GAO Says IRS Not Keeping Up With Changes to Tax-Time Financial Products

By:
Chris Gaetano
Published Date:
Apr 15, 2019
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In a report released Friday, the Government Accountability Office (GAO) said that much has changed in terms of financial products offered by private firms around tax time, and that the IRS has failed to adequately adapt its data to the new landscape. For example, while refund anticipation loans have declined since 2012, the use of refund transfers (temporary bank accounts in which to receive funds) has increased, and refund advances (loans with no fees or finance charges) have been introduced. 

"... GAO identified some limitations in Internal Revenue Service (IRS) data on product use, including over- or under-counting of certain types of products," said the GAO. "IRS has not communicated these data issues to users and has not updated guidance to tax preparers on how to report new product use. As a result, data users (including federal agencies and policymakers) have inaccurate information to inform their findings and decision-making."

This weakness limits the IRS's ability to oversee and regulate purveyors of such products, and makes the IRS less aware of developments within the tax-time financial products world. The GAO also noted, however, that the practices of certain tax preparers may further stymie the IRS's ability to collect and process accurate data. GAO staff members went undercover with nine different tax preparers. They found: 

  • * Preparers in GAO's review generally indicated that they present taxpayers with almost all of the documents with fee information after their tax returns have been prepared and the preparers determined the taxpayers qualified for a tax-time financial product. The timing of these disclosures would pose a challenge for taxpayers looking to compare prices for different providers.
  • * During six of nine undercover visits, GAO investigators explicitly requested literature on product fees but were not provided such information.
  • * Refund transfer fee information on websites GAO reviewed sometimes was presented only after the tax preparation process started, was in small print, or could be found only after navigating several pages. As a result, taxpayers may face challenges comparing prices.

The GAO recommended that the IRS commissioner communicate data issues regarding the refund anticipation loan indicators for tax years 2016 and 2017 and the refund transfer indicators since tax year 2016—for example, by attaching explanatory material to the dataset. The GAO also recommended that the commissioner improve the quality of tax-time financial product data collected—for example, by allowing authorized e-file providers to indicate more than one type of tax-time financial product for each return or by informing tax preparers of the addition of new product definitions and instructions on how to accurately code the products.

The GAO reported that, in its comments, the IRS concurred with both recommendations, and described how it planned to address them:  "In response to our first recommendation, IRS stated that it plans to provide the appropriate notations with the datasets. In response to our second recommendation, IRS stated that it plans to pursue programming changes and clarify instructions for tax return preparers to promote accurate coding of refund-related products. We believe that these actions, if implemented, would address our recommendations and improve the quality of data IRS reports on these products."

In other tax news, IRS Commissioner Charles Rettig thanked taxpayers for filing, and the IRS staff for overseeing a successful year. However the IRS also noted that, as of Friday, some 50 million taxpayers still needed to file their returns. 

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