Tax Policy:

Options for Speeding Tax Refunds and Reducing IRS' Interest Costs

GGD-86-72: Published: Jul 28, 1986. Publicly Released: Jul 28, 1986.

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GAO examined the requirements under which the Internal Revenue Service (IRS) pays taxpayers interest on tax refunds to determine whether changes to the requirements for paying interest on various types of refunds or to IRS operating procedures could speed up the payment of tax refunds and reduce the government's interest costs.

GAO found that: (1) IRS paid $1.5 million in interest while processing the amended return refunds that it issued within 45 days; (2) IRS took almost twice as long to process refunds on amended returns that it subjected to a detailed examination as it did to process returns that it subjected to normal processing procedures; (3) only 12 percent of the detailed examinations resulted in additional tax assessments; and (4) the increased interest costs associated with delaying these refunds amounted to $37.6 million. GAO estimated that IRS paid at least $3 million in interest costs during 1983 on non-income-based returns that it processed within 45 days of receipt.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS has revised its criteria for claims, which the examination will review and may claim before issuing the refund. This should result in more refunds being issued before examination of the refund claim.

    Recommendation: The Commissioner of Internal Revenue should amend IRS procedures to provide for issuing certain refunds before making a detailed examination of the refund claim. The criteria for making these refunds should recognize the need for IRS to continue to hold certain refunds having a high potential for disallowance.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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