Last-Minute Tax Rush to Delay Refunds

WASHINGTON —  About 40 million income tax returns are expected to be filed with the Internal Revenue Service this week in a last-minute rush that will beat the Wednesday deadline for filing but result in long delays for taxpayers due refunds, IRS Commissioner Lawrence B. Gibbs said Monday.

Between 70% and 75% of all taxpayers are expected to get refund checks, and the average refund will be about $1,000, Gibbs said.

Those filing late returns will have to wait about six to eight weeks for their refund checks, compared to a wait of four to five weeks for taxpayers who filed earlier.

40% Yet to Be Filed

About 40% of the 106 million income tax returns due to be filed this year still had not been filed two days before the deadline, Gibbs said. It remains to be seen how many late filers will request extensions for their returns, he said, but last year about 5 million of them were allowed to file after the April 15 deadline.

Gibbs, in a wide-ranging interview during a luncheon session with reporters, said he found it “incredible” that so many Americans overpay their taxes during the year and then wait so late to file their returns, thereby giving the federal government the use of money during a period when the taxpayers themselves could be using it.

The average refund check has been increasing by about 10% in each of the last five years, and Gibbs said the amount of federal tax deposits of money withheld from taxpayers this year already is running about $1 billion a month ahead of last year’s figures.

The IRS, which has been experimenting with electronic filing of tax returns through computers, expects to cut the amount of time required for sending tax refunds by three weeks once electronic filing is available nationwide, Gibbs said.

He predicts that taxpayers will be able to file electronically from anywhere in the United States in the next two to three years. Under a program now in its second year, professional tax preparers in seven areas--Cincinnati, Milwaukee, Norfolk, Va., Phoenix, Raleigh-Durham, N.C., Albany, N.Y., and Sacramento--fill out returns for taxpayers and use computers to file them with the IRS. About 26,000 returns were filed under the program last year, and about twice that number will be filed this year.

In addition, the IRS is also studying whether it would be feasible to carry the electronic process a step further and send refund checks directly to taxpayers’ bank accounts.

Gibbs also told reporters that he expects the new income tax law to result in a greater rate of voluntary compliance by taxpayers. The new law, which will affect income tax returns filed next year, lowers individual tax rates to only two brackets, 15% and 28%, from the multiple bracket system ranging from 11% to 50%.

The commissioner and other IRS officials have said that a widespread public perception that the old tax system was unfair was a major factor in tax evasion and at least partly to blame for the nation’s “tax gap”--the difference between taxes owed and taxes voluntarily paid. The new law, they say, probably will be viewed as more equitable by the public.

A greater rate of compliance under the new law should at least curb the growth rate of the tax gap, which the IRS estimated will hit $103 billion for 1986, Gibbs said. The tax gap has risen sharply since the $29 billion registered in 1973, when the IRS started measuring it.

The gap shot up to $84 billion by 1982 and totaled $92 billion in 1985.

The IRS probably will be able to collect about 30% to 35% of the $100-billion-plus owed for 1986 by taxpayers who fail to comply voluntarily, Gibbs said. But he said that the remainder will remain uncollected because it represents small amounts owed by such a huge number of taxpayers that collection efforts would not be cost-effective.

On other matters, Gibbs said:

--The IRS needs to work on balancing its service image with its enforcement image because, while it is important for people to believe that the IRS will find those who are not paying their taxes and make them pay, “it’s very important to let taxpayers know if they’re trying to comply with the tax law, the IRS will help them.”

--A study by the General Accounting Office that showed the IRS provides wrong answers to nearly one-fourth of the taxpayers who call the agency’s toll-free telephone lines seeking tax advice has spurred the IRS to accelerate a program of additional training for agency employees.

--Well over 50% of taxpayers have now filed withholding forms under the new tax law, and other taxpayers have until June 1 to file the forms without being assessed a penalty.