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Tax refunds and stimulus checks delayed by identity fraud crossfire

KEY POINTS

The IRS flagged 5.2 million tax refunds for fraud last year, a nearly 50% increase over 2019, according to the Taxpayer Advocate Service. Of those, about 1.9 million were tagged for identity screening.
In 2019, 63% of the refunds vetted for identity theft turned out to be legitimate, according to the organization. About 18% of flagged refunds took longer than 120 days to arrive.
The IRS protected $2.5 billion in losses due to its identity-theft filters in 2019

Jeff Lavigne plans to use a tax refund this year for long-delayed medical help.

Yet his refund, almost $2,700, has been in limbo since mid-March, when Lavigne filed his tax return, records show.

The IRS flagged the return for potential identity theft — as it did for nearly 2 million Americans last year.

The money has been withheld until Lavigne can verify his identity. The process has proven difficult — phone lines are clogged and online authentication is unavailable.

Lavigne, 42, has chronic back pain that makes work difficult over sustained periods. The former restaurant manager doesn’t have a full-time job or health insurance. An extra $2,700, which includes pandemic stimulus funds, would help pay for monthly premiums and let him visit a specialist.

“I started making plans in my head, in terms of getting the help I need,” said Lavigne, who lives in a suburb of Dallas. “I’m trying to take one step at a time, and this is step one.”

Delayed tax refunds

It’s unclear how many taxpayers’ refunds have been delayed during the 2021 filing season. But it’s an issue for a growing number of Americans.

The IRS flagged 5.2 million tax refunds for fraud last year, a nearly 50% increase over 2019, according to the Taxpayer Advocate Service, an independent organization within the IRS.

Of those, about 1.9 million were flagged for identity screening. (The rest were earmarked for income verification.)

Basically, the IRS wants to ensure a crook isn’t using a taxpayer’s identity to claim a tax refund. The agency mails letters (either a 5071C or 6331C letter) to taxpayers if it suspects foul play. The IRS can’t process a tax return or issue a refund until the person responds.

However, most flagged returns aren’t fraudulent. In 2019, 63% of the refunds vetted for identity theft turned out to be legitimate, according to the Taxpayer Advocate Service.Ultimately they might get their money but they’re not getting their money now.Nina OlsonEXECUTIVE DIRECTOR AND FOUNDER OF THE CENTER FOR TAXPAYER RIGHTS

While the IRS ultimately issues the money (with interest) in these cases, taxpayers sometime wait months. About 18% of refunds flagged for identity verification took longer than 120 days to arrive, according to the Taxpayer Advocate Service. (Most take less than 21 days for online filers or six weeks for mailed returns, the IRS said.)

Refund delays were among the top 10 most serious taxpayer problems in 2020, the Taxpayer Advocate Service said.

Dan Herron, a certified financial planner and accountant, waited almost a year for a tax refund after filing his return in 2019, which got flagged for possible identity fraud.

“It was a pretty lengthy, drawn-out process,” said Herron, a principal of Elemental Wealth Advisors in San Luis Obispo, California.

“I wish [the IRS] had something more streamlined,” he added. “They’re so archaic in the way they do things.”

Delays were likely exacerbated by the Covid pandemic since the IRS had to temporarily suspend some of its in-person operations, according to Nina Olson, executive director and founder of the Center for Taxpayer Rights.

And the wait may cost taxpayers more than usual this year. The IRS is using 2020 tax returns to determine eligibility for pandemic stimulus checks and advanced payments of the child tax credit, which will be paid monthly starting in mid-July.

The agency uses information (such as annual income) on a 2019 return if a 2020 return hasn’t been processed. But that may lead to reduced payments — or no payments — depending on a taxpayer’s situation.

“Ultimately they might get their money but they’re not getting their money now,” Olson said.

‘Insufficient resources’

Taxpayer advocates don’t dispute that stopping thieves from ripping off individuals and the government is a worthwhile goal.

“Identity theft has been on this upward curve since 2005,” Olson said. “It’s a huge issue.

“And thieves are getting smarter.”

The IRS fraud measures protected $3.5 billion in revenue in 2019, according to the agency. (About $2.5 billion was due to identity theft filters.)

And 98% of tax returns claiming a refund aren’t ensnared by the process, the agency said.

“We understand the concerns of how refund delays can impact taxpayers, and we continue to collaborate with internal and external partners to refine and automate refund fraud filters where appropriate,” the IRS said in response to a Taxpayer Advocate Service report to Congress last year.

Without proper validation, the IRS risks issuing improper refunds, the agency said.

However, IRS systems, staffing and processes are combining to delay too large a share of refunds, taxpayer advocates said.

For example, many people are given the option of verifying their identities online using an IRS website. To do so, they must first go through an authentication process called “Secure Access.” But less than half succeeded in 2020, according to the Taxpayer Advocate Service.

Such taxpayers must then interface with an IRS agent, over the phone or at a field office, for a resolution. Right now, the IRS doesn’t have enough staff to manage the volume efficiently, Olson said.

IRS technology also doesn’t leverage machine-learning — meaning the system can’t adapt automatically if it’s tripping up too many legitimate taxpayers, she added. It requires a manual fix.The IRS has had insufficient resources to meet enforcement and administrative challenges and to deliver customer service to taxpayers.Mark MazurDEPUTY ASSISTANT SECRETARY FOR TAX POLICY AT THE TREASURY DEPARTMENT

“You are setting a goal to stop fraud, but not setting a goal to minimize false positives,” Olson said of the IRS. “And good systems do both.”

While fraud letters request a response within 30 days, the IRS will continue to work with taxpayers regardless of the amount of days that have passed, according to the IRS.

The IRS budget — which largely covers personnel — has fallen by 20% in real terms over the last decade, Mark Mazur, deputy assistant secretary for tax policy at the Treasury Department, said Thursday during a House of Representatives hearing.

“The IRS has had insufficient resources to meet enforcement and administrative challenges and to deliver customer service to taxpayers,” Mazur said.

Technology upgrades would also improve service, by letting taxpayers communicate with the IRS in a “clear, timely manner,” he added.

A stroke of luck

Lavigne had been thwarted at each juncture by the time CNBC initially spoke to him on Tuesday.

He was unable to verify his identity online and couldn’t reach a phone representative due to a high volume of calls into the agency. He hadn’t been able to schedule an appointment at a local branch.

Lavigne wasn’t even sure he could physically attend an in-person meeting — traveling for long stretches is prohibitive due to his spine problems, he said.

However, Lavigne’s luck changed on Thursday. He was able to reach someone by phone at the local office in Farmers Branch, Texas. After an hour and a half, a representative completed the identity verification over the phone, Lavigne said.

“She explained there is a very long list of filters in place to reduce ID theft and nobody can know how it exactly works so that thieves cannot create a way to work around that,” he recalled of their discussion.

Now, the funds will take up to nine weeks to arrive.

“She said I am definitely good to go now,” Lavigne said. “But if I do not receive my check or another letter between now and the end of the nine weeks, which is sometime in August, [she said] to call back.”

F.A.Q. on Stimulus, Unemployment and Tax Rebates

The Senate passed its version of the $1.9 trillion American Rescue Plan on Saturday. The
pandemic relief bill now goes back to the House of Representatives, which must approve the
Senate’s changes before it can go to President Biden’s desk. We will continue to update this
article as the bill moves forward.
Stimulus Checks
How big are the stimulus payments in the bill, and who is eligible?
The stimulus payments would be $1,400 for most recipients. Those who are eligible would also
receive an identical payment for each of their children.
To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000
or below. For heads of household, adjusted gross income would need to be $112,500 or below,
and for married couples filing jointly that number would need to be $150,000 or below.
To be eligible for a payment, a person must have a Social Security number.
Is there a partial payment for higher earners?
Yes. But payments would phase out quickly as adjusted gross income rises.
For single filers, the checks decrease to zero at $80,000. For heads of household, the cutoff is
$120,000. And for joint filers, the checks stop at $160,000.
Payments for children decrease in the same way.
Do college students count as eligible dependents?
College students whom qualifying taxpayers claim as dependents are eligible. (They weren’t for
past payments.) The payment would go to the parent taxpayer, not the child.
Do older relatives who live with us count as eligible dependents?
Good news here, too. If claimed as dependents, these relatives are also eligible this time. The
payment would go to the qualifying taxpayer, not the dependent adult.

Which year of income determines eligibility?
The most recent year on record at the Internal Revenue Service. If you’ve already filed your
taxes this year, it would be 2020. If not, it would be 2019.
When could I expect my payment to arrive?
During the last round of payments, the I.R.S. got the first payments out within a few days. As
before, you would track the status of your payments via the I.R.S.’s Get My Payment tool. Be
aware that the volume of users sometimes overwhelms the site.
What should I do if I still haven’t gotten a payment from a past round of
stimulus?
If you were in fact eligible to receive it, you can try to recover it through the so-called Recovery
Rebate Credit when filing your 2020 return. Make your claim on Line 30 of Form 1040 or 1040-
SR.
Unemployment Insurance
How would the stimulus bill affect unemployment payments?
If you’re already receiving unemployment benefits, payments would generally be extended for
another 25 weeks, until Sept. 6. The weekly supplemental benefit, which is provided on top of
your regular benefit, will remain $300 but run through Sept. 6.
Although unemployment benefits are taxable, the new law would make the first $10,200 of
benefits tax-free for people with income less than $150,000. This applies to 2020 only.
How would the benefit extensions work?
The extended payments would continue to be delivered through different federal programs,
largely based on the type of work you did and for whom.
Benefits through the Pandemic Unemployment Assistance program, which covers the self-
employed, gig workers, part-timers and others who are typically ineligible for regular
unemployment benefits, would be available for a total of 79 weeks, up from 50, and run through
Sept. 6.
And benefits through the Pandemic Emergency Unemployment Compensation program, which
essentially extends benefits for people who exhaust their regular state benefits, would be
available for a total of 53 weeks, up from 24, also lasting through Sept. 6.
What happens to the supplemental payments?

If you qualify for any benefits, you would also receive the full $300 supplemental payment for
weeks ending after March 14 and through Sept. 6. Known as F.P.U.C., it’s called the federal
pandemic unemployment compensation.
The bill would also extend an extra $100 weekly payment, called the mixed-earner supplement,
through Sept. 6. This payment helps people who have a mix of income from both self-
employment and wages paid by other employers, because they are often stuck with a lower state-
issued benefit based on their (lower) wages.
The bill would also clarify that the $300 federal supplement would not be counted when
calculating eligibility for Medicaid and the Children’s Health Insurance Program. But the mixed
earner supplement would be counted.
Would payments be uninterrupted?
If the bill becomes law, experts said, there may be a gap for beneficiaries in many states because
it usually takes a couple of weeks for agencies to program any benefit extensions.
Health Insurance
What would the relief bill do about health insurance?
Buying insurance through the government program known as COBRA would temporarily
become a lot cheaper.
COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who
loses a job buy coverage via the former employer. But it’s expensive: Under normal
circumstances, a person may have to pay at least 102 percent of the cost of the premium.
Under the relief bill, the government would pay the entire COBRA premium from April 1
through Sept. 30.
A person who qualified for new, employer-based health insurance someplace else before Sept.
30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would
not be eligible, either.
Will the cost of health insurance I buy through an exchange be affected?
The bill would lower the cost of health insurance in many instances for people who bought their
own health insurance via a government exchange. And the premiums for those plans would cost
no more than 8.5 percent of your modified adjusted gross income.
These changes would be effective immediately and last through the end of 2022; they would not
require people to re-enroll to access the lower prices.

How do I sign up for health insurance?
If you don’t already have health insurance but would want it if the price was right, an open
enrollment period is already in effect through May 15. You can also switch plans to try to lower
the price you’re paying already or get more generous coverage. The Kaiser Family Foundation
maintains a calculator that estimates your premiums based on your income and any available
government subsidies, and it will be updated once the bill passes.
Are there any changes to health care flexible spending accounts?
None this time, though there were some in the last stimulus bill.
Taxes
What would the bill change about the child and dependent care tax credit?
This credit, which helps working families offset the cost of care for children under 13 and other
dependents, would be significantly expanded for a single year. More people would be eligible,
and many recipients would get a bigger break.
The bill would also make the credit fully refundable, which means you could collect the money
as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the
income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax &
Accounting.
How much would the credit be worth?
The new bill would make the credit worth up to $4,000 for one qualifying individual or $8,000
for two or more. The credit would be calculated by taking up to 50 percent of the value of
eligible expenses, up to certain limits, depending on your income. (The more you earn, the lower
the percentage you can claim.)
Currently, the credit is generally worth between 20 and 35 percent of eligible expenses with a
maximum value of $2,100 for two or more qualifying individuals.
The bill would also significantly increase the income level at which the credit begins to be
reduced. Under current law, that starts at an adjusted gross income of $15,000, but the bill would
make the full value of the credit available to households making up to $125,000.
Under current law, the credit is not further reduced below 20 percent, regardless of income, Mr.
Luscombe said. But the proposed law would begin to reduce the credit below 20 percent for
households with income of more than $400,000.
These changes would be effective for 2021 only.

What about dependent care flexible spending accounts?
The bill would make one big change. For 2021 — and only for 2021 — you could set aside
$10,500 in a dependent care account instead of the normal $5,000. But employers would have to
allow the change: You can’t adjust the withholdings from your paycheck yourself if your
employer declines to provide the option.
How would the bill change the child tax credit?
The bill would make the credit more generous for 2021, particularly for low- and middle-income
people.
Currently, the credit is worth up to $2,000 per eligible child. The bill would increase it to as
much as $3,000 per child ($3,600 for ages 5 and under). It would also raise the age limit for
qualifying children to 17, from 16.
Would it change how the credit worked?
Here’s where it gets interesting: You could receive some of the credit as an advance on your
2021 taxes.
The bill would make the credit fully refundable, which means you can receive money from it as a
tax refund even if your tax bill is reduced to zero. And half of that money could be advanced to
households over the next six months (based on their 2020 tax information, or 2019 if that was
unavailable). It’s not clear how frequently payments would be made — perhaps monthly — but
under the bill they would begin in July.
The changes are effective for 2021 only, though at least some Democrats would like to make it
permanent.
Who is eligible?
Married couples who have modified adjusted gross income up to $150,000 (or heads of
household up to $112,500 and single filers up to $75,000) would receive the full value of the
new benefit.
But after that, the extra amount above the original $2,000 credit — either $1,000 or $1,600 per
child — is reduced by $50 for every $1,000 in modified adjusted gross income that exceeds
those levels. (For joint filers with one child age 6 to 17, the extra amount would be phased out at
about $170,000.)
At that point, the tax credit levels out at $2,000, and is then subject to the current income limits.
The $2,000 benefit begins to phase out when married filers have adjusted gross income of
$400,000 ($200,000 for singles).

How would the advance payments work?
Should the bill become law, the advance payments would total up to half the value of the credit
the household is eligible to receive. (The other half would be claimed on the 2021 return.) But
exactly how often the payments would be sent out depends on what the Treasury Department
decides is feasible.
Here’s how it might work for a couple earning $150,000 or less. With two children, ages 7 and 9,
they would be eligible for a $6,000 credit ($3,000 times two). If the payments were made
monthly, the family would receive $500 per month starting in July and lasting through the end of
the year. The remaining $3,000 would be claimed in 2021 on their tax return.
Would the bill increase the earned-income tax credit?
For 2021 only, the bill would increase for childless households the size of the earned-income tax
credit, which helps those at the lower end of the income scale, and make more taxpayers eligible.
The maximum credit amount for childless people would increase to $1,502, from $543.
The bill would also broaden the age range: People without children would be able to claim the
credit beginning at age 19 instead of 25, with the exception of certain full-time students. The
upper age limit, 65, would be eliminated.
How would separated spouses be affected?
Married but separated people could be treated as not married for the purpose of the credit if they
don’t file a joint tax return.
This would apply only if the taxpayer lived with a qualifying child for more than half of the
taxable year and didn’t have the same principal home as the spouse at least six months of the
year. A separation decree or agreement would also suffice, as long as the individual didn’t live
with the spouse by the end of the taxable year.
This change would be permanent.
Are there any other changes?
 For the purposes of calculating the credit in the 2021 tax year, taxpayers could choose to
use their 2019 income if it was higher than 2021, according to a Senate aide.
 People who otherwise would be eligible but whose children do not have Social Security
numbers would be permitted to claim the version of the credit available to childless
households. This change would be permanent.


 Taxpayers wouldn’t be disqualified for the credit in 2021 until they had investment
income of $10,000, up from $3,650. This change would be permanent, with the $10,000
threshold indexed to inflation.
Housing
What would the bill do to help people with housing?
The bill would provide billions of dollars in rental and utility assistance to people who are
struggling and in danger of being evicted from their homes.
About $27 billion would go toward emergency rental assistance. The vast majority of it would
replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed
through state, local and tribal governments, according to the National Low Income Housing
Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in
December.
To receive financial assistance — which could be used for rent, utilities and other housing
expenses — households would have to meet several conditions. Household income could not
exceed 80 percent of the area median income, at least one household member must be at risk of
homelessness or housing instability, and individuals would have to qualify for unemployment
benefits or have experienced financial hardship (directly or indirectly) because of the pandemic.
Lower-income families that have been unemployed for three months or more would be given
priority for assistance.
Is there anything for homeowners?
The bill would provide nearly $10 billion to help homeowners struggling with mortgage
payments, utility bills and other housing costs.
Roughly $100 million would be dedicated to housing counseling.

Capital gains tax bill heads to House after passing Washington Senate

OLYMPIA – The state Senate passed a capital gains tax Saturday night, the only time since it
was first floated six years ago that the controversial proposal has been up for a vote in the
Senate.

After a more than four-hour debate, the bill passed 25-24 despite stiff opposition from
Republicans who call it an unconstitutional income tax. Three Democrats also voted against it.
Passage in the Senate first is a huge step toward the proposal becoming law. In the past, House
Democrats have said they had the votes to pass it but didn’t want to send it to the Senate, where
it would almost certainly fail.

The proposal has changed significantly since it was first introduced. The version that passed
Saturday would apply a 7% tax on the sale of stocks and bonds, personal property and
businesses, but only if those profits exceed $250,000 annually. It would not apply to the sale of a
home, commercial real estate, retirement accounts, livestock and other properties. The sale of a
family-owned small business that makes less than $10 million a year would be exempt, as well
as some real estate sales if the sale is also subject to a real estate excise tax, which passed the
Legislature two years ago.

Bill sponsor Sen. June Robinson, D-Everett, said the tax is the first step in solving Washington’s
regressive tax code where lower-income residents are paying a higher percentage of their income
in taxes than high-income residents.

“It is not a panacea,” she said during the floor debate. “It is not going to get us there overnight,
but it is an important step forward.”

About 9,000 tax returns across the state would be subject to the capital gains tax, according to
the Department of Revenue. In Spokane County, that’s about 305 tax returns.
The state would begin receiving the tax revenue in 2023. It would bring the state about $550
million in revenue a year. About $350 million of that would go toward the state’s Education
Legacy Trust Account to fund child care priorities included in a Democrat-sponsored Fair Start
for Kids Act, which also passed the Senate on Saturday. The next $100 million would go into the
general fund, with the remaining going into a newly created taxpayer fairness account.

One amendment passed Saturday removed an emergency clause on the bill, which would have
put the bill in place immediately and removed the opportunity for citizens to file a referendum to
repeal the tax. With the removal, citizens now have the opportunity to file a referendum to repeal
the tax.
Democrats have tried to pass a capital gains tax for years but faced stiff opposition from
Republicans and some moderate Democrats.
Opponents call it an unconstitutional income tax that will almost certainly be challenged in court.
Sen. Lynda Wilson, lead Republican on the Ways and Means Committee, has said “every other
state in the Union calls it an income tax.” Republicans also argued Saturday that this tax could
lead to a broader income tax across the state.
In his speech on the floor, Sen. Mike Padden, R-Spokane Valley, pointed to previous Supreme
Court cases striking down an income tax in Washington, as well as 10 ballot measures where
voters struck down an income tax.
“Please stop asking the question,” Padden said. “The question is settled.”
Democrats, however, say the bill will hold up in court, just push off implementation of the bill,
which they say could help make Washington’s tax structure more progressive and equitable,
where lower-income residents aren’t paying a higher percentage of their income in taxes than
high-income residents.

“Enough is enough,” Sen. Rebecca Saldaña, D-Seattle, said on the floor. “For many years, we’ve
known our Washington tax code is upside down.”

Senate Minority Leader John Braun said Saturday the state can’t fix the tax system by collecting
more money, regardless of who contributes it.
“What you have to do to make the system more fair is to reduce the tax burden on those at the
bottom of the spectrum,” he said.

Sen. Jeff Holy, R-Cheney, said Eastern Washington hasn’t experienced the same economic
growth that King County and Western Washington has. Spokane is just now experiencing some
of the growth, he said, and many people don’t want this tax, as it might lead to businesses in the
area leaving for Idaho or prevent new businesses from coming in.
“This is not King County,” he said. “This is not west of the Cascades.”
Along with opposing the proposal, Republicans criticized Democrats for bringing the proposal to
the floor and filing amendments late, leaving little time for input.

Padden said this proposal is probably “the major piece of legislation for this entire session, and
there should have been more time to work through the details in committee.”

“You want to make sure you get it right,” he said in speaking against the bill.
Robinson said she has incorporated input from Republican colleagues and opponents of the bill
as she wrote and rewrote the bill.

Democrats have said all session that this is the year to pass a capital gains tax, to help make up
for lost revenue due to the pandemic and to further invest in other programs, such as
underfunded child care issues. Spokane Democrat Andy Billig told reporters two weeks ago that
it isn’t realistic to say the state’s budget is balanced and then want to fund large programs, such
as the Working Families Tax Credit or child care, without new revenue.

“The question is, do we want to do the bare minimum or is this the moment where we actually
invest?” Billig said.

Wilson said Saturday that while Democrats want to use this tax to make longterm investments, it
is “the most volatile tax,” which makes it difficult to fund longterm priorities.

Opponents of the bill say the state is likely looking at a revenue boost in the March 17 revenue
forecast, which is what lawmakers will use to write the budget. The state will also likely get a
large payout from the federal government if the $1.9 trillion stimulus bill passes Congress soon.
Most of that money, however, will go toward one-time COVID-19 related costs.
“Why are we doing this now?” Wilson said on the floor. “Why are we choosing to create another
tax on the taxpayers here in Washington?”

With half of the session left, a vote on a tax this early in the session is slightly unusual for the
Legislature, which often votes on taxes and the final budget within the last few days of the
session.

The capital gains tax bill now heads to the House of Representatives for further consideration,
where it will likely have the support it needs to pass.
“Fifty percent of the legislative process is still to be continued as this goes to the other body,”
Billig said on the floor. “We’ll keep working on the details.”

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There anyone who loves or pursues or desires to obtain pain of itself, because it is pain, but because
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There anyone who loves or pursues or desires to obtain pain of itself, all our because it is pain, but because occasionally circumstances occur in which can be done procuresome great pleasure of success.
Teena Venanda
CEO/Founder

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Nor again is there anyone who loves or pursues desires to obtain pain of itself, because it is pain, but because occasionally circumstances occur in which toil and pain can procure him some great pleasure take a trivial example.

Procure him some great pleasure
Any right to find fault
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Avoids a pain that produces