but not to minimize false positives,” Olson told the IRS. “And good systems do both.”
While letters of fraud require a response within 30 days, the IRS says the IRS will continue to work with taxpayers regardless of the number of days that have passed.
The IRS budget – which mostly covers staff – has fallen by 20% in real terms over the past decade, said Mark Mazur, deputy assistant secretary of state for taxation at the Treasury Department, during a hearing in the House of Representatives on Thursday.
“The IRS did not have sufficient resources to address the enforcement and administrative challenges and provide customer service to taxpayers,” Mazur said.
Technology upgrades would also improve service by allowing taxpayers to communicate with the IRS “clearly and in a timely manner,” he added.
A stroke of luck
Lavigne had been thwarted at any point when CNBC first spoke to him on Tuesday.
He was unable to verify his identity online and was unable to reach a telephone operator due to the high number of calls to the agency. He hadn’t been able to make an appointment at a local branch.
Lavigne wasn’t even sure he could physically attend a face-to-face meeting – long trips were prohibitive due to his spinal problems, he said.
Lavigne’s luck changed on Thursday, however. He could call someone at the local Farmers Branch, Texas office. After an hour and a half, a representative completed the identity verification by phone, Lavigne said.
“She explained that there is a very long list of filters to reduce ID theft and no one can know exactly how it works, so thieves cannot find a way around it,” he recalled their discussion .
Now it takes up to nine weeks for the money to arrive.
“She said I was definitely fine now,” said Lavigne. “But if I don’t get my check or another letter by the end of nine weeks, sometime in August, [she said] Call back.”