NAEA polled its government relations committee members and asked them to share their thoughts on the draft Form 8888 (Direct Deposit of Refund) recently released by IRS.  The Form 8888 appears straightforward and should be reasonably simple to complete. We offer but the following observations with respect to IRAs: 

The IRS should also take greater steps to clarify certain issues with regard to depositing refunds in an individual retirement account (IRA).  For instance, while the possibility of such a deposit gets a brief mention in the instructions, the proposed Form 8888 only gives the option of “checking” or “savings” accounts.  It would serve as a more direct reminder to the taxpayer if there were a third box for deposits to IRAs (and other similar accounts). 

If the taxpayer elects to deposit all or part of her/his refund in an IRA, she/he should be able to elect on Form 8888 to which calendar year the contribution should be credited.  Without proper precautions, this decision may lead to widespread problems with the returns of individuals who elect to deposit their refunds in IRAs credited to the previous calendar year. For instance, returns filed on April 16, 2007 (the 15th is a Sunday) will not be processed in time for the IRA deposit to be timely.  In order to avoid such problems the IRS should either a) set an earlier deadline for  filing Forms 8888 with prior calendar year IRA elections; or, b) establish by reg that timely filed returns with Form 8888 prior year IRA elections are considered timely.