The report, from the Government Accountability Office, noted that the IRS receives few information returns before issuing most tax refunds. In 2012, the IRS issued 50 percent of tax year 2011 refunds to individuals by the end of February, but had only received 3 percent of information returns.
Most information returns are not received by the IRS until after mid-April, and the IRS conducts the first match of tax and information returns in July, with subsequent matches in February and May of the following year. For tax year 2010, an average of over a year passed before the IRS notified taxpayers of matching discrepancies, which the IRS recognizes is a long time lag that burdens taxpayers. For tax year 2011, IRS matched over 140 million individual income tax returns against the 1.6 billion information returns it received from third parties such as employers. Generally, this match does not occur until well after refunds are issued.
In early 2011, then-IRS Commissioner Doug Shulman outlined a vision for a “Real Time Tax” system, a strategy to improve verification by matching third-party information to income tax returns during the pre-refund screening process rather than after refunds are issued. In 2012, the IRS launched a three-phase exploratory effort to assess the tradeoffs inherent in pursuing Real Time Tax.