When the IRS Adds a Digit…

Clients of ours filed their tax returns 15 days ago, and this morning received their refund from the IRS. They were expecting $523 and they got that, and just a bit more: The direct deposit was $3,523!

The clients had already looked at their return, and it showed $523 as the refund amount (and I pulled it up, and verified that). We looked at the IRS’s Where’s My Refund website and it shows $3,523. My clients called the bank and verified that the refund that was deposited was $3,523.

My clients are not entitled to the extra $3,000. As much as they’d like to keep the money, that’s not allowed. And it’s clearly an error. Their return is straightforward (they’re retired, and they received the same 1099-R’s and social security as in past years). There’s no new 1099-R with an extra $3,000 of withholding. (We also both double-checked the withholding amounts on the return, and they are correct.)

The IRS does have guidance on what to do in this situation: Tax Topic 161 covers an erroneous refund. In case of a direct deposit, you contact your bank’s ACH department and have them return the funds. You also must call the IRS and explain what’s happened. Additionally, there should be a letter issued by the IRS sent to you as to why the IRS changed the refund amount. We’re going to allow a week for that letter to show up, but come next Monday the clients will be returning the funds.

Unfortunately, as of today there’s no way for the clients to call the IRS up and explain what’s happened (all IRS phone lines are down). If they were to mail a letter, it might be months before someone reads it. All they can do is call the IRS up when phone lines reopen.

By the way, suppose you receive someone else’s refund; can you keep the money? No, that’s likely theft. Indeed, there have been prosecutions when this has happened. There almost always is no free money.

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