The IRS started a program called the Delinquent Return Hold Program to search for and withhold the refunds that belong to non-filing taxpayers until their delinquent tax returns are filed.
Delinquent Return Refund Hold Program
Under the Delinquent Return Refund Hold Program, the IRS holds refunds and credits when a taxpayer files a current year tax return but has at least one unfiled tax return within the prior five year period. The purpose of the program is to get the taxpayer to file their delinquent tax return and then use the refund to offset any tax owed on the delinquent tax return.
Procedures to Eliminate a Refund Hold
In the event the IRS holds a tax refund because of a prior year delinquent tax return, the IRS will notify the taxpayer with instructions to file the delinquent tax return. If the taxpayer believes that they are not required to file a return for that year, they need to contact the IRS and explain the reason that they are not obligated to file the return.
In the event that the neither of the prior two outcomes take place, the IRS will file a tax return for the taxpayer. The refund will be released if:
1. The delinquent return filed results in no tax liability or all delinquencies are resolved.
2. There are no requirements for the taxpayer to file a delinquent return.
3. The taxpayer is located inside a declared disaster or emergency area.
4. The taxpayer is able to show the IRS that an economic hardship exists and they are unable to file the return.
These four outcomes are the most probable for a delinquent tax return refund hold that can be expected from the IRS.
Establishing an Economic Hardship
In the event a taxpayer wants to establish with the IRS that an economic hardship exists and is the reason they are unable to file their delinquent tax return, they need to do so in one of three ways:
1. Show proof of a foreclosure or eviction notice.
2. Provide financial information that shows the taxpayer is unable to meet basic living expenses.
3. A statement from a health care provider explaining that services will not be provided without prepayment.
In some cases, the IRS will allow the taxpayer to give oral or written testimony of their economic hardship if there is a time constraint that is present. This can be done through validation through a landlord or utility company.