Checks Expected to Be Out by June 1 : IRS Computer ‘Glitches’ Delay Refunds

The Internal Revenue Service, hamstrung by “glitches” in a new $103-million computer system, is lagging up to two weeks behind its usual eight-week schedule for processing income-tax forms and mailing refunds, agency officials said Thursday.

But the computer problems--largely errors in the programs that control the machines--are temporary, the IRS said, and the backlog of unprocessed returns is ebbing.

“Last week alone, we processed 11% more returns than in the comparable week of last year,” said Ellen Murphy, an IRS spokeswoman. “We do have a backlog, but we’re beginning to work it down.”

70 Million Refunds

Murphy said most of the 70 million refund checks that the government expects to distribute should be mailed by June 1. If a refund is not postmarked by that date, the government must pay 13% interest on it. Returns of taxpayers who claim refunds are being processed first.

As of last Friday, the IRS had processed only 58% of the 54.8 million tax returns received. By comparison, 77.5% had been processed by the end of March, 1984.

The piles of new returns at the IRS’s 10 regional centers ranged from mountainous at Brookhaven, N.Y.--where less than 42% of returns had been screened--to manageable at Cincinnati, where 76% had been processed. The IRS center at Fresno, Calif., had waded through 61.3% of the returns by last Friday.

New Computer System

Murphy traced the tardiness to breaking in a new computer network made by Sperry Corp., which was recently installed in the IRS’s processing centers.

“We made a decision early to delay the start of our processing cycle for one week to work out any problems,” she said. “But we’ve had more glitches than we anticipated, and it means we have to work out each one as it comes along.”

Many of the delays stem from coded instructions that are needlessly complex, she said.

Sperry’s New York headquarters referred all questions to the IRS. “There’s no question that we’re working with them to solve their problems,” a company spokesman said.

Delays Vary

Although delays may vary from region to region, many taxpayers who filed a return this week will not receive a refund--if they are due one--until the first week of June.

According to the IRS, both the number and average size of refund checks are lower than last year, although that may change as more returns pour in. The average refund check at the end of March totaled $720, contrasted with $741 at the same time in 1984.

The delay probably will inconvenience some taxpayers who have already committed to spend their refund checks, Murphy acknowledged.

Chief among them are taxpayers who claimed tax-deductible contributions to Individual Retirement Accounts on their 1984 returns and planned to use early refunds to deposit the contributions by the IRS’s April 15 deadline. Those persons may have to borrow money or dip into savings accounts to meet the deadline, Murphy said.

‘Borrow’ From Own IRA

But under IRS rules, taxpayers also can make 1984 contributions by temporarily “borrowing” money already in their own retirement accounts. The key is a rule that allows citizens to “roll over” their accounts from one investment to another once every 12 months.

Under that rule, a taxpayer could withdraw $2,000 from an existing retirement account and deposit the money in a newly created 1984 account before April 15. The transfer, both interest-free and tax-free, allows taxpayers to claim a $2,000 deduction on their 1984 tax form.

But the transfer will be both taxed and penalized if the taxpayer does not complete the “rollover” within 60 days by placing another $2,000 in a retirement account different from the one that was originally tapped.

In general, it may be easier to secure a short-term loan from a financial institution, Murphy said--especially because the interest on the loan is also tax-deductible.