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IRS Working to Fix Glitch in Refundable Tax Credits

Posted on July 1, 2020

The IRS will soon issue guidance for millions of people who used an IRS online tool to speed their stimulus payments and now find they can’t file electronically to claim refundable tax credits.

IRS Commissioner Charles Rettig, testifying before the Senate Finance Committee, wouldn’t commit to implementing an electronic system to amend the abbreviated Form 1040 returns filed through the agency's Get My Payment system.

“We’re trying to get things to come in through certain portals, which actually expedites our ability to look at certain things,” Rettig said during a June 30 hearing on the COVID-19 pandemic’s impact on the 2020 filing season. “I can’t commit to another lane for having this come in right now,” he said. “This will be the lane that we will be announcing.”

Sen. Michael F. Bennet, D-Colo., objected. “Until a suitable online system is put into place to deal with this filing trap created by the IRS’s system, millions are going to go without the money they desperately need,” he said. Bennet estimated that 5 million to 10 million households may be affected.

Rettig said the tax agency plans to issue guidance soon on how taxpayers can file an amended paper return to claim the earned income tax credit and child tax credit and mark the returns so that IRS workers can identify and expedite processing.

The Get My Payment tool allows individuals to update their direct deposit information to receive their economic impact payments (EIPs), Rettig explained. To get that information into IRS systems, it creates an abbreviated Form 1040 tax return.

Unfortunately, Bennet said, the abbreviated Forms 1040 can be updated to claim the EITC and child tax credit — for which many EIP recipients also qualify — only by sending the IRS an amended paper return.

The IRS already faces a backlog of almost 5 million paper tax returns, according to Sen. Rob Portman, R-Ohio.

Reopening Priorities

Senate Finance Committee Chair Chuck Grassley, R-Iowa, told Rettig that despite a filing season that “has been anything but typical . . . the IRS performed exceptionally well under the circumstances.”

Rettig said all IRS processing and call centers are expected to reopen by July 13, and the agency will continue bringing employees back to their offices through July 15, the extended tax return filing deadline.

The IRS workplace will look very different, Rettig said. Managers will enforce social distancing, employees may be asked to work different schedules and shifts, and the agency will continue to monitor workers’ health to prevent spikes in coronavirus infection rates, he said.

Rettig said taxpayer services and processing 2020 returns and refunds are the agency’s top reopening priorities. Paper returns have priority in clearing mail backlogs because they may contain EITC claims, he said, adding that the IRS can process about 1 million paper returns per week.

“Reissuing checks is a priority for the Internal Revenue Service,” Rettig told Portman, who asked about the agency's plans for getting stimulus payments to taxpayers who received their EIP on a prepaid debit card but mistakenly discarded it or who may have had their EIP misdirected.

Rettig said the IRS remains committed to getting stimulus money to everyone who qualifies, including the homeless and those without bank accounts. The Center on Budget and Policy Priorities estimates there could be as many as 12 million nonfilers — a number Rettig described as “overstated multiple times,” though he cited no alternative number.

The agency will also issue $500 stimulus checks to about 365,000 taxpayers whose dependents weren’t calculated when they used the Get My Payment tool, Rettig said.

Asked about IRS enforcement efforts, Rettig said tax return nonfilers for 2017 and 2018 have already been contacted by the IRS, and those who didn't file in 2019 will be. The agency is particularly hawkish on syndicated conservation easements, he added.

“I continually say today, ‘This is a priority, that is a priority,’ and those are accurate statements,” Rettig said. “And when I use the word ‘priority,’ it’s knowing that we have the human resources to back that up [and] the employees to make this happen.”

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