Mistakes happen, and sometimes they happen with the IRS too. What if you receive a tax refund from the IRS that you’re not entitled to, or perhaps one that’s larger than expected? While these situations are rare, it’s crucial to understand how to handle an erroneous IRS refund when they occur. The steps you take depend on the type of refund you received and the circumstances around it.
In this guide, we’ll walk you through what to do if you find yourself in this situation and how to resolve it promptly to avoid penalties.
Types of Erroneous Refunds from the IRS
1. Paper Check Refund
If you received a paper check refund and you’re not entitled to it, or if it’s for a larger amount than you should have received, you need to take action quickly. According to IRS guidelines, if you realize the mistake within 21 days of receiving the check, you should:
- Void the check and return it to the IRS. You can mail the check back to the address listed on the IRS notice you received with your refund.
- If you’ve already cashed the check, you’ll need to write a personal check for the amount of the refund and send it to the same IRS address within 21 days of cashing the check. This ensures you return the excess amount and avoid any legal or financial consequences.
2. Direct Deposit Refund
If your refund was issued via direct deposit, the process is a bit different. In this case, you need to act quickly by:
- Contacting your bank: Get in touch with your bank immediately and ask them to return the funds to the IRS. Most banks are familiar with handling these types of requests and will assist in returning the deposit to the IRS.
- Contacting the IRS: Once you’ve informed your bank, you should also call the IRS at the number provided in the IRS notice you received. This will ensure they are aware of the situation and can help guide you through the next steps. The IRS may require you to provide a written explanation or additional documentation to confirm the error.
3. If the IRS Changed Your Refund
Sometimes, the IRS may adjust your refund after you’ve filed your tax return. If the IRS intentionally altered the refund amount — such as reducing the refund or applying it to any outstanding tax liability — you will receive a Notice of Explanation from the IRS. This notice will outline why the refund was changed and provide you with any necessary instructions on how to proceed.
If you haven’t received a notice and you believe the IRS made an error, contact the IRS directly to request clarification. It’s important to understand why the refund amount was adjusted, and if the IRS made a mistake, they will guide you on how to resolve it.
For more information about IRS notices and what they mean, you can visit the IRS Notice and Letter page.
What Happens If You Don’t Return an Erroneous Refund?
If you fail to return an erroneous refund, you could face serious consequences. The IRS can take various actions to recover the incorrect refund, including:
- Interest and penalties: If you don’t return the money, the IRS can charge interest on the incorrect amount starting from the date the refund was issued. Penalties may also apply.
- Audits: The IRS may launch an audit if it suspects that you are intentionally trying to keep a refund that was issued in error. This could lead to further scrutiny of your tax filings.
- Legal action: In some cases, the IRS may take legal action to recover the erroneous funds, which could include wage garnishment or other collection measures.
It’s always best to handle the situation as soon as possible and avoid these potential complications.
What if You Don’t Have the Funds to Return?
If you’ve cashed the check or received the deposit, but you don’t have the funds available to return the full amount, contact the IRS immediately. They may be able to offer a solution that can help you repay the amount in installments or provide other alternatives.
The IRS is generally understanding of situations where repayment might be difficult, but communication is key to resolving the issue smoothly. For information on payment options, visit the IRS Payment Options page.
How to Prevent Future Refund Mistakes
While receiving an erroneous refund is rare, here are a few steps you can take to prevent future mistakes:
- Review Your Tax Return Carefully: Always double-check your tax return before filing to ensure all information is accurate. Errors on your return can result in the IRS issuing incorrect refunds.
- Check IRS Status: Use the Where’s My Refund? tool on the IRS website to track the status of your refund and spot any discrepancies early.
- Work with a Tax Professional: If you’re unsure about your tax filings or are worried about potential mistakes, it’s always a good idea to work with a tax professional who can guide you through the process.
Need Help? Contact a Tax Professional
If you’ve received an erroneous IRS refund and aren’t sure how to proceed, our team is here to help. Navigating the complexities of tax refunds and correcting mistakes can be tricky, but with the right guidance, you can resolve the issue quickly and avoid penalties.
Our tax experts can assist you in determining the next steps, whether you need to return a paper check, reverse a direct deposit, or work with the IRS to resolve a refund discrepancy. We’re here to ensure that your situation is handled efficiently and in compliance with IRS guidelines.
Don’t wait—reach out to us today for personalized support. We’ll help you take the right actions to address the error and guide you through the process with confidence.