Federal Tax Refund: The IRS Can Keep Your Tax Refund

Not filing a tax return can become a major problem for taxpayers if they are not careful. The IRS not has laws that make it much easier to catch non-filers and punish the behavior of not filing a tax return. We are going to go over how the IRS finds non-filers, how they handle delinquent tax returns and the various penalties that go along with not filing a tax return.

Keeping Your Federal Tax Refund

There are two major ways that the IRS will discover if you have no filed a tax return. The first way is through their records. The records that the IRS has will indicate that you were supposed to file a return and did not. The next most common way to catch a non-filer is through the IRP or Information Return Program. This program will receive information returns from people who have paid you income over the last year. This information will then be matched with the information that the IRS has on file for you. This will let them determine whether you were supposed to file a return or not.

Some of the other non-conventional ways the IRS will catch a non-filer is through whistleblowers which may include employees, friends, family and anyone close to the taxpayer. Remember that there is an incentive for a whistle blower to turn in the taxpayer for non-filing. This incentive can include monetary compensation equal to a percentage of the amount of money the IRS collects from you.

The IRS Can Hold Your Refund and Keep It Too

Here comes the annoying part of not filing your tax return. If you have a refund for the current year tax return and you have a delinquent tax return for the previous five years, the IRS will hold your refund until you file your delinquent tax return. This program is called the Delinquent Return Refund Hold Program and is designed to encourage taxpayers to file their returns and use their refunds to offset any tax liability that may arise from filing a delinquent tax return. So if you file a delinquent tax return the IRS will use your refund as a credit against any tax liability that comes from filing that tax return.

There are certain situations where the taxpayers refund will be released to the taxpayer after a hold has been put on their return. These situations include when a delinquent tax return is determined to not have a tax liability associated with it or a refund is due from that return. If it is determined that the taxpayer does not actually have to file a delinquent tax return the refund will be released. If the taxpayer is in a declared disaster area the IRS will release a tax refund that has a hold on it. The last situation when a tax refund will be released to a taxpayer is when they can show that an economic hardship exists and they need the money.

Qualifying For Economic Hardship

There are various things that the IRS will consider as an economic hardship. Usually though, these hardships need to be provable and in writing. Some may include foreclosure or eviction notice, financial statements or information that can prove to the IRS you are unable to meet basic living expenses and things of this nature. You may be able to be granted a hardship with the IRS through oral testimony if your case is very urgent and in need of quick attention. You may ask the IRS to contact various third parties to verify your situation. These third parties can include homeless shelters, utility companies, a landlord and things of this nature.

About Paul Gaulkin CPA

Paul Gaulkin is a Certified Public Accountant and enrolled with the U.S. Treasury to practice before the IRS. Mr. Gaulkin possesses unique technical knowledge in the process of securing relief for taxpayers nationwide with IRS and State tax problems. With an accounting degree from Florida International University, he is able to transform complex tax and accounting problems into easy to understand solutions.


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