Jim Buttonow, CPA, CITP
SVP Post-Filing Tax Services
Published on: September 09, 2021
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Most taxpayer each year eagerly await their tax refund. 74% of 169.6 million individual tax filers received a refund in 2020, and the average refund was roughly $2,549.
Many taxpayers have a good sense when their refund will arrive. The IRS advertises that, it issues most refunds within 21 days after filing; However, some returns take longer to process than others. For example, early season filers with refundable credits (earned income tax credit, additional child tax credit, etc.) must wait until the end of February or early March to get their refunds.
However, millions of taxpayers each year don’t get their refund on time or at all. IRS procedures allow the government to hold a taxpayer’s refund or take some/all of their refund for various reasons. Here are the most common reasons a refund is held or taken by the IRS:
IRS refund holds can be temporary if the taxpayer can satisfactorily act to address the IRS’s concerns over the accuracy of the tax return or other IRS issue. Five common refund hold scenarios are:
Refund holds can be released if the taxpayer can resolve the cause of the hold. If the taxpayer cannot resolve the issue, the IRS will disallow their refund. In situations where the taxpayer has made serious errors in claiming EITC, AOTC, or the American opportunity tax credit, the IRS can place a two-year ban on future claims. Taxpayers who are deemed to have committed fraud can face up to a ten-year ban on future credit claims.
When a taxpayer has made an obvious error on the return or has other debt issues (tax and certain non-tax debt), the IRS can take their refund, in whole or in part, to correct the error or pay the outstanding debt. Here are the three most common situations when the IRS takes a taxpayer’s refund:
Resolving refund issues starts with identifying the cause of the problem. IRS notices can give you some indication but often do not get to the root of the problem. In many cases, the IRS may have to contact the IRS for the underlying reason.
If the taxpayer has an underlying issue that is causing the refund hold or offset such as an unfiled return, past balance, or other dispute; they will need to resolve that issue before the IRS will release the refund.
During tax season, it is difficult for taxpayer to get through to the IRS. Taxpayers should call early and be prepared with their tax file to resolve the issue by phone. Many taxpayers may want to engage a tax professional who is versed in dealing with the IRS. Tax pros can quickly get a tax history and explanation from a specialized IRS function called the “Practitioner Priority Service” (PPS). PPS representatives are especially helpful in identifying tax issues and can even resolve some simple issues on the same call.
One “solution” that rarely works is doing nothing. In most cases, the situation will not resolve itself. You will need to act and resolve the issue before the refund can be issued.
For assistance creating a strategy to address your tax issue, visit Jackson Hewitt’s Tax Resolution Hub to see the various ways we can help you.
About the Author
Jim Buttonow, CPA, CITP, is the Senior Vice President for Post-Filing Tax Services at Jackson Hewitt. He’s been a leader in helping taxpayers and tax professionals resolve tax problems with the IRS, where he had worked for 19 years in various compliance-enforcement positions. Prior to his current role, Jim’s consulting practice focused on the areas of tax controversy and tax administration, which included leading product development on tax problem software for tax professionals, testifying before Congress, advocating for IRS transparency and efficiency, and proposing innovative large-scale solutions for taxpayers and tax professionals. Jim is also the author of Tax Problems and Solutions Handbook, a publication aimed at helping tax pros work more effectively in post-filing matters and resolving their clients’ most common tax problems.