Refund Delay to Cost IRS $200 Million : Taxpayers to Get Interest on Money Held After June 1

The Internal Revenue Service expects to pay at least $200 million in interest this year to taxpayers whose refunds are delayed beyond June 1 because of slow processing, an agency spokesman said today.

The IRS last year paid $209 million in interest to individuals who refunds were delayed “due to late processing, primarily,” said IRS spokesman Steve Pyrek.

“We don’t expect this year to be any different,” he said.

The law requires the IRS to pay 13% interest to taxpayers whose refunds have not been sent out by June 1--45 days after the April 15 filing deadline. Interest on overdue refunds is not paid until June 1 even if a taxpayer’s return was filed much earlier than April 15, Pyrek said.

Problems With Computer

Millions of Americans who filed their returns well in advance of the April 15 deadline this year are still waiting for their refunds because problems with the IRS’ new $100-million computer system have slowed processing. The computer problems are most severe at processing centers in Philadelphia and Brookhaven, N.Y., Pyrek said.

“We had the usual collection of glitches . . . but we had them with some frequency,” Pyrek said. “There’s no one piece of equipment that keeps breaking down.”

As of April 5, the IRS had processed 36.1 million tax returns, compared to 45.3 million processed by the same time last year, Pyrek said. But the number of refunds which had been certified was down 24% over last year, he said. As of April 4, the IRS had certified 27.5 million refunds. Last year at this time, the agency certified 36.2 million refunds.

Finally Catching Up

“We’re about 20% behind,” he said. “Every week, we’ve been picking up and closing the gap.”

Pyrek acknowledged that the delay in processing returns could cost the IRS--and the taxpayers--more than the $209 million in interest payments that the agency shelled out last year due to late processing of refunds.

“Of course it’s possible, but we don’t expect it,” Pyrek said. “We’re going to exert every effort to get those returns processed” before interest must be paid on refunds.

Pyrek said about 100 million tax returns will be filed this year. While computer problems are causing processing delays, Pyrek also said that “returns are coming in more slowly this year than last year.”