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Where’s My Refund? Tips for Frustrated Filers -- and Investors

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The IRS hasn't generally been known for its straightforwardness and efficiency, but issues around this year's tax refund checks are, in a lot of ways, a whole new ballgame. Refund problems often hit those who would otherwise have a pretty smooth filing process, where 1040 employment forms generate a refund based on federal withholding practices by an employer.

Like other kinds of inscrutable IRS problems, refund delays can have an impact on other kinds of tax activity. That's why it's a good idea to know what's going on right now, and how to give yourself the best chance of moving smoothly ahead with annual filing as well as IRA contributions, investment management and other kinds of long-term tax planning.

Tax refunds and new technology
One recent change is that the IRS has created a neat new way to track tax refunds: the IRS2GO tax tool, which includes responsive design for mobile devices and provides boxes for a taxpayer's Social Security number, filing status, and projected refund amount, with a control button that allows users to "Get Status."

Unfortunately for some taxpayers, it's just not that easy. In coverage Feb. 12, Kelly Phillips Erb, who covers many tax issues for Forbes magazine, notes that some taxpayers waiting on refunds are unable to use this tool the way it was intended. In "The IRS, The Refund Process, and That Pesky 1121 Code," Erb gets to the bottom of reported problems with the service's new cutting-edge app.

Part of this glitch has to do with a numeric code used by the IRS to indicate a generic sort of error. Erb notes that the IRS has said little about the actual meaning of this error code but has committed to looking into the matter. She also points out that unlike other straightforward problem codes -- such as a security number or name mismatch, for example -- the 1121 code is pretty opaque.

Much like an engine computer code corresponding to an unknown part of an automobile, 1121 really can't be traced back to anything case-specific. That leaves frustrated taxpayers waiting for the IRS to contact them to get more information and figure out what's happened.

This interesting detail represents a kind of "systems futility" that taxpayers have noted in the process since long before mobile devices were invented: It's no good to find new ways of delivering information if that information isn't useful. Rather, it's another "feedback loop" that sucks time from an efficient process, something that would never be tolerated in many kinds of business processes, but that somehow runs rampant outside of a dedicated "customer service department."

The context of refund delays
Refund delays can have to do with many things. They can be caused by issues like the Earned Income Tax Credit or other complicated credits, as mentioned in Erb's article. They can have to do with tricky bits of information stuck in IRS computers, or they can be related to issues with the postal mail system.

When taxpayers get proactive and pick up the phone, a lot of the results depend on who they reach. Over a series of callbacks, a caller may build a trusting relationship with a specific IRS employee who can help them navigate the process and find a refund. However, they're just as likely to get discouraged and give up.

What does this mean for investors and those trying to plan for the future? One common strategy is to work with a qualified tax preparer to project the results of the delayed refund situation. Many of these professionals can help individual clients prepare for IRA contributions and other kinds of long-term tax planning, regardless of whether a refund check has been issued and cashed. Without this kind of assistance, individuals and families may be tempted to put other tax planning on hold until the refund situation is resolved. Those with specific knowledge and tools of the trade can work more on a contingency basis, to document and promote activities around capital gains, while factoring in an as-yet invisible refund.

Another good lesson to learn from these kinds of issues is that with any kind of annual filing, organization is key. Some experts have pointed out that careful handling of names, Social Security numbers, and other identifiers can soothe some of these paperwork problems. At the same time, investors who are trying to manage their contributions, portfolios, and gains from an annual filing perspective can save hours, and headaches, by having new kinds of documentation systems in place. That may be an Excel spreadsheet, or something more sophisticated -- a piece of brand-name software with features for items like performance tracking, tax burden projections, and yield estimates. In any case, a new technology can help to neatly order elements like cost basis that can throw a wrench in an investor's return, in somewhat the same way that a refund delay affects the return of a simpler filer.

Journalists will continue to try to find and deliver more from the front lines of the "dialogue" between tax offices and taxpayers, as politicians will continue to ask for simplifications to the tax code. For those who have to manage investments and other challenges in filing, the best strategy is to learn the code as it is now, and recognize some of the most inherent glitches, to pen a better return and become more able to spot hangups each spring.

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