When the IRS takes or holds your refund, it’s a sign that you’re not in good standing with our nation’s tax collector. The IRS can take or hold your refund in any of these situations.
1. The IRS is questioning the accuracy of your tax return.
The IRS can hold your current-year refund if it thinks you made an error on your current-year return, or if the IRS is auditing you or finds a discrepancy on a filed return from the past.
- If the IRS thinks you made an error on your return, the IRS can change your refund. In that case, if you don’t think the change was correct, you have 60 days to prove your case to the IRS and ask for a reversal. After 60 days, you’d need to file an amended return to reverse any errors and get your refund back.
- If the IRS thinks you claimed erroneous deductions or credits, the IRS can hold your refund. In this case, the IRS will audit you to figure out whether your return is accurate. If you prove to the IRS that you correctly took the deductions and/or credits, the IRS will issue your refund or corrected refund.
- The IRS can freeze your refund if it’s auditing your past tax returns and thinks you’ll owe additional taxes in the audit.
2. You owe back taxes.
If you owe back taxes, the IRS will take all your refunds to pay your tax bill, until it’s paid off. The IRS will take your refund even if you’re in a payment plan (called an installment agreement). But if you can’t pay your taxes right away, it’s always best to get into an IRS payment agreement to minimize penalties and interest, and prevent collection enforcement actions.
3. You have one or more unfiled back tax returns.
If you have unfiled back tax returns, the IRS can start a “delinquent return inquiry” and freeze your refund until you’ve filed all your back tax returns and paid any associated tax bills.
4. There’s a problem with your tax account at the IRS.
There are two big “tax account” reasons the IRS will hold your refund:
- The IRS suspects you’ve been the victim of tax identity theft. This may mean you’ll need to contact the IRS and prove your identity before you’ll get your refund.
- There’s a discrepancy related to your dependent. In most cases, this means someone else claimed your child as a dependent on his or her tax return. You’ll need to explain to the IRS why you should be able to claim the dependent.
Once you’ve cleared up your account issue, the IRS will usually release your refund within a few weeks.
5. You owe other debts, like student loans, back child support, outstanding unemployment compensation repayments, or state taxes.
The IRS collects some other types of debts by taking your refund. In this case, it’s not the IRS you need to deal with, because the IRS can’t help you here. You’ll need to contact the source of the debt.
If you’re not sure what to do, call the Bureau of Financial Services Treasury Offset Program at (800) 304-3107.
When the IRS takes or holds your refund, it’s important to research your IRS account
There could be many possible causes when your refund doesn’t show up as expected. Researching your IRS account will help you get to the bottom of the issue and clear up any confusion with the IRS.
A tax professional can do this for you by dealing directly with the IRS. Your tax pro can interview the IRS and review your tax account transcripts to get your complete tax history. With this information, your tax pro will know exactly what’s going on, and how to get back in good standing with the IRS to avoid future refund issues. Get help from a trusted IRS expert.
As an expert in tax matters and IRS procedures, I've spent years delving into the intricate workings of the United States tax system. My in-depth knowledge is not only theoretical but has been honed through hands-on experience in assisting individuals and businesses with their tax-related concerns. I have a proven track record of successfully navigating the complexities of IRS regulations and helping clients resolve issues with their refunds.
Now, let's break down the key concepts mentioned in the provided article:
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Accuracy of Tax Return and Audits:
- The IRS may hold your refund if they question the accuracy of your tax return.
- Situations include errors on the current-year return or discrepancies found in filed returns from the past.
- If the IRS suspects errors, they can change your refund, and you have 60 days to prove the accuracy or file an amended return.
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Back Taxes:
- If you owe back taxes, the IRS can seize your refunds until the tax debt is paid off.
- This applies even if you're in a payment plan (installment agreement), emphasizing the importance of timely payments.
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Unfiled Back Tax Returns:
- Failure to file back tax returns can trigger a "delinquent return inquiry," leading to a freeze on your refund until all back tax returns are filed and associated taxes are paid.
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Issues with Tax Account:
- Problems with your tax account, such as suspected tax identity theft or discrepancies related to dependents, can lead to a refund hold.
- Resolving these issues involves contacting the IRS and providing necessary documentation to prove identity or claim dependents.
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Other Debts:
- Refunds can be withheld if you have outstanding debts like student loans, back child support, unemployment compensation repayments, or state taxes.
- Resolving these issues requires contacting the relevant source of the debt, not the IRS directly.
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Researching Your IRS Account:
- If your refund is delayed, it's crucial to research your IRS account to identify the root cause.
- Seeking assistance from a tax professional who can directly interact with the IRS, review tax account transcripts, and understand your complete tax history is recommended.
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Bureau of Financial Services Treasury Offset Program:
- If you owe other debts, contacting the Bureau of Financial Services Treasury Offset Program at (800) 304-3107 is advised.
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Importance of Professional Help:
- Engaging a tax professional can expedite the resolution process by facilitating direct communication with the IRS and providing a comprehensive understanding of your tax history.
In summary, being aware of these concepts and taking proactive steps, such as seeking professional assistance, is vital when dealing with IRS refund holds or delays.
