How Does the IRS Process Tax Returns?

by K.A. Francis ; Updated March 15, 2018

Most taxpayers know two things when it comes to processing tax returns: the form they need to file and the date the tax return is due. Past that, tax returns are a mystery, including how they are processed. Rest assured, it's not magic, there is a process the IRS has in place to ensure tax returns are processed as efficiently and quickly as possible.

The Pipeline

The IRS uses a system it calls the Pipeline to process mailed tax returns. When returns arrive at the processing center, the returns are machine-sorted according to the bar codes on the envelopes. Next, another machine separates the returns based on whether payment is enclosed by searching for magnetic ink found on checks. After this sort, returns are manually sorted by workers at special stations called sorting tables.

Returns with payments enclosed are routed through a payment remittance system. This ensures that payments are posted to the IRS accounts within 24 hours of receipt. The remaining returns are put into groups of 50 to 400 documents called blocks. Blocks of the same return type are grouped together and logged into the computer system that tracks movement through the processing pipeline.

Tax Examiners and Data Transcribers

Once the returns have been entered into the system, tax examiners review the returns and correct any errors a preparer made. If there are questions about a return, the examiner contacts the preparer and asks for clarification or additional information if needed. At the time, the return is given a document locator number. Each part of the number helps track the return's location within the pipeline. The number includes the code for the processing center, the type of return, the Julian date (a four-digit code representing the date), the block, the sequence number and the processing year.

Next, data transcribers input the return into the computer system. Once the return is entered, a second data transcriber inputs a portion of the return a second time to ensure all information is accurate. After the second transcription, the return is transmitted to the Martinsburg computer center where it undergoes additional reviews. If the return is error free, it is added to the IRS Master File. If errors are found, the return is sent back to the processing center, and a tax examiner makes corrections using the Error Resolution System. Then the return is again sent to Martinsburg to be added to the master file. Once the returns are included in the master file, refunds or balance due notices are processed and sent to taxpayers.

Returns are temporarily stored in Submission Processing Center files until they are permanently moved to the Federal Record Center.

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E-Filing

E-filing eliminates the sorting and inputting of the return into the system since the return is filed electronically. This means the return skips to the examiner quickly looking for errors and then transmitting the return to Martinsburg for final processing.

Processing Refunds

The IRS strives to process all mailed returns within 21 days, with e-filed returns processed even quicker. However, errors or requests for additional information can slow down this process. Also, if you claim the Earned Income Tax Credit or the Additional Child Tax Credit, the IRS expects that refunds will not be received under February 27, 2018, assuming that the tax return has no issues. You can track the status of your refund with the IRS "Where's My Refund" tracking tool. You'll need the primary filer's Social Security number, the exact amount of the refund and the filing status (single, joint, head of household, etc.).

Tips

  • The IRS processes trillions of dollars in tax return payments and refunds at a cost of less than $0.50 per $100 collected.

About the Author

K.A. Francis is a freelance writer with over 20 years experience, and a small business consultant and jewelry designer. She holds a Bachelor of Arts in English and business administration and a Master of Arts in Adult Education. She has written for "The Einkwell," "Windsor Parent," MomsOnline, Writer's Stew, Lighthouse Venture Group and others. Her jewelry design company, KAF Creations, has been in operation since 1998.

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