You Filed Your Income Tax Return – Now What?

Transcript of Podcast Episode 137

Have you ever wondered what happens to your income tax return after you’ve filed it? Well for those curious enough, the Taxpayer Advocate Service, an independent organization within the IRS that helps to ensure that every taxpayer is treated fairly and that they know and understand their rights, recently answered that question in its National Taxpayer Advocate (NTA) blog issued on May 18, 2021.

2020 in particular was a strange year due to the pandemic, closing of IRS offices, several last-minute changes to tax laws and reduced budget and staffing for the IRS. Antiquated technology also has not helped. All of this has led to a backlog in the processing of tax returns. The NTA blog helps to reveal what happens to a tax return once it is filed, and to some extent, explains some of the delays. Here’s a brief summary of the NTA blog.

Once a tax return is filed, before it is even posted to the IRS systems, it is reviewed to ensure that information on the return is correct. These reviews are generally automated, but some must be done manually. If no issues are identified, the return is processed. Refunds, if any, are made either as a direct deposit to the taxpayer’s bank account or issued as a check. Refunds can also be loaded onto a prepaid debit card. If a payment is due, the IRS will mail out a notice and demand payment.

If errors are discovered, then the return must be reviewed. There are generally four reasons why a return may need to be reviewed. They are:

1. Error Resolution
2. Rejected Return
3. Unpostable Returns
4. Suspected Identity Theft

1. Error Resolution
Once errors are identified, the return enters the IRS Error Resolution System (ERS), which requires the return to be manually reviewed. Once the return is reviewed, the IRS can either verify the return, or confirm the error and (a) request additional information or (b) use its “math error authority” to correct mathematical or clerical mistakes.

2. Rejected Return
If the IRS cannot use its math error authority to correct an error, perhaps because a schedule is missing or a form was omitted, the IRS will reject the return and send a notice to the taxpayer to provide the missing information.

3. Unpostable Returns
Occasionally, a return cannot be processed. These returns are usually paper returns because electronic returns can be rejected. Typically, a return is deemed unpostable if there are issues with the taxpayer’s identification number, name or both. Names on the return are matched against the names on the IRS and Social Security Administration databases.

4. Suspected Identity Theft
The IRS employs a variety of identity theft and fraud detection filters to identify problems with a return. Suspect returns are reviewed by the Taxpayer Protection Program, which will request additional information from the taxpayer to verify identity. From the beginning of the year through May 6, 2021, the IRS identified 2.9 million returns for verification by the Taxpayer Protection Program.

Conclusion
For those still waiting for their refunds, the IRS works through filed returns on a first-in, first-out basis. In the meantime, taxpayers will not hear from the IRS until the information on the return is verified and the refund released, or the IRS sends a letter requesting additional information. The IRS’s “Where’s My Refund?” tool and IRS2Go app are updated only when the return is ultimately processed. Calling the IRS also does not help, particularly because the level of service on the Accounts Management phone lines is only at 15 percent, so taxpayers are basically left in the dark.

For greater detail, please review the NTA blog at https://www.taxpayeradvocate.irs.gov/news/nta-blog-lifecycle-of-a-tax-return/. In it is a pictorial of the process which resembles a New York City subway map because of the many routes and stops a tax return may potentially make in its journey.

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