Wal-Mart and the EITC

The Earned Income Tax Credit (EITC) is a refundable federal income tax credit that was first offered to taxpayers back in 1975 to help prevent low income families from slipping into poverty.  EITC can mean tax relief (lower taxes) for some and a tax refund (cash in pocket) for others.  When EITC exceeds the amount of tax owed, it results in a tax refund for those who qualify.  As you can imagine, the EITC is one of the tax provisions that is most susceptible to fraud.

Most people who file early expect a tax refund, often due to EITC claims.  Apparently Wal-Mart stores possess a key indicator of how many EITC claims are being made each tax season.  So far this year Walmart’s numbers are low.  Wal-Mart stores have cashed a mere $1.7 billion in refund checks so far this year compared to $3 billion this time last year.

The reason why Wal-Mart’s numbers are off is actually two-fold.  First, the start of tax season was delayed this year, and a whole week’s worth of tax refund checks could add up to at least another $1 billion or so.  Second, and more importantly, the IRS is reviewing as many EITC claims as possible this year to try to identify fraudulent claims.  However, according to the IRS no more than 5 percent of EITC claims are being delayed.

"Where’s My Refund?" v. 2.0

Even with all the shenanigans this year* the IRS decided to upgrade the “Where’s My Refund?” tool that taxpayers often use to track the status of their federal income tax refund and promised that refund processing times will not be adversely affected.  In previous years Where’s My Refund? (“WMR?”) generated an estimated refund receipt date for you based on the fact that 90% of all refunds are processed and delivered within 21 days of the date that you file (assuming you file electronically, which almost everybody does these days).

This year, the IRS claims that “WMR?” will be able to ascertain an “actual personalized refund date.”  Now I’m not sure exactly what this means.  Is it personalized in the sense that it records the date that your return was processed and then adds 21 days, or is the tool more sophisticated than that?

The new version of “WMR?” breaks your refund progress down into three stages (available as soon as 24 hours after you e-file your return):

  1. Return Received
  2. Refund Approved
  3. Refund Sent

There is no information from the IRS about what happens when they encounter problems in the processing of a return.  For instance, if mistakes are found on the return and a refund is not approved, will “WMR?” inform the taxpayer of the hiccup, will it remain stuck on the “Return Received” stage, or will the tool simply stop working?

Here are some “WMR?” tips from the IRS:

  • Don’t try using it before January 30th, even if you’ve already filed.  It won’t work until the 30th.
  • Don’t call.  The IRS claims “WMR?” provides the most complete and up-to-date information about your refund claim and if you call to ask a customer service rep, they will be able to tell you no more than what you already know.  As a tax attorney who is on the phone with the IRS every day, I can certainly vouch for that!
  • Don’t check more than once a day.  Information in the “WMR?” tool is updated overnight and only once every 24 hours, so checking in every couple hours will only slow things down for everyone else.

*It is bold of the IRS to promise more precise refund tracking given the fact that (1) they have spent so much effort integrating the “fiscal cliff” legislation that recently passed and things could still be “buggy;” (2) they have been beefing up security filters that are meant to minimize refund fraud and admit that this will cause some refunds to be delayed; and (3) hundreds of thousands of taxpayers will potentially hire incompetent, unregistered (*Gasp*) return preparers this year due to their return preparer registration program being shot to pieces by a federal judge in D.C.

IRS to Cooperate with Local Police in Fraud Probes

The IRS’ criminal investigation division has kept itself very busy with refund fraud cases in recent years.  They would love to be able to enlist the cooperation of local law enforcement but have always been prohibited from sharing some of the information necessary to apprehend tax criminals.  Individual tax return information, for instance, has always been kept strictly confidential under long-standing IRS rules.  In fact, it is a crime for IRS workers to share this sensitive information outside the context of their work.  Believe me, they are very cautious with this data, even in standard tax resolution inquiries.

However, under a pilot program that will be initiated in Tampa, Florida, the IRS will begin sharing some tax return information to local police, so long as the victims of identity theft and tax refund fraud give their consent.  There is no start date yet.

Surprisingly, National Taxpayer Advocate, Nina Olson, is not opposed to this new legislation, as long as the information shared with police is used strictly for law enforcement purposes.

Forget Packers Stock, Get US Savings Bonds

I know some people are already looking forward to next year’s tax refund check. If it’s not going to be spent paying off Christmas credit card debt then you may want to consider purchasing some US Savings Bonds.

All you need to do is fill out a simple form — Form 8888 — and attach it to your tax return when you file. On Form 8888 you simply indicate who the bonds should be issued to and the amount you want to purchase (in increments of $50.00 and up to a maximum of $5,ooo.00). If you do not want your entire refund going to the purchase of savings bonds, simply indicate what you want to do with the balance: paper refund check, one or more bank accounts, my bank account perhaps.

Savings bonds may seem like an old-fashioned investment, but it’s a smart investment these days. The Treasury Department describes them as a “low-risk, liquid savings product” that earns interest and protects you from inflation. You must pay federal taxes on the interest earned from savings bonds. But no worries about volatility, and they’re worth considerably more than Green Bay Packers stock.

If you like the feel of actually holding a paper savings bond in your hand, then purchasing them with part of your tax refund may be your last shot at doing so. Beginning January 1, 2012 paper savings bonds will no longer be available for purchase at financial institutions. Electronic savings bonds are available for purchase at any time through www.treasurydirect.gov.