RRCredit

[Larmil]

I still haven't this from IRS -

The IRS is experiencing a high volume of e-filed tax returns claiming the recovery rebate credit (RRC) being sent for review to the IRS manual processing center. Tax returns potentially affected are those that:

1. the taxpayer received an economic stimulus payment during calendar year 2008 and
2. are claiming an additional RRC amount on the 2008 tax return that does not appear to be valid.

Customers filing BANK PRODUCTS:

Based on information released by IRS today indicating a backlog in manual processing on returns filed with the RRC, RIVER CITY will not approve a RAL with an RRC amount on it.

Effective immediately, Drake Software is STRONGLY recommending that you do NOT claim the RRC on a return filed with a bank product without checking the amount at the IRS Website first. If you are going to file a return with ANY TYPE of bank product (deposit or loan), DO NOT claim the RRC on the return. To remove the RRC from the tax return check the ‘Bypass the recovery rebate calculation’ box on the ‘RRC’ screen.

As banks make the decision to decline bank products with the RRC, we will be working to implement back end processing changes that will help prevent returns with bank products from being filed if the RRC is present, allowing you to resubmit the return without the RRC amount.

This processing backlog at IRS will definitely impact the refund deposit schedule for those returns filed with the RRC.

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FOR ALL DRAKE SOFTWARE CUSTOMERS:


Delay in Issuing Refunds:
Returns that are sent to manual processing will experience an undetermined delay in receiving the entire refund. The IRS will validate the RRC amount claimed on the return, make any adjustments and then release the entire refund in one transaction. .

How to Avoid the Delay of the Refund:
In order to avoid a delay in receiving the entire refund the IRS is now recommending that you no longer claim the RRC on any tax returns. Our current understanding, is that this will allow the IRS to issue the amount of refund that is not a result of the RRC and the IRS will then calculate any amount of RRC that the taxpayer is due and send it to them in a separate transaction.

Based on this new information from IRS, our recommendation is to NOT claim the RRC on any return, unless you have verified the amount of the RRC at the IRS Website.

From the IRS: Most taxpayers who received the economic stimulus payment last year will not be able to claim the Recovery Rebate Credit on their 2008 federal income tax returns. Less than an estimated 3 percent of taxpayers are eligible. The vast majority of taxpayers are not eligible to receive the Recovery Rebate Credit.

Only banks. I will do as Bees suggested and file my returns. If they are eligible for RRC then I will claim it. My business is tax return preparation NOT banking. I DO NOT do RALS - never have and never will..

[Lion]

Quick Alert

I receive the IRS Quick Alerts via e-mail and have had NO information re NOT including a RRC on a return or delayed processing or...

[powerage]

I don't like bank products either, but I don't have a say in the matter, and a lot of the taxpayers in this area use them year after year after year.

I filed my brother's return the other night using free file and Tax Act, and he did qualify because he did not file last year.

I have done a RAL where the taxpayer had a son born in 2008, and he is getting an extra $300, but on a separate check. The bank will send me another check file when the IRS makes the deposit.

[Larmil]

I just say no -

I don't like bank products either, but I don't have a say in the matter, and a lot of the taxpayers in this area use them year after year after year.

I filed my brother's return the other night using free file and Tax Act, and he did qualify because he did not file last year.

I have done a RAL where the taxpayer had a son born in 2008, and he is getting an extra $300, but on a separate check. The bank will send me another check file when the IRS makes the deposit.

but I refer them to someone that does RAL's - not the 'big firms', but someone that I trust.

[Jesse]

Based on this new information from IRS, our recommendation is to NOT claim the RRC on any return, unless you have verified the amount of the RRC at the IRS Website.

From the IRS: Most taxpayers who received the economic stimulus payment last year will not be able to claim the Recovery Rebate Credit on their 2008 federal income tax returns. Less than an estimated 3 percent of taxpayers are eligible. The vast majority of taxpayers are not eligible to receive the Recovery Rebate Credit.

Do you think this means if the RRC was calculated correctly there will not be any delay, excluding bank products?

I think there are too many children being alternated back and forth on tax returns that end up with taxpayer receiving an extra $300 and there will be more additional rebates issued than estimated.

[ChEAr$]

Can you imagine?

IRS people manually sorting through a million returns? Tsk.

I would suspect however that all those returns (automatically) claiming 600/1200,etc
rebates are prepared by car lots and furniture stores. Want to bet?

[powerage]

RAL's

but I refer them to someone that does RAL's - not the 'big firms', but someone that I trust.

I can't go into much detail, but the company I work for is excellent. We use Drake and go through SBBT for our bank products, and we are all are tax pros. We are going to be taking business away from the big 3 in my area and throughout the state in the future. I spent 3 seasons at the # 2 big firm and the prices were high. I just talked to someone today who paid Amscott $267. Make an appointment with me, $95 flat rate, or $75/hr if you dump off a box of receipts.

90% of my business is going to be RAL's. I'm still trying to figure out how to get the clients to sign both the use and disclosure forms without being offensive. I personally like "here, read and sign both sides", but I was told to be a little more nice.

[ecb34691]

SBBT and Republic Bank announced on day 1 that they wouldn't loan on the rebate amount (only the non-rebate refund amount), and would send the rebate amount later after the IRS had sent the refund.

[Mike Mac]

Just had one yesterday

I just efiled a return yesterday that qualified (correctly) for an extra $300 due to the Recovery Rebate. The direct deposit refund is not due until 2/6 but I will ask the client to let me know if it came when expected or not and post here if nobody else has done beforehand.

Mike

[ecb34691]

Word out of IRS today indicates that ANY return with an amount other than zero on line 70 may expect up to a 8 to 12 week delay in the refund. They want us to enter zero and IRS will figure the credit and refund. There are many thousands of returns with errors and they are being worked "by hand trying to fix".

[wv112]

If we don't enter how much they got, the refund will show more than they will receive. Or have I lost something here. I can just hear the uproar.

[ecb34691]

Line 70 is for ADDITIONAL rebates that they didn't get last year, ie. $300 for a new child born in 2008, etc.

[David1980]

Glad I always set myself up to owe at the end of the year.

If we don't enter how much they got, the refund will show more than they will receive. Or have I lost something here. I can just hear the uproar.

That's exactly what people are doing and is what caused the problem. This should have been a "duh" about 8 months ago... As a result every return that shows an amount on line 70 the IRS has to verify that the amount is correct. IE, if I received $600 last year and when I go to a new tax preparer and they ask if I got it I'm going to conveniently "forget" in hopes of getting an extra $600. If the accuracy rate was better they'd probably just issue whatever refund was shown and then send extra amounts or bills for amounts paid in excess of qualified.

Taxpayers don't know better. At least enough of them. Preparers don't want to use the IRS tool on every return (but I am, or was. I guess now I just leave 70 blank.)

And my contribution,... SBBT and Republic

SBBT
Due to the high error rate (17%) associated with tax returns claiming a stimulus recovery rebate credit (RRC), the IRS has announced it will delay refunds claiming an incorrect RRC. The RRC is the amount claimed on line 70 of the 1040.

As of 12 pm PST on Saturday, January 24, SBBT will not approve RALs associated with tax returns claiming the credit.

Based on what the IRS has said, if a taxpayer claims ZERO on line 70, and is entitled to an RRC, the IRS has indicated they will credit the taxpayer with the correct RRC, and adjust the refund or balance due accordingly. But if they claim the WRONG AMOUNT, then their REFUND will DEFINITELY BE DELAYED.

Assuming what the IRS says is true, SBBT will not deny a RAL application if line 70 on the associated tax return has a ZERO or nothing in it and the RAL application passes all other criteria.

Republic
Due to the unexpected high usage of the Rebate Recovery Credit (RRC), the IRS announced today that any return containing RRC may be delayed in processing. Based on this, Republic Bank has made the decision to decline any loan product (NowRAL, RAL or Reduced Price RAL) containing the RRC.

Our plan is to activate this decline rule at 8 AM EST on Saturday, January 24, 2009 to allow any applications that you may already have in the process to filter through.

[ChEAr$]

Please

Word out of IRS today indicates that ANY return with an amount other than zero on line 70 may expect up to a 8 to 12 week delay in the refund. They want us to enter zero and IRS will figure the credit and refund. There are many thousands of returns with errors and they are being worked "by hand trying to fix".

would you give us that quote from IRS verbatim? IOW, from the horse's... uh.. mouth?

Is it on their web site?

[Koss]

Recovery Rebate & Delayed Refunds

Okay, I'm gonna put my two cents in here...

So far, no one has cited any authoritative source for the assertion that the IRS has officially requested or recommended forcing the amount of the credit to zero even when the taxpayer qualifies to claim the credit.

This is a garbled urban legend. Like most such legends, it has a few grains of truth in it somewhere.

The IRS website does indeed state that if you claim an inaccurate amount for the credit, it may cause a significant delay in your refund.

The IRS website also says that "the IRS will calculate the credit for you." This implies that if you file a paper return and do not claim the credit, the IRS will probably catch it and fix it. But that same section of the IRS website says that for those who file electronically, the software will calculate the credit automatically. This actually suggests that professionals should not be overriding the software and removing the credit from a return that actually qualifies for it.

With that being said--

It is certainly true that "bank products" are impacted by this affair. HSBC determined long ago that for RALs, the bank would determine the amount of the loan by looking at the taxpayer's expected refund minus any recovery rebate credit. This doesn't necessarily mean there will be a delay in the refund, and it also doesn't mean that there will be a delay in approving and funding the RAL. It means that the bank won't lend the amount of the credit.

And while I just pointed out that no one has cited any authoritative source for the claim that the IRS has recommended forcing the credit to zero, I remember hearing the very same thing back in 2003, as if it were yesterday. I've been doing income taxes for twenty years, and I think I know exactly what's happening here. What follows is educated speculation.

Certain people within the IRS e-file operation are quietly leaking bits of information to outsiders, and this information has not been authorized for official publication. It is word of mouth, and it is actually coming from fairly reliable sources. But they can't be cited on the record. The problem is that the information is getting butchered and garbled by the time it gets into print on message boards and internal communications from the software vendors and RAL lenders.

It is probably true that a large number of tax returns have experienced delayed processing as a result of the recovery rebate credit. In some of these cases, the taxpayer claimed the correct amount, and the return has nevertheless been subjected to a significant delay. But in the vast majority of these cases, the delay is caused by the fact that the return reflects an incorrect amount for the recovery rebate credit.

I firmly agree that in general, we should not be overriding the calculation. If the taxpayer qualifies for the credit, it should be claimed on the return.

However, there are a few special cases where I might agree that it might be better to leave the credit off the return, and wait and see what happens. For the most part, these scenarios will arise only for taxpayers who are seeking a RAL, or for those clients who are willing to wait a week and a half or so for direct deposit, but are unwilling to tolerate a delay of another two or three weeks. If you don't work with this type of client, this probably won't be of interest to you.

There may be a few cases where the IRS database, and the IRS website tool, indicate that the client received a stimulus payment, but they really didn't. And I'm not talking about cases where the stimulus payment was applied to some sort of outstanding debt such as back taxes or child support. I'm talking about cases where they really, really, really didn't receive it, but the IRS computer thinks they did. And I think this may have happened if the taxpayer moved, and the stimulus check was returned by the postal service to the IRS. This is particularly likely if the taxpayer filed the 2007 return late in the year, with or without an extension, and the stimulus check was mailed, say, in October or November. If the check wasn't returned by the postal service to the IRS until some time in December, then the IRS database still thinks that the guy actually got the stimulus payment.

So now you have a client swearing that they didn't get it, but the IRS website, as well as your review of the 2007 return, says that they got it. What are you going to do?

You better warn the client that if they claim the rebate, there is a very high probability that the entire refund will be delayed. If, on the other hand, they do not claim the rebate, and they really are entitled to it, the IRS will probably catch it and fix it on the back end. That's exactly what happened in many cases in 2003. And at least in the meantime, they'll get most of their refund in a timely manner. So in this type of scenario, if the client has a strong desire to minimize the possibility of a delay, it may be appropriate to let the client decide whether to claim the rebate or "wait and see."

There are other more complicated scenarios that may crop up here and there. For example, what about a new client that tells you they didn't file a return last year? You can't use the IRS website to verify that they didn't file. And I wouldn't be surprised if the IRS actually has a bit of trouble with some of those, too.

But here's the best one, which is actually more common that you might think, especially in a storefront practice with lots of low-income EIC returns. What about a new client that can't remember whether they got a stimulus payment, or vaguely remembers getting one but doesn't remember the amount? Easy, you say: Just look it up on the IRS website. The problem is that this is a new client, and to get the data from the website, you either have to have a copy of last year's return, or the client has to be able to accurately tell you what their filing status was, and the number of exemptions. And some of these clients really don't know. And they don't have a copy of last year's return, and they don't know where it is, either.

I see several clients like this every year. I also see clients that come in and file their return in late January, and then come back two weeks later with a Form W-2 that they somehow "forgot about"--even though it reflects $4300 of wage income. Some of these folks are literally on drugs, or so dysfunctional for other reasons that they really, really didn't remember that job they had back in March, April and May of 2008, where they somehow managed to earn $4300. They really thought they had all their W-2s when they filed their return. If they can't remember earning $4300, how can you expect them to remember a stimulus check for $328?

Yeah, some of them were for odd amounts, because in some cases it was driven by the tax liability on the 2007 return.

We're talking about single mothers with three kids that can't remember whether they claimed two kids or three kids on the 2007 return, because every year they fight over who gets to claim which kids. One year she might agree to let the father claim one kid, and let her mother claim the other kid.

Add in confusion over last year's filing status, and you may not get any data from the IRS website about this client.

We also saw cases back in 2003 where clients claimed they never got the "advance rebate payment," but the IRS knew that in fact they had, and what really happened was that their spouse beat them to the mailbox, and cashed and spent the check without ever saying anything about it. Believe it or not, this sort of thing can even happen in higher-income families. And in a few cases, where one spouse said "no, we never got it," the other spouse really isn't lying when they say they didn't get it. They're just really, really confused. Especially if the stimulus check was an oddball amount, they might have really gotten it mixed up with their state tax refund.

I"m not kidding. I had one client that filed a 2007 return with a massive balance due, because the husband was severely underwithheld, because he had been monkeying around claiming eight exemptions or something on his W-4. The wife actually paid the tax due when they mailed the return, but they didn't pay the underpayment penalty. The IRS billed them for it, and when they didn't pay it, the IRS applied the stimulus payment to the amount due. Then something went wrong with their state tax return that required direct contact with the state tax authority. They finally got their state refund several months later. After depositing the state refund, the wife somehow thought that the state refund was the stimulus check. The IRS had sent a notice stating the amount of their stimulus payment, but she hadn't read the part about how it was applied to their balance due. In trying to sort out all this confusion, when I asked her who the check was from, all she knew was that it was some sort of a tax refund. She barely understood that the IRS is separate from the state tax agency.

Bottom line: If you can't get hard data as to what they actually received, it may in fact be advisable to force the recovery rebate credit to zero, and let the IRS sort it out after the fact. And even if you are absolutely certain of the amount they received, if that amount doesn't match what comes up on the IRS website, you better prepare the client for a delay in the refund.

BMK