Did you receive a refund from the IRS that you believe might be a mistake? Don’t deposit it until you consult with your tax advisor. You may have to return the check in order to avoid interest and/or fraudulent activity on your account. Here’s what you should do.

Refunds…what triggers them?

A tax refund generally indicates that you’ve paid too much tax through the year and are owed money back because of it. When you receive your completed 1040 from your tax advisor, the refund amount is shown on Line 76A (line 48A for 1040A, line 13A for 1040EZ).

Case in point

So, let’s say you received a refund from the IRS in the amount of $100,000. Before you put on your party hat and book that vacation, think on it….did your 1040 point to this refund? Or does it seem too high? Perhaps you weren’t owed a refund and you received one anyway?

Both signs of a (potentially) false refund.

Why does this happen?

False refunds can be a result of fraudulent activity, IRS error, or in some cases underreporting on the part of the taxpayer (maybe you neglected to report estimated tax payments you made during the year, for example).

Does this affect certain taxpayers more than others?

No, anyone is at risk…especially of fraudulent activity, unfortunately.

What to do when you receive a refund in excess of what you’re owed?

We can help you navigate the process of returning your erroneous refund, but essentially once your tax advisor validates that the refund is indeed too high, there are a few things you need to do right away:

• Write “void” on the back of the check in place of where you normally provide a signature.
• Submit the check immediately to the appropriate IRS location (see list here)
• Include a brief note explaining the reason for returning the refund check

What happens if the refund has already been deposited in my account?

If the erroneous refund was a paper check and you have cashed it, you need to return that money to the IRS immediately. Here’s what you should do:

• Submit a personal check, money order, etc. (in the amount of the refund) immediately to the IRS (look at what city is listed on the check’s bottom line—here is a list of the corresponding mailing addresses).
• Write on the check or money order “Payment of Erroneous Refund,” and include the tax period for which the refund was issued, your taxpayer identification number and a brief explanation of the reason for returning the refund.
• Keep in mind that you might have interest due on the returned refund (depending on how long you take to return it)

**If the check was direct deposited into your account, contact the Automated Clearing House (ACH) department of the bank or financial institution where the direct deposit was received and have them return the refund to the IRS. Be sure to call the IRS after this to explain why the direct deposit is being returned.

Be vigilant against tax scammers

As always, be mindful that there are scammers out there determined to steal your personal information. The IRS warns taxpayers that criminals will sometimes pose as debt collection agency officials acting “on behalf of the IRS” to tell a taxpayer that a refund was deposited in error, and that the taxpayer must forward the money to his/her collection agency immediately.

Be warned that criminals will also pose as IRS agents through automated phone calls, threatening criminal fraud charges and “blacklisting” of a taxpayer’s Social Security Number if the taxpayer does not return his/her refund.

Read up on other warning signs in our blog, “Be on the Lookout for IRS Scam Phone Calls”

Think you might have received an erroneous refund? Contact us for more information.