IRS Review Delays Tax Refunds For Lower-Income Americans

By Patrick Temple-West

WASHINGTON, Feb 22 (Reuters) - Federal tax refunds are arriving later than expected for some lower-income Americans due in part to closer scrutiny of earned income tax credit claims by the U.S. Internal Revenue Service, the IRS said on Friday.

IRS employees have been carefully reviewing returns with claims for the EITC, a frequent fraud target. Fewer than 5 percent of filings claiming the EITC have been delayed, IRS spokesman Terry Lemons told Reuters.

Those returns are being processed and taxpayers will soon be able to track their refund on the IRS website, he said.

Wal-Mart Stores Inc, the retailing giant, said on Thursday it cashed about $1.7 billion in tax return checks at its U.S. stores so far this year. At this point last year, that amount was about $3 billion.

In conjunction with the late start to tax season, the EITC-related delays contributed to the lower level of check cashing at Wal-Mart, tax preparers said.

Individuals who claim the EITC typically file tax returns as early as possible for quick cash, said Mark Steber, chief tax officer at tax preparation company Jackson Hewitt.

More than 13 million Americans in 2012 claimed the EITC - an anti-poverty program started in 1975 - at a cost last year of $38 billion, the Treasury Inspector General for Tax Administration said.

Taxpayers claiming the EITC must meet employment, income and age requirements to get the refundable credit.

EITC tax refund fraud is common. The IRS this year is asking EITC taxpayers working with a preparer to prove a child is living with them by providing, for instance, a report card or doctor's bill.

"It's a pain in the derriere for them to come up with this information," said David Riggs, owner of Accounting Services of York LLC in Pennsylvania.

Only returns filed with a preparer need to provide this information.

Families with one child received an average EITC of $2,106 in 2009. That increased to $3,452 for families claiming three or more children, according to government data.

Once the IRS has paid out an EITC claim, it is "exceedingly difficult to get it back," said Robert Kerr, senior director of government relations for the National Association of Enrolled Agents, a tax preparers trade group. "The IRS has one great chance to get this right, which is pre-refund."