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Today's episode of Tax Extenders Folly

IRS not cashing checks fast enough

About the same time Uncle Sam was announcing that next spring he was going all electronic when it comes to federal benefits, a watchdog agency was chastising the IRS for not cashing tax payment checks more quickly.

IRS slowness in processing paper payments is costing the Treasury hundreds of thousands of dollars in interest earnings, says the Treasury Inspector General for Tax Administration (TIGTA).

As you recall, the IRS was exempted from the upcoming total
e-payment edict
, meaning tax refunds will continue (at least for now) to be issued in the old-fashioned paper form to taxpayers who prefer that method.

And the IRS will continue to accept our annual remittances in check form, too.

But when that happens, Uncle Sam needs to put his John Hancock on the payment document's back and send it off to the bank to be processed ASAP.

Hand signing a check

OK, the IRS doesn't actually endorse our payment checks anymore. That's now done electronically, too.

TIGTA took a look at exactly how the IRS processes the billions of dollars, mostly as paper checks, that the agency gets each year from folks paying estimated taxes, submitting payments with their annual tax returns and getting up to date on past-due taxes.

TIGTA's findings? The IRS is generally scanning checks and accurately posting the payments to taxpayer accounts.

However, only 13 percent of the 770,504 payments that were reviewed by TIGTA were deposited the next business day through the Treasury Department's Financial Management Service. That delay meant the IRS lost $695,115 in interest on the payments that were not promptly processed.

While $695,115 is less than a tiny drop in the federal deficit bucket, remember that the amount was calculated from less than 800,000 payments reviewed by TIGTA.

"The timely processing and crediting of payments to appropriate accounts benefits taxpayers as well as the IRS," said TIGTA Inspector General J. Russell George. "When payments are not promptly processed, taxpayers lose the benefit of the interest earned that is credited to the Department of the Treasury."

Lost earnings trending upward: Breaking it down further, those deposits' "lost opportunity cost" is $449.79 per $1 million in payments, says TIGTA.

Again, not a huge number, but the trend is disturbing.

This latest figure on lost potential earnings is more than twice the $203 per $1 million processed through the IRS system in fiscal year 2009. 

Cutting down the float: The IRS acknowledged it could do better in depositing checks as quickly as possible.

The agency says it is developing "an action plan to improve timeliness of payments … and to reduce Lost Opportunity Cost associated with processing payments."

For taxpayers the bottom line is to make sure you can cover any check you write as soon as you send it off to the tax collector. The IRS swears it's going to cut down on check float times.

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