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Sequester could delay tax refunds

By Kay Bell · Bankrate.com
Thursday, February 28, 2013
Posted: 1 pm ET

Did you file your taxes as soon as the Internal Revenue Service started accepting returns Jan. 30? Then you probably don't have to worry about problems with your refund because of sequestration.

But late filers could see their refunds delayed.

Of course, taxpayers who file later in the season generally owe Uncle Sam. That's why they're putting off their annual tax task.

This year, though, many folks have had to wait because of the late passage of tax laws (the "fiscal cliff" bill enacted Jan. 2) and the subsequent delay while the IRS updates forms and its computer system.

When the mechanics of sequester kick in on Friday -- and yes, that will happen -- then every federal agency could face operational problems because of furloughs. And fewer workers at IRS return processing facilities means that it will take longer to get through all the 1040s.

That's not a surprise. Such a warning was made by Acting Treasury Secretary Neal S. Wolin in a Feb. 8 letter to Sen. Barbara Mikulski, D-Md., chair of the Senate Appropriations Committee.

Sequestration effects, wrote Wolin, "would be particularly painful at the IRS." In addition to slowing down tax return processing, "the cuts to operating expenses and expected furloughs would prevent millions of taxpayers from getting answers from IRS call centers and taxpayer assistance centers and would delay IRS responses to taxpayer letters."

So if you have a question about your tax situation and want official word from the IRS, you might want to touch base with the IRS sooner rather than later.

1 month until furloughs

The one bit of good news is that under union contracts, federal employees must be given at least 30 days' notice before their work hours are reduced. That means the IRS should be fully staffed until April 1.

Union leaders plan to meet early next week with the Labor Department to hash out worker furlough issues. What they decide should give us all a better idea of what to expect.

"We've never been through a sequester before," Colleen M. Kelley, president of the National Treasury Employees Union, told the Washington Post. Her union represents 130,000 workers, including those at the IRS. "There aren't any rules."

Of course, Congress and President Barack Obama might come to a deal on how to stave off the $85 billion in federal budget cuts before the April IRS furloughs begin. And I might win the lottery.

But if they don't, sequestration could cause problems for the tax agency and taxpayers who don't do their taxes until just before the April 15 deadline.

That combination of fewer IRS workers and millions of last-minute filers (and yes, I'm one of them) could make for a really ugly April.

Have you filed your taxes yet? Have you received your refund? Is the sequester going to prompt you to file earlier than you planned?

***

Want the latest news on taxes, tax reform prospects, filing deadlines, Internal Revenue Service alerts and tax-saving tips? Subscribe to Bankrate's free Daily Tax Tip newsletter, our Weekly Tax Tip newsletter or, if you're a true tax geek, both!

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Veteran contributing editor Kay Bell is the author of the book "The Truth About Paying Fewer Taxes" and a co-author of the e-book "Future Millionaires' Guidebook."

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