ICI Comments on Proposal to Allow Tax Refunds to be Split Among Multiple AccountsWashington, DC, September 27, 2006 - In a recent comment letter, the Institute commented on a proposed split refund project that would allow taxpayers to direct the deposit of their tax return to up to three accounts (including an IRA). Background
In May 2006, the IRS announced that it would create a new program to allow taxpayers who use direct deposit to divide their refunds in up to three financial accounts. Under newly created Form 8888, taxpayers would have a choice of selecting one, two, or three accounts such as checking, savings, and retirement account. In a follow-up letter to the Treasury Department and the IRS, ICI reported the results of an informal survey regarding members' capacities to accept direct deposit of income tax refunds. Based on the results of the survey, ICI made several recommendations for implementing the program: - Treasury should delay modifying the rules regarding the deadline for prior-year IRA contributions until the financial services industry and the IRS gain some experience with split refund deposits to IRAs;
- Treasury should provide clear guidance on how IRA custodians and trustees should report IRA contributions when the taxpayer has not indicated to what year a contribution relates; and
- the instructions to new Form 8888, and the rules IRS and the Financial Management Service uses when there is a change to the refund amount, should be designed to minimize problems with IRA contributions.
ICI Position
More recently, ICI commented on proposed Form 8888. The Institute reiterated comments regarding Form 8888 made in its prior letter, and made several new suggestions based on its review of the draft form and instructions. The comments are all generally aimed at reducing taxpayer error in completing the form, especially where part of the refund is being used to fund an IRA or similar tax-favored account. Related Links
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