IRS software glitch delays some tax refunds

WASHINGTON (Reuters) - The U.S. Internal Revenue Service's new software system for handling electronic tax returns has experienced problems during the tax filing season, angering some taxpayers whose refunds have been delayed.

In an issue that could draw congressional scrutiny, the IRS said it was addressing the software glitches and that delays in sending refunds to taxpayers would be minimal.

The tax collection agency has made a big commitment to upgrading its software and has been expecting to shut down its old software system in October.

"A final decision on that won't be made until after the filing season and after we have a chance to have additional conversations with" tax return preparers, said IRS spokesman Frank Keith.

The IRS said delays in sending out refunds began in February. "There were probably several million taxpayers whose returns we took longer to process," Keith said.

But the IRS has largely caught up and the number of refunds sent out is now on a par with last year, he said.

Some tax preparers said they are facing angry customers upset by the late refunds.

The IRS had projected that taxpayers who got their 2012 electronic returns in by April 15 would get direct-deposit refunds seven to 13 days later; or 17 days for mailed refunds.

That projection was expected to improve on the previous year, when direct deposit refunds went out 8 to 15 days after e-files came in; and 22 days for refund checks sent in the mail.

Keith said most "taxpayers this year did receive and will continue to receive their refunds within that period of time" that the agency had projected.

Some tax preparers said that outlook was too optimistic.

Gina Jones, a tax preparer in Delhi, Louisiana, said 85 percent of the 220 e-file returns she has filed this year have had delayed refunds. These delays are often seven to 10 days beyond the IRS projected window for a refund, she said.

"IRS this year promoted big time their new modernized e-file," Jones said. "Right out of the starting gate, they got behind."

Mark Staber, chief tax officer with Jackson Hewitt Tax Service, said: "The delays - and IRS not being as communicative as perhaps they could have been - have left many consumers frustrated and confused over the timing of their refunds.

The IRS has encouraged tax preparers to send in electronic returns through older software systems.

"While there were delays at the start of the season, the IRS allowed suppliers to return to the former technology platform at that time, which is appreciated," said H&R Block spokesman Gene King.

IRS Commissioner Doug Shulman has made e-file a top priority for the agency. The IRS tax return system upgrade is estimated to cost $1.3 billion through 2024, the Government Accountability Office said.

In 2012, tax preparers who file 11 or more returns are required to send them in electronically, known as e-filing. For 2011, preparers with 100 or more returns must e-file.

This year's problems could draw scrutiny from Congress.

The House of Representatives Ways and Means Committee, which oversees the IRS, "is aware of issues that have arisen that are related to e-filing," said Michelle Dimarob, a spokesperson for committee chairman Republican David Camp.

"We anticipate that members will look at this issue, and others, when the commissioner appears before Ways and Means to discuss the overall filing season," she said.

(Reporting By Patrick Temple-West; Editing by Kevin Drawbaugh)

[Image via Shutterstock.com.]

Mochila insert follows ...