IRS receiving fewer tax returns as of mid-season

The Internal Revenue Service saw a sharp drop-off in tax returns in the first half of filing season, according to a new report.

The report, from the Treasury Inspector General for Tax Administration, provided interim results for the 2017 tax-filing season up through March 3. Much of the drop-off has been attributed to delays in processing tax refunds for returns claiming the Earned Income Tax Credit and the Additional Child Tax Credit to give the IRS extra time to check for signs of fraud and identity theft, as mandated by the PATH Act of 2015. The IRS held off on sending out any of those refunds until after February 15.

TIGTA’s report noted that the IRS began accepting and processing individual tax returns on the scheduled date of Jan. 23, 2017. As of March 3, the IRS received around 61 million tax returns and issued 49.4 million refunds, for a total of over $148.8 billion.

However, that was a far smaller number than last year. In comparison, the IRS received approximately 66.7 million tax returns and issued 53.5 million refunds totaling over $160 billion by that time in 2016.

IRS Commissioner John Koskinen testified at a Senate hearing Thursday about tax season and provided numbers up through March 31 (see IRS chief reports to Congress about tax season amid new push for his ouster).

“I am pleased to report that the 2017 filing season has gone well thus far in terms of tax return processing and the operation of our information technology systems,” Koskinen said in his prepared testimony. “In fact, I believe this has been the smoothest filing season since I became Commissioner. As of March 31, the IRS received more than 93.6 million individual returns, on the way to a total of about 152 million. We have issued over 74.1 million refunds for more than $213.5 billion, with the average refund totaling approximately $ 2,900. The smooth operation of the filing season is a testament to the hard work and dedication of the IRS workforce.”

Besides the delays on receiving refunds this year for EITC and ACTC filers, another factor that could have affected the returns this year were worries among undocumented immigrants that they could face deportation. Immigration advocates pointed to those two trends in February when they first saw a slowdown in tax filings (see Tax credit processing delays, immigrant fears and ITIN changes fuel early tax filing slowdown). The delay in tax refunds had a larger impact on the overall economy, with consumer spending slowing down in February, according to some estimates (see Consumer spending to hit a pothole with tax refunds still in the mail).

The TIGTA report also provided other details about the first half of tax season. As of March 2, 2017, the IRS processed 1.7 million tax returns that reported nearly $6.4 billion in Premium Tax Credits. Approximately 1.8 million taxpayers reported shared responsibility payments, for a decrease of 33.3 percent from 2016, while the amount of shared responsibility payments reported increased 20 percent from 2016 to $1.2 billion. The shared responsibility payment is basically a penalty under the Affordable Care Act for taxpayers who refuse to buy health insurance coverage.

TIGTA also found that the IRS has expanded its efforts to detect tax refund fraud. As of March 4, 2017, the IRS reported that it identified 30,674 tax returns with $961 million claimed in fraudulent refunds and stopped $918.6 million (95.6 percent) in fraudulent refunds from being issued. The IRS confirmed 14,068 fraudulent tax returns involving identity theft as of March 2, 2017, and identified 17,227 prisoner tax returns for screening as of March 4, 2017.

Koskinen admitted during Thursday’s hearing, however, that the personal information of as many as 100,000 taxpayers might have been compromised this tax season because of a data breach involving the Free Application for Federal Student Aid, or FAFSA, tool, which the IRS was forced to shut down last month (see IRS student loan link goes dark).

The IRS is continuing to emphasize self-assistance options through the internet, while cutting back on phone service and walk-in centers. As of March 2, 2017, taxpayers made approximately 27.4 million total attempts to telephone the IRS by calling the various toll-free lines. Approximately 10.4 million calls were answered by automated assistance. Actual IRS assistors answered nearly 4.7 million calls and provided a level of service rated at 76.2 percent, with a 7.1 minute average time to answer the call.

During fiscal year 2017, the IRS plans to help approximately 3.5 million taxpayers—a 23.6 percent decrease from fiscal year 2016—through face-to-face contact at the Taxpayer Assistance Centers.