IRS tackles ‘new ground’ juggling stimulus payments with extended filing season

The IRS faces a three-pronged challenge: disbursing stimulus checks, extending the tax filing season to July 15 and carrying all of this out with about half of ...

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Not for the first time, the IRS finds itself taking on unprecedented workloads and responding to sudden disruptions to the tax filing season.

Last year, the agency dug out from backlogs caused by a 35-day government shutdown yet ended the filing season on time.

Prior to the longest shutdown in history, the IRS spent much of 2018 implementing the first major tax reform law in decades. It also upgraded more than 140 computer systems and updated more than 450 tax forms.

In 2018, the IRS dealt with a tax day IT system outage that affected its direct pay system, which the agency uses to collect payment from taxpayers who owe money on their income taxes. That led the agency to delay the season by a day.

But under the pall of the coronavirus pandemic, the IRS faces a three-pronged challenge: Disbursing stimulus payments to as many as 150 million households, extending the tax filing season to July 15 and carrying all of this out with about half of its employees working from home.

Former IRS Commissioner John Koskinen told Federal News Network that getting these stimulus payments out the door during the filing season would be “a little bit more complicated because the plane is flying while you’re trying to adjust it.”

“What you’re trying to do here is program it to pull data out of the database, and that may be relatively simple and straightforward, or it could be complicated depending on what parts of the system are affected,” Koskinen said.

One former IRS official, who requested anonymity because they didn’t get permission from their current employer to talk to the press , said the tax agency’s business and IT folks likely have been meeting for several weeks to understand the legislative requirements in the $2 trillion emergency spending bill. The official said that will drive the business requirements.

“It will be some kind of batch file that will then [be] tested and once it’s good to go, payments go out,” said the official, who’s familiar with the tax processing systems. “You have to basically write some sort of application to extract information you want from master files. I may be speculating a little here, but knowing the systems and the way they are structured, you have master files and individual master files, and if you are looking at tax years 2018 and 2019, the IRS has to go through and see if a citizen submitted a return this year or just last year. Then, they would have to  compare the information to the requirements in the bill to generate payments.”

Former IRS chief technology officer Terry Milholland

Former IRS chief technology officer Terry Milholland said the IRS has overcome challenges, such as modifying systems under the Tax Cuts and Jobs Act for last year’s filing season. But in that case, the agency had at least a year to administer those changes.

“Now you’re saying, ‘Let’s change those legacy systems while we’re still in filing season,’” Milholland said. “That’s the thing that worries me: The normal processes you would follow to make code changes handling the law, you do not do during filing season. You do a ton of testing. Now you’re told ‘We’re not ending filing season, it’s going to continue with a date change.’”

The former IRS official said at least a week or two before Congress even passed the bill, agency folks were reviewing potential provisions that would require them to update systems and processes.

“The business side then would start talking to the IT folks, asking them how do change the systems and begin writing code,” the official said. “The IT folks would then start to pull prior applications that could do this or help with the changes. Then, they would modify and bring together the necessary technology. Folks already are working hard. The IT operation already is 24/7 so they  will have to shift resources and do double duty. They are good at that, and have a dedication to service that is not matched by many organizations.”

IRS scaling up telework following evacuation notice

Meanwhile, the National Treasury Employees Union, citing numbers from the IRS, said about 44% of the IRS’s workforce are now teleworking, following an evacuation notice the agency issued March 27.

As for the remaining 56%, an NTEU spokesperson told Federal News Network that the IRS has yet to provide a breakdown of how many continue to work out of the office, which the evacuation order permits, and how many are out on weather and safety leave.

Koskinen said the IRS has had a robust telework program for years, but the agency’s call centers, now with less staffing, will almost certainly see an increased call volume because of the stimulus payments.

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“They’re going to call, rather than go online, so that’ll overload the depleted call centers as well. It wouldn’t surprise me that people are going to have to wait a long time on [the] line,” Koskinen said.

Milholland said that the last time the IRS sent out nationwide payments, in the aftermath of the 2008 recession, the agency was inundated with millions of calls from households asking when they would receive their stimulus check.

“When the phone rings and taxpayers ask, ‘Am I eligible?’ all of that has to be written down and established as processes. This is hard to do when people are not at work, they’re not in meeting rooms, they can’t get together,” he said. “It’s a brand-new set of requirements that have been laid on the IRS. It’s doable, and they will move mountains to try to do it, but it is non-trivial to do in the sense of, ‘Oh yeah, we know how to do this.’ This is new ground.”

NTEU President Tony Reardon said the IRS is currently expanding a telework program for customer service representatives that was successfully piloted and negotiated by the union.

“As IRS is able to procure the required equipment, it is training employees so that they may accomplish their work at a telework location. There is no timeframe that NTEU is aware of for when that process will be completed,” Reardon said in a statement.

New challenges, new playbook for legacy IT

While the IRS and Treasury sent out 2008 stimulus checks to more than 130 million taxpayers, the agency may not still have the institutional memory of its best practices from that scenario.

IRS Commissioner Chuck Rettig told the Senate Finance Committee last year that about 45% of the IRS’s total workforce will be eligible to retire by next year, while only about 3% of its workforce is age 30 or younger.

With that aging workforce in mind, Milholland said many of the career officials who oversaw the recession payments have likely left the agency.

“There’s a lot of people now who have left that would be very familiar with how it was done,” he added.

But the IRS must also deal with aging IT systems in addition to an aging workforce.

The former IRS official said the Office of the Chief Information Officer continues to write much of its own code either with employees or with contractor help.

The official said finding people to work on IBM mainframes is difficult, and even if you found retired experts, not knowing the IRS systems makes bringing in outside help even harder.

“In the CIO’s office there is an assistant CIO for application development and a master file group. They will be on point for writing the new code or applications,” the official said. “There is an enterprise systems test group to test it and then it will be deployed. To do it straight off the 2018-19 filings, I think it will take three to four weeks. What will take longer will be exceptions for those people who do not need to file return or for those people who didn’t file but should’ve. Those will take longer to work through.”

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The former official said about 70% to 80% of the payments should be pretty straight forward, but the 20% to 30% outliers who are unique will take longer.

Milholland said the standard April 15 filing deadline is hard-coded into the 30-plus systems used to process tax returns. Those systems, he added, have a “little bit of leeway,” such as in 2018, when the IRS pushed back the filing season back one day because of a systems outage.

Pushing the filing season deadline back by three months, however, becomes complicated for downstream systems that calculate interest and penalties.

The former IRS official said extending the 2019 filing deadline causes more harm than help.

“With an April 15th deadline it’s a all-hands-on-deck approach, so  adding a few months to it makes it harder. The IRS will have to look at all the implications from interest, from penalties and so many other things that will have to be changed,” the official said. “For the IRS, lengthening the filing  deadline is almost a gut punch.”

Meanwhile, time spent sending out stimulus payments and wrapping up this year’s filing season will push back the timeline of when the IRS can prepare for next year’s filing season.

During this time in a normal filing season, the IRS would develop requirements for the following year, Milholland said. By July and August, they would begin new coding for the upcoming season.

As for mitigating fraud, Koskinen said scammers would have few opportunities to take advantage of the stimulus program, since many payments may be direct deposits to the banking information on-file for most taxpayers.

If scammers got ahold of stolen Social Security numbers, Koskinen supposed that they could try to reroute the payment by submitting a change of address request, in the hopes that the IRS mails them a check.

But even then, that scheme might have not play out.

“I would assume that if you send in a change of address, there’s going to be a double-check on that before somebody just automatically sends out the payment,” Koskinen said.

Treasury expands timeline on stimulus checks

While Treasury Secretary Steve Mnuchin has projected that stimulus payments will go out in the next two-to-three weeks, officials from both agencies have told Congress that some payments take several more months.

According to a House Ways and Means Committee memo issued Thursday, the IRS expects to issue 60 million payments through direct deposit by mid-April – most likely the week of April 13 – for taxpayers who have submitted direct-deposit information in their 2018 or 2019 tax return.

This will include Social Security beneficiaries who filed tax returns with direct deposit information.

The memo, obtained by Federal News Network, is based on committee briefings from IRS and Treasury officials.

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About 10 days after the first round of payments, the IRS expects to begin a second wave that will include Social Security beneficiaries who didn’t file tax returns this year or last year, but receive their benefits through direct deposit. Nearly all beneficiaries who don’t file get their benefits through direct deposit.

By the week of May 4, the IRS will begin sending out paper checks at a rate of about 5 million per week. The memo notes it could take up to 20 weeks to send all the checks.

The agency will send out the checks starting with people with the lowest income first.

The memo estimates there are 150-170 million taxpayers in the United States, but the IRS seeks further information on as many as 110 million of those filers.

Those filers will receive a paper check, unless they provide their direct-deposit information in an online portal that the IRS expects to have running by mid-April.

The memo directs non-filers to submit a “simple tax return” and to include direct deposit information if they want to receive their rebates quickly.  That document will only contain a few questions, including name, Social Security number, dependents, and deposit information.

Meanwhile, the IRS encourages as many taxpayers to file their returns as quickly as possible. As electronic 2019 tax returns come in, the IRS will post updated tax information weekly to its files and send this information to the Bureau of the Fiscal Service.

“The IRS will get it done,” the former official said. “It’s a much-maligned agency over the last decade, but on the technology side they come through when they need to. Over the last few years with the tax reform act, people were very surprised the last year’s filings went so smoothly.”

Federal News Network executive editor Jason Miller contributed to this story.

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