Would it have been better for the IRS to validate the direct deposits to be more accurate, or was this best to get payments to people as quickly as possible?
Some potential issue I see if you don't do some exception analysis with direct deposits:
* filed jointly in 2018/2019 and spouse is deceased
* couple is divorced? join in 2018, single file in 2019?
* dependents no longer dependent (deceased, filing individually, etc)
* direct deposit went to wrong account (wrong account number, tax preparer's bank account, etc)
* bank account closed
This part I actually don't think is that complicated. Only one of those bank accounts paid a tax liability or received a tax refund last year. The same one will receive this direct deposit.
I had an examination a few years ago. It was about 5 years after the fact. My wife and I were taking turns doing taxes and for some reason I forgot to give her the paperwork for an investment account one year.
It was not a pleasant experience. So they knew about this account, all the years before and then all the years after. We got a letter that said I under-reported my income for some year 5 years prior. I mentions the account and the amount. Explains that since I didn't report that account, it's treated like normal income for that year I owe them $80k plus penalties.... I forget the exact wording but prison time was mentioned for tax evasion in the initial letter. Hired a lawyer, hired an account, refiled that year and then the subsequent years since the account found some more deductions. Then it took about 2 years to get it closed out. We'd write a letter,
3 weeks later we'd get a letter back the said they'd respond to our
letter within 90 days. After like 9 months the accepted our new tax
submission but insisted we pay the penalties. It took another 15
months for those to get waived. It is infuriating fighting over
penalties that no longer apply.
The worst part about taxes is that I never know if I did them correctly since the feedback loop is up to 3 years. Just shoot them off into the ether and cross your fingers you don't get a giant bill next year.
The first time I filed, I had not updated my W4 soon enough after moving and owed NYC like $4k in taxes which came up around 18 months after I filed. The following year the software I was using said I owed around $10k in taxes, which I was pretty sure was wrong, so I went to an accountant and they did it for me and said I owed nothing. Even after all that, there is no way to know who is right until 3 years from now (IRS theoretically doesn't look back more than 3 years for individual returns).
My experience is that the IRS doesn’t have all of your data ready by April 15th. My tax guy requests a transcript of my account every year and the data is woefully incomplete in mid-April. Tends to be complete by mid-August. I have no idea what the delay is.
This is a relatively new change though, as in the last year/couple of months. So I wouldn't expect the IRS to have shifted it's treatment. Especially in the context of 2018 taxes.
I'm not finding that to be very reliable, as I can't find a news article or even someone else complaining about the same problem. Are you sure they just didn't mess up on their tax return somewhere?
I am in exactly this situation (but at the days/weeks timescale instead of months), so thanks for posting how you resolved this, I'll try my local IRS office.
Thanks for that tip. In our case, the error was due to a missing form, and when I corrected it in Turbo Tax, my number was close enough to the IRS number, so I called it a day.
I'm not the above poster, but I took your comment to mean direct deposit from your employer to your account, not direct deposit from the IRS to your account (for tax refunds, which is what I assume the above poster means).
Why would your employer do that? Incompetence? Something nefarious?
Regardless, if the IRS pre-filled this for you, then you would have caught it at filing time, which sounds like an improvement, if I’m understanding correctly.
Often times you correct it with more paper work. One year, my foreign tax deduction didn’t get filed for some reason (I was doing my own taxes by hand and sending in the forms), so I was hit with a huge tax bill of $30k or so. Then I found out I handled my non-resident wife wrong, so amend 1040X wait for ITIN, etc…it was kind of a mess. I wound up ahead, the IRS owing me instead. They were quite courteous about it on the phone.
Well, if the IRS gets it wrong they'll come back and declare the taxes you filed are wrong and send you a bill. Maybe also trigger an audit.
This system would be way better since you get to see the error up front and deal with it immediately instead of waiting 8 weeks for the process to start and your refund to languish for another month or two before it is all sorted out.
a) Well, not quite. As it is, you have to work with your employer to get it fixed. If the government is responsible for populating the form correctly, then you notify them, and they go to your employer. This is the difference between disputing overtime underpayment with your boss and getting the DoL involved. I'll let you guess which is less of a headache for the average worker.
b) If you don't have a bank account, paying for tax prep services becomes more complicated. You're also probably using shadow banking services that don't allow you to import info. Have fun doing it manually.
c) Ostensibly. In practice, they all had massive issues with correctly reporting cost basis and other important figures. So even with using an exchange, you had issues to deal with (again, manually).
So, I'd say it's all quite relevant. Your quick dismissal of such concerns is a large part of the problem.
You didn't cover the most important—and political—reason: it would delay refunds.
2019 deadlines for 1099-INT/DIV (i.e., the forms you get from your bank or brokerage) are April 1st. The IRS filing window opened January 29, with 90% of tax returns processed within 21 days. Since the IRS can't reliably pre-populate a tax return without all the required information, it would delay filing (and refunds) by 8 weeks.
As the tax refund check is the largest check many Americans receive every year, delaying that payout gets taxpayer advocacy groups up in arms and is tantamount to political suicide.
Incidentally, this same gap is where a bulk of tax return fraud happens—equalling billions of dollars. In short, if you file return before the IRS has all the information to validate that return is indeed correct, they'll usually shrug and accept it. By the time they get all the information they need, you've cashed out your refund debit card and are long gone.
I haven't seen any analysis that such a system would lower revenues (indeed, it would stop billions of dollars of fraud and tax evasion), or that the deductible system is too complex.
Doesn't the bank send the same tax documents to the IRS as they send to you? (Mortgage interest is a commonly itemized deduction.)
Itemized deductions could be a "dispute" item, where you would login, switch from Standard to Itemized, then itemize your deductions. It could possibly recall this setting, and even the deductions, from the previous year's input.
Some potential issue I see if you don't do some exception analysis with direct deposits:
* filed jointly in 2018/2019 and spouse is deceased * couple is divorced? join in 2018, single file in 2019? * dependents no longer dependent (deceased, filing individually, etc) * direct deposit went to wrong account (wrong account number, tax preparer's bank account, etc) * bank account closed
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