IRS Paid $3.2 Billion In Interest To Taxpayers for Delayed Refunds; Expect More Delays In 2022

The director of the Government Accountability Office (GAO) told the U.S. Senate Finance Committee at a hearing on IRS customer complaints this week that in fiscal year 2021, the IRS paid $3.27 billion dollars in interest payments to taxpayers due to delayed processing of refund claims.

The amount of interest paid by the IRS is up near 50 percent from the $2.06 billion the IRS paid out in 2019.

EMA has been working closely with both the IRS and Congress since the pandemic began to speed up processing of refund claims made by marketers for the sale of clear, tax included diesel fuel to state and local governments at a tax excluded price.

Marketers are experiencing refund delays of up to a year for such claims, forcing them to float millions of dollars in federal motor fuel excise tax refunds that would ordinarily be paid within 45 days.

The IRS must pay 3 percent interest on late processed claims. However, those payments will not be added to pending refunds. Instead, the IRS will cut separate interest payment checks that will be processed in the future once the backlog of refund claims is cleared.

The IRS also said this week that it is adding a second so-called “surge team” to process a backlog of unprocessed tax forms filed in the past two years and is outsourcing some basic functions to help the agency finalize refunds more quickly.

The new surge team is in addition to the 1,200 employees that the agency is temporarily re-assigning to tackle the backlog.

According to the GAO, the IRS started the current tax filing season this year with a backup of 6.7 million tax returns lingering from last year.

Most of those returns were returns filed on paper that must be reviewed manually; a process slowed significantly by workforce shortages due to budget cuts, low pay for claim processers and employee absence due to the pandemic.

The IRS is warning taxpayers that 2022 will be another messy processing year and to expect further refund delays for claims filed on paper.

To avoid refund delays, marketers should file electronically for a small fee through an IRS approved e-File vendor.

Approved IRS e-File vendors who handle 8849 motor fuel excise tax claim filing can be found online.

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