Usually around this time of the year – a few days before the filing due date, the IRS issues a news release reminding people who did not file 3 years ago (so for today, their 2019 return) that they need to file by April 15 to get a refund (but due to Covid extensions, they have until July 17 to get their 2019 return filed).

Of course, when some of these people file and report their income, deductions and credits, they might not be eligible for a refund (they might owe tax). But, the news release (IR-2023-79 (4/12/23)) uses the term refund. I conjecture that for many of these individuals and much of the “$1.5 billion in refunds” their only income is wages and too much tax was withheld based on their income. Some may even have been below the filing threshold but unaware that they could only get their overpaid tax (withholding) returned by filing a tax return.

The IRS reports the data on the “$1.5 billion in refunds” by state. I think they know which individuals did not file because the IRS has a document(s) with their SSN and noting how much tax was withhold (the possible refund).

Questions:

1. Why doesn’t the IRS just refund the amount to the taxpayer if based on the W-2 and any other information returns, too much tax was paid? The law doesn’t allow this; you have to file a return.

2. Why is this announcement always close to the end of the statute of limitations period rather than a year before? Yes, this year it is earlier than usual due to the extra filing time we had for 2019 returns.

3. Can the IRS file a substitute for return for these individuals or is that only when there is tax owed? If the later, can the law be changed?

4. Will modernization efforts reach the point where taxpayers can easily have all of their tax data assembled in what I call their “tax cloud” and then they identify a software tool to handle the filing and get the filing done easily. And this would not just be only for wage, interest and dividend income, but if a sole proprietor set up their recordkeeping up right, it would compute taxable income and go to their tax cloud. Then we would have far less late returns or perhaps ones that will never get filed causing the taxpayer to forfeit their refund.

I think we are too wed to the way we do things now and for the past many decades is the only way to do something. We need to get past that. I have blogged on this topic before and in April 2021 had an op ed in The Hill noting that use of technology and our individual “tax clouds” for our digital tax data, could even eliminate the need for April 15 because taxes could be computed daily, weekly, monthly, etc. and with a swipe of a secure app, if you were underpaid, transfer the funds from your bank account or if overpaid, get a refund. Let’s get to a system where there are no refunds owed and outstanding for 3 years and possibly never given back to the taxpayer.

What do you think? Annette Nellen