Electronic Funds Transfer:

Analysis of Proposal for Direct Deposit of Income Tax Refunds

IMTEC-89-34: Published: Feb 24, 1989. Publicly Released: Feb 24, 1989.

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In response to a congressional request, GAO assessed a proposal to use electronic funds transfer to pay federal income tax refunds and other nonrecurring payments directly into taxpayers' bank accounts.

GAO found that: (1) although the Internal Revenue Service (IRS) already offered electronic refunds on electronically filed returns, the proposal would be costly to implement for paper returns; (2) a potential existed that taxpayers and IRS staff would make errors in transcribing the bank routing and transit number and the taxpayer's bank account number using paper returns; (3) the proposed provision to notify the taxpayer by mail before making the electronic payment was unnecessary, costly, and could delay refund receipt; and (4) there would be little time saved in issuing refunds by electronic transfers, rather than by checks, since a direct deposit refund would arrive only 1 to 4 days before a check. GAO also found that: (1) the Treasury Financial Management Service stated that the cost of preparing and issuing a check was 30 cents, while the cost of preparing and issuing an electronic transfer was 4 cents; and (2) until a way was found to reduce the error potential and the cost, IRS would offer the direct deposit option to taxpayers filing paper returns.

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