Beginning in July, the IRS will begin paying 5% guaranteed interest to individuals who have filed late tax returns, an increase of 1% from the previous interest rate increase in April.
The IRS also announced Friday that it will pay 4% interest on late corporate tax returns, 5% interest on underpayments on tax returns, and 7% interest on “large corporate underpayments.”
The federal government routinely spends billions of dollars on interest on postponed returns. According to a Government Accountability Office (GAO) report published in April, the IRS has paid out nearly $14 billion in refund interest over the last seven fiscal years.
According to the GAO, such payments will total $3.3 billion in fiscal 2021 alone.
“The IRS does not identify, monitor, or mitigate issues that contribute to interest refunds.” As a result, the IRS is passing up an opportunity to save money, according to the watchdog report.
The number of delayed returns is still in the tens of millions, having risen dramatically during the pandemic as the IRS closed facilities and diverted resources to administer benefits such as the child tax credit.
The agency has 45 days under the law to process a tax refund. According to the agency, 90 percent of refunds are issued within three weeks.
“The IRS is sitting on 13 million unprocessed tax returns and over 26 million tax returns that are waiting needing further IRS action,” Rep. Tom Rice (R-S.C.) told a House Ways and Means subcommittee hearing on taxpayer fairness earlier this week. “At the same time, IRS phone service levels are near all-time lows, making it nearly impossible to reach an IRS agent for help with tax or audit matters.”
Some Democrats have advocated for increased IRS funding while accusing Republicans of underfunding the agency in order to preserve de facto tax breaks due to uneven enforcement.
In an April statement, Senate Finance Committee Chairman Ron Wyden (D-Ore.) said, “I’ll get right to the heart of the matter for those families whose refunds may be delayed due to IRS backlogs.” “If you’re dissatisfied with the IRS’s customer service, you can blame Republican budget cuts for undermining the agency’s ability to meet your expectations.”
“Despite all of their talk about running government like a business, Republicans appear to want to turn government into the kind of dysfunctional business that never has a repeat customer.”
Republicans, meanwhile, are concerned that increasing IRS funding will result in tens of thousands more federal employees focused on tax enforcement.
“According to the Congressional Budget Office, President Biden’s plan to supercharge the IRS with $80 billion in mandatory funding and 87,000 new IRS agents will result in drastically higher audit rates for all Americans at every income level,” House Ways and Means Republicans said in a statement Wednesday.
Rep. Bill Pascrell (D-NJ), chairman of the House Ways and Means Oversight Subcommittee, has called for IRS Commissioner Charles Rettig, a Trump appointee, to resign.
“Mr. Rettig has had ample time and cooperation to begin the critical work of fixing the IRS.” There must be true accountability. President Biden must replace Mr. Rettig immediately and also nominate a Chief Counsel for IRS,” Pascrell said last week.