Tax Refunds and Quarterly Payments Delayed by IRS

Since the Internal Revenue Service’s systems were unable to process many quarterly payments that needed to be sent by April 15, the IRS is holding millions of tax refunds for manual processing. They are delaying about 29 million tax refunds which will be processed manually due to the complexities of recent tax laws that have been passed by Congress. COVID-19 relief packages, including the Consolidated Appropriations Act, which was passed in December, and the American Rescue Plan Act, which was passed in March, now require the IRS to send second and third rounds of payments to taxpayers as well as providing taxpayers with the maximum amount of their stimulus payments. These laws also required the IRS to consider expansions in the Earned Income Tax Credit and the Additional Child Tax Credit as well as new tax credits such as the Recovery Rebate Credit.

Some believe that the delay in refunds is largely due to the late passage of the Consolidated Appropriations Act. This means that the IRS was not able to adjust their tax forms and computer systems before the start of the filing season. Instead, the IRS had no choice than but to manually process corrections for the Recovery Rebate Credit to verify income for those who choose to use their 2019 income vs. 2020 to calculate EITC or ACTC. Unfortunately, this means that millions of returns are being processed by hand in the IRS’s Error Resolution System unit.

As of April 9, 2021, over 8 million individual 1040 or 1040-SR tax returns were being held in “suspense” status until it has been reviewed. Normally, the Error Resolution System unit processes returns as they come in, without putting them on hold. With those 8 million individual returns, there are about 5.3 million individual 2019 and 2020 paper tax returns, 4.7 million returns with processing errors or fraud identification issues, and 11 million businesses and other returns. The IRS has also experienced delays in its modernized e-file system when trying to process quarterly estimated tax payments, which were, insisted by the IRS, due by April 15th, despite the May 17 extension for individual returns.

The IRS urges taxpayers not to submit the payments a second time if they were worried the payments didn’t go through. The IRS also says that if you did re-submit, that you cancel the second payment by calling 1-888-353-4537 at least two business days before the scheduled payment date, no later than 11:59 pm Eastern Standard Time.

With the constantly changing tax laws as well as the need to send out second and third rounds of stimulus payments, the IRS has been facing an array of challenges this tax season. The computer systems are being overwhelmed as well as their call centers. Many calls are going unanswered due to how busy the IRS has become, which has made their customer service decline.

Talley’s team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance and pass on the assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.