By Karen Hube
Taxpayers, beware.
This tax season, there are many ways individuals -- through no wrongdoing of their own -- could end up with unfair penalties, withheld refunds, or exasperating drawn-out grievances with the Internal Revenue Service $(IRS)$.
The Taxpayer Advocate Service (TAS), a unit within the IRS, sounded the alarm in January about inadequate taxpayer protections that can lead to tax traps, and is encouraging lawmakers to address the problems.
Legislation was proposed in February by U.S. Senate Finance Committee Chairman Mike Crapo and ranking member Ron Wyden to address problems.
But in the meantime, with the tax season already under way and the Internal Revenue Service (IRS) staffing down 27% after cuts in 2025, taxpayers remain vulnerable to the following issues:
Unwarranted penalties
Midnight on April 15, the tax-filing deadline, is supposed to be a clear divide between rule-abiding taxpayers and noncompliant ones. But due to a fault in processing procedures, if you file your return in the final hours or days before the deadline, you risk being mistakenly classified as a late-filer and charged a 5% penalty.
"This can happen because there can be a delay of a few days between when you hit the button on your computer to file and when the IRS acknowledges receipt," says Pete Sepp, president of the National Taxpayers Union. "This year, April 15 falls on a Wednesday. To be safe, I would look at April 10(th) or 11(th) as the latest to file."
Refund delays
Most refunds are paid out within three weeks of filing a tax return.
But every year, thousands of refunds are held up, and the IRS isn't required to process them within a certain period or provide information to taxpayers on what is responsible for the holdup.
"The IRS can simply ignore refund claims," the TAS notes in its report to Congress. "This bizarre result is a poster child for nonresponsive government."
So far for 2025 taxes, the IRS has withheld refunds for at least 1.4 million individual taxpayers because taxpayers didn't provide bank direct deposit information, and roughly 300,000 more a week are likely to be frozen through April 15.
Under an executive order signed by President Donald Trump last year, the IRS should avoid issuing paper checks. Last year, about 10 million taxpayers received paper refund checks.
"Most taxpayers have no idea this change exists and will be waiting for money that's in limbo," says Parag Patel, a tax attorney at Patel Law Offices in Clark, N.J. "The policy was implemented very quickly and in a flawed manner."
If you have already filed without your direct deposit information, you will likely receive a CP53E notice from the IRS requesting account information. To speed up the process, even if you haven't received a notice yet, you can set up an account at IRS.gov and input your information there. The IRS won't accept direct deposit information by phone.
It could take up to six weeks to receive your refund. If taxpayers don't supply information, the IRS will eventually send a paper check, but the time frame isn't specified.
Errors by tax preparers
If your tax preparer files your return late, you aren't off the hook from a late-filing penalty.
The IRS will lift penalties for reasonable cause, but a tax preparer's negligence or error doesn't count as an excuse, a rule TAS calls "grossly unfair."
To ensure compliance, ask your preparer to confirm submission in advance of April 15.
You can also use a personal account at IRS.gov to track your return, IRS correspondence and other matters, says Phyllis Jo Kubey, an enrolled agent in New York City. "It's a pain to set up, but once you have it's a really helpful, comprehensive tool."
Lack of standards for paid preparers
Paid tax preparers aren't required to have any credentials, and 56% don't, according to the Center for Taxpayer Rights.
"You could have anyone put a sign up in their window saying I will prepare your returns," says Janet Holtzblatt, a senior fellow at the Urban-Brookings Tax Policy Center.
The problem? Non-credentialed preparers make far more errors than certified public accountants and enrolled agents, who must meet rigorous requirements to receive their designations.
In 2024, returns prepared by non-credentialed preparers accounted for 96% of audit adjustments related to the earned-income tax credit, according to TAS.
Crossed wires at the IRS
At the IRS, one hand doesn't always know what the other is doing, sometimes resulting in demands for payment that you have already made.
Consider a married couple who filed their 2022 taxes separately, then filed an amended return because they switched to file jointly for a refund, says Brian Schultz a partner at Plante Moran who has been working with the couple to resolve the problems.
The IRS lost the amended return. After the couple resubmitted it, requesting the refund be applied to the 2023 tax bill, the IRS mistakenly issued a refund two times. The agency then sent failure-to-pay notices for 2023 because the refund hadn't been applied to the taxes owed.
"We sent a letter of instruction with a voided refund check, saying to apply it to 2023," Schultz says.
The upshot? The IRS still hasn't applied the refund to the 2023 taxes, and continues to demand payment. Said Schultz last week: "Last night, the IRS issued another refund check." And so, the saga continues.
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This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
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March 28, 2026 05:00 ET (09:00 GMT)
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