irs: the US Internal Revenue Service has millions of unfiled tax returns and pays billions in interest to those who wait

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When many investments don’t pay much, Americans can earn 4% guaranteed interest. The caveat is that your tax refund must be held by the IRS.

Individual rates of 4% took effect in April, up one percentage point from the previous quarter. The rate of refunds to large businesses has been increased from 0.5% to 1.5%. The Internal Revenue Service generally takes 45 days to process a tax return and issue a refund. Thereafter, interest begins to accrue in amounts tied to federal short-term interest rates, which change quarterly.

These interest payments come at a price to the general public: According to an analysis by the Government Accountability Office, the IRS paid $3.3 billion in interest to filers in fiscal year 2021, more than triple what it paid in 2015. According to the Treasury Department, interest payments through March were down 11% for the fiscal year that began in October, but are still significantly above 2019 levels.

The IRS processed tax returns at a slower pace than usual. Administration officials say it’s the result of years of Republican-led budget cuts. Republicans say the agency failed to prioritize serving taxpayers. The last few years have been extremely difficult. A backlog developed in fiscal year 2019 following the government shutdown. When the coronavirus outbreak hit in 2020, the IRS slowed down again and it is still months behind in processing paper returns.

Nina Olson, former in-house taxpayers’ attorney for the IRS, says the government should invest in technology that will allow it to automate the processing of returns created with the tax program but submitted on paper. Individual employees copy them by hand and type them into IRS computers.

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