- June 3, 2024
When taxpayers file their returns with the IRS, the tax return might show that they will receive a refund. In most cases, the IRS will generally get their refund faster if they choose to file their returns electronically and request a direct deposit. The refund status will be available within 24 hours after the IRS receives their tax returns filed electronically. But sometimes, they might not receive a direct deposit refund. Let us discuss the ways we can prevent refund offsets.
Reasons Why One May Not Receive a Direct Deposit Refund
There are a number of reasons why taxpayers may not receive a direct deposit tax refund. The Internal Revenue Service can only deposit refunds electronically into accounts that are in the name of the taxpayer, in their spouse’s name. At times, a financial institution might reject a direct deposit. The IRS will not be able to make more than three electronic refunds into a single financial account. In such instances, the IRS will offer taxpayers a paper check.
Understanding Refund Offset – Why Does the IRS Take the Refund Money?
If the taxpayer owes federal tax debt from a prior tax year or a debt to another federal agency, the IRS may offset some or all of the tax refunds to pay the debt. It might also offset the refunds to clear certain debts of the taxpayer under state law. In a number of such situations, the IRS is required to forward the tax refund to its taxpayers to pay for the debt.
If the taxpayers file a joint tax return, and their refund was offset by a debt that the spouse or ex-spouse owes, and they feel that they are not responsible for their debt, they are not eligible to claim their share of the joint refund by filing an injured spouse or innocent spouse claim.
Offset Bypass Refund – Ways to Prevent Them at Times of Economic Hardships
The taxpayers are most of the items surprised to learn that they receive no tax refund or receive a smaller refund after filing their returns. The IRS can reduce their refund and pay for their federal and state tax liabilities. Every year, most taxpayers rely on their tax refunds to pay for their necessary living expenses and their other critical expenses. For taxpayers who are relying on their refund to pay for their basic utilities, they might face immediate economic hardships if the IRS uses its refund to satisfy other state and federal debt.
Taxpayers who are experiencing financial hardships can request Offset Bypass Refund (OBR). For taxpayers who have a federal tax liability and do not owe money to another federal or state agency and are experiencing significant economic hardships, the IRS might forego the refund offers and offer the refund under the OBR procedures. The Internal Revenue Service will be able to forego an amount that would have been offered to a federal tax debt.
An Offset Bypass Refund is generally possible before the Internal Revenue Service applies another refund to another tax liability. After the IRS offsets the refund then it will become too late to request an OBR. Also, the IRS will only be issued to relieve a specific hardship, for instance, to prevent utility eviction. The taxpayer requesting an offset should report the amount of the hardship, as the IRS will bypass the offset to alleviate the financial hardship of the taxpayer.
How to Qualify for an Offset Bypass Refund
While the IRS authorities have the power to offset the federal tax liability of the taxpayer, the IRS can offset refunds when the taxpayer owes other state liability of non-tax federal debt, which might include past child support obligations. However, the IRS has the power to forego or reduce the refund by any outstanding federal tax liability after the taxpayer establishes that they are experiencing an economic hardship. This is the reason why the IRS refers to this refund as an offset bypass refund.
An individual might face economic hardship if the individual needs to pay rent to avoid eviction or if they need to pay their utility bills to avoid disconnection of services. They should be able to render the required documentation to prove their economic hardships. In OBR, timing is very crucial, and taxpayers who are looking for quick refunds should gather all documents and file them electronically. Offsetting bypass refunds is possible only before the IRS applies the refund to an outstanding federal tax liability, and it is also limited to the amount that is required to relieve the economic hardship.
The only way to qualify for an offset bypass refund is to act quickly. Once the refund is applied to an outstanding tax debt, relief through OBR is not possible. Taxpayers have to contact the IRS to request the OBR as soon as possible, sometimes immediately upon receipt.
Applying for Offset Bypass Refund
In order to apply for Offset Bypass Refund, taxpayers should complete Form 911 and file the form with a copy of their completed tax return. They should file Form 911 along with their original tax return with the IRS. A return is not considered to be filed until the IRS receives it. After the taxpayer establishes the quantum of their financial hardship through Form 911, they will issue a refund only up to a specific amount necessary to alleviate their hardship amount. For instance, if the taxpayer establishes a financial hardship of $1000, the IRS would issue a $1000 refund and apply the balance of $3,000 to their outstanding tax liabilities.
Submitting Your OBR Request: Two Ways to Navigate the System
Under certain circumstances, the IRS will apply its administrative procedures to override its rule to offset the refund of the taxpayer, to satisfy an outstanding liability. The Offset Bypass Refund offers significant assistance to a taxpayer who is struggling with financial hardship. While requesting an OBR, it is important to know if the taxpayer has other debts that are subject to offset. The procedure for making the offset request and the other offset rules that can apply are as follows.
Understanding IRS Refund Offsets
When a taxpayer owes federal taxes, the IRS section 6402 authorizes to offset a refund due. As it is governed by statute, the concept of refund offset offers a logical method for the creditor to recover a tax debt. When the IRS makes an offset in order to pay for an outstanding federal tax debt, it notifies the taxpayer that it has done so. However such correspondence may not be sufficiently clear for some individuals, or they might have changed their address and have not received it. In case the IRS applies 6402 to use the refund to pay a debt, other than federal tax debt, the taxpayer will not get a notice until September of the year, during which the return was filed.
Tax Refund Bypass and Offset Procedures
To avail refund bypass or offset and send the taxpayer the tax refund, the taxpayer should contact the IRS and set up the bypass, before they file the tax return. If the IRS doesn’t receive the bypass ahead of the posting date of the original return, then it closes the opportunity to bypass the offset. In case the tax refund has been applied prior to the tax obligation, the IRS will not reverse the offset, until there is a clerical error.
Guidelines for Requesting an Offset Bypass Refund Due to Financial Hardship
In order to request an offset bypass refund, the taxpayer should make the request prior to tax assessment, demonstrating the financial hardship that the taxpayer faces. The amount of the offset also limits that amount of the OBR. For instance, if the taxpayer receives a $1000 refund and the taxpayer demonstrates a $600 hardship to pay for rent and to avoid eviction, then the offset would be $600 and not the entire amount of the refund available. The balance of the refund would be diverted to the tax liability, under the normal offset rules.
Filing for Offset Bypass Refund is not a well-known option, as there is a narrow window of time in which the taxpayer can request an OBR and establish their hardship amount. Taxpayers looking for quick refunds should consider filing the returns electronically and submitting their requests immediately. Tax2efile helps taxpayers to pursue filing their requests with the IRS, such as submitting installment agreements, offers in compromise, etc, to resolve their underlying federal tax liability.
