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IRS Establishes Protocols for Misdirected Refunds in New Rules

New IRS regulations lay out the agency’s procedures for dealing with situations where tax refunds are deposited into the wrong account.

-IRS may directly seek assistance from banks if needed

-The procedures for making a claim for refund are set out in § 301.6402-2 of the Procedure and Administration Regulations. Those regulations include procedures for the mailing of a check in payment of allowed claims for refund.

The proposed regulations (REG–116163–19), dated Dec. 23, are part of the agency’s efforts to put in place the Taxpayer First Act (Pub. L. 116-25), a set of IRS reforms that became law in July. The misdirected refund procedures only apply to direct deposit refunds. They don’t apply to refunds credited against outstanding debts or to those issued via a paper check.


Tracing Refunds

Under the proposed amendments to 26 CFR part 301 under section 6402(n) of the Code, taxpayers can report a missing refund to the IRS on Form 3911, Taxpayer Statement Regarding Refund. The proposed regulations provide guidance on the procedures used to identify and recover tax refunds issued by electronic funds transfer (direct deposit) that were not delivered to the account designated to receive the direct deposit refund on the federal tax return or other claim for refund. These proposed regulations implement section 6402(n) of the Code, a new provision added by section 1407 of the Taxpayer First Act, Public Law 116-25, 133 Stat. 981 (2019) (TFA).


If a refund is deposited into the wrong account, the IRS may submit a refund trace inquiry to the Treasury Department’s Bureau of the Fiscal Service. The bureau may then send an official request to the bank where the refund was sent requesting information on the account to which the refund was deposited (identifying the account holder).


The bank then may return the refund using existing Bureau of the Fiscal Service procedures. However, if the financial institution is unable or unwilling to recover the refund, the IRS may separately contact the financial institution to request assistance in recovering the refund.


The procedures for making a claim for refund are set out in § 301.6402-2 of the Procedure and Administration Regulations.


The proposed regulations apply to claims for missing refunds filed after the date on which final rules are published in the Federal Register.

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