IRS won’t directly deposit more than three refunds into any one bank account,
starting next year.
This move is its latest step in curbing tax identity theft. Any refund in excess of three will be mailed to the filer in the form of a paper check. And unscrupulous preparers won’t be able to divert part of client refunds to their own accounts. Direct deposits can be made only to accounts in filers’ names.
The number of correspondence audits done by IRS is expected to nose-dive this year, due to budget cuts. The Service plans to close almost 140,000 fewer exams than in 2013, a 13% decrease. Correspondence examinations, which are done by mail and usually question one or two items on a return, account for about 75% of all audits in a typical year. Almost half of these examinations deal with the earned income credit. In many cases, IRS is taking months to answer taxpayers’ correspondence concerning these audits, far exceeding its 30- to 45-day response goal. The Service used to say it would respond by a certain date, but taxpayers became frustrated after hearing nothing from IRS. Now, the notices no longer promise a response date.
IRS needs to do a better job of processing and reviewing amended returns, Treasury inspectors say. They reviewed a sampling of 1040X forms filed in 2012 and estimated the agency paid $440 million in erroneous refunds. Part of the problem is that 1040X forms can be filed only on paper, and IRS manually reviews the returns. In many cases, the screeners make math errors and fail to check that all required forms are attached to substantiate the deductions or other tax breaks claimed on the 1040Xs. Allowing 1040X returns to be electronically filed would help the problem. But the IRS doesn’t have the resources to modernize its systems at this time, although expanding e-filing to amended returns has been a long-term agency goal.