It happens more often than you think. The IRS issues erroneous refunds all the time and you suffer the consequences if you handle the issue incorrectly. Missing refunds and reduced refunds are even more common. There is a procedure to handle each situation. Following procedure will avoid penalties due to an IRS error.
We Start with a Missing or Reduced Refund
A surprise refund in the middle of summer from the IRS quickly raises suspicions “this might not be a good thing”. However, refunds for less than anticipated are more common. Missing refunds top the list.
Before you panic, refunds have a general time table. If your refund is AWOL you might need to practice patience first. If it’s been less than three weeks since you e-filed (six week for paper filed returns) you need to wait a bit longer. Calling the IRS will waste a good portion of your day only to hear the friendly IRS employee say you need to wait at least 21 days before they can do anything.
If the allotted time has elapsed you can check on your refund status online. (You can actually check your refund status few hours after e-filed and it should show up as received.) You will need your Social Security Number, filing status and exact amount of your expected refund. Sometimes the IRS tells you to wait a bit more as they continue processing your tax return. This happens a lot with returns containing credits, especially the Earned Income Credit.
If a problem exists with your return the IRS should let you know. If the IRS says your return has been processed and refund issued you will be given a chance to file a dispute in the IRS’ refund status page.
Amended tax returns use a different search tool on the IRS site. Amended returns are always paper filed for individuals and take around four month to process and a refund issued.
If your refund is less than requested on your filed return you should start with the refund status link above. The IRS should tell you why your refund was reduced.
If your refund is lost or you disagree with the offset portion of your refund you have several choices to resolve the problem. Only contact the IRS if the refund offset was for federal taxes. Other offsets issues should be directed to the agency that received the offset funds. Common refund offsets include: child support arrears, delinquent state taxes and unemployment compensation debt. If you really owe the money you’re probably not getting all the refund you expected.
Surprise IRS refunds are more common than you think. Non-clients stop in the office (or call) several times per year asking what they should do about a refund they didn’t expect. There are set procedures when this happens. If you don’t follow IRS protocol on an erroneous refund you could be on the hook for interest charges and even penalties. If the amount not yours is large enough it could become a criminal issue! And it was the IRS’ fault!
Usually refunds are not larger than expected. If you receive more refund than expected, review your return and the refund status link above for an explanation. Usually you are owed the larger refund. Verify before cashing the check.
When the IRS changes a refund an explanation is mailed to the address of record. A phone number is provided to dispute or verify the change.
The complete surprise refund from the IRS is rare, but happens often enough for a small office like mine to help worried taxpayers unsure what to do with their newfound largess.
IRS procedures cover erroneous refund checks before and after they are cashed and direct deposits.
If the refund check hasn’t been cashed, VOID the endorsement area on the back of the check. Return the Treasury check to the IRS office where the check came from within 21 days. This is found at the bottom of the check and before the words TAX REFUND. I have included addresses at the end of this post. Do NOT attach, staple, bend or tape the check in any way! Include a note stating “Return of erroneous refund check because (and give a brief explanation of the reason for returning the refund check).”
If you got excited and cashed the check, submit a personal check or money order within 21 days to the appropriate IRS office listed below. Since the check is cashed you may not recall which office the check came from. In that case you need to call the IRS at 800-829-1040 for individuals and 800-829-4933 for businesses. Let the operator know you need information to repay a cashed erroneous refund check. Yes, you will be on hold a while so it’s best not to cash a refund check unless you are really owed the money.
Also, write on the check or money order: Payment of Erroneous Refund, the tax period for which the refund was issued, and your taxpayer identification number (social security number, employer identification number, or individual taxpayer identification number). Include a brief explanation why you’re returning the refund. If you cash an erroneous refund check expect to pay interest to the IRS.
Direct deposits of erroneous refunds are problematic. You may not be aware of the erroneous refund until you get your monthly statement from the bank or check your account. Once again, interest probably will accrue for an erroneously direct deposited refund. If the money is promptly returned the IRS may waive the interest due to their error. If you wait more than 21 days the IRS generally assesses interest and expects you to pay.
Contact your bank and have them reverse the erroneous refund immediately. Call the IRS at 800-829-1040 for individuals or 800-829-4933 for businesses to explain why the direct deposit is being returned.
Deeper Refund Issues
Sometimes you end up scratching your head over a refund issue or did all the right things and the IRS persists in penalizing you for their mistake. In these instances it’s time to call out the Taxpayer Advocate.
The Taxpayer Advocate (TAS) works inside the IRS on your behalf. The guys at the 800 numbers are nice enough, but lack the experience, tax knowledge or authority to fix most serious problems. The Taxpayer Advocate office is staffed by knowledgeable tax people able to work directly with the IRS agent handling your file. TAS answers the phone faster and gets the job done sooner. They even call you back with progress reports! The most seasoned staff is reserved for tax professionals.
My office has used the TAS many times with great results. Use the link above and click the Contact Us button to find the closest TAS office to you.
IRS Addresses to Return Erroneous Refunds
ANDOVER – Internal Revenue Service, 310 Lowell Street, Andover MA 01810
ATLANTA – Internal Revenue Service, 4800 Buford Highway, Chamblee GA 30341
AUSTIN – Internal Revenue Service, 3651 South Interregional Highway 35, Austin TX 78741
BRKHAVN – Internal Revenue Service, 5000 Corporate Ct., Holtsville NY 11742
CNCNATI – Internal Revenue Service, 201 West Rivercenter Blvd., Covington KY 41011
FRESNO – Internal Revenue Service, 5045 East Butler Avenue, Fresno CA 93727
KANS CY – Internal Revenue Service, 333 W. Pershing Road, Kansas City MO 64108-4302
MEMPHIS – Internal Revenue Service, 5333 Getwell Road, Memphis TN 38118
OGDEN – Internal Revenue Service, 1973 Rulon White Blvd., Ogden UT 84201
PHILA – Internal Revenue Service, 2970 Market St., Philadelphia PA 19104