Can the IRS Take or Hold My Refund? Yes.
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.
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Requesting your tax transcripts is the best way to research your IRS tax account. You can also authorize your tax pro to communicate with the IRS for you.
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