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Why is the IRS Holding Back My Tax Refund?

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If you are still waiting for your federal income tax return, you probably think you will be facing your first Internal Revenue Service (IRS) Audit. But don’t stress yourself out just yet, being selected for an audit doesn’t necessarily suggest there are issues and there are a number of other reasons your refund could be held up.

First and foremost, if you are selected for an audit, the IRS will notify you via mail on official letterhead. IRS Audits are NEVER communicated through phone calls, text messages or emails – don’t fall victim to these common scams. Selection for an audit does not always mean there’s a problem. The IRS uses several methods of random selection in their process along with computer screening. Another method for selection relates to your return’s involvement with issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.

There are limitations to selection – the IRS has three years to audit tax returns, although they could look back as far as six years if they come across a significant understatement of income. If your return is selected, the IRS manages audits either by mail or through an in-person interview. The IRS will provide all contact information and instructions in the letter you will receive. For an idea of what to expect, visit Audit Techniques Guides.

On the other hand – if you are not under IRS Audit and have not received your return – the U.S. Treasury Department’s Bureau of the Fiscal Service also has the authority to hold back all or part of your refund to cover certain debts you may owe to help pay them off, a practice called “offset.” Common reasons for offset include but are not limited to unpaid federal or state taxes, child or spousal support, a defaulted student loan, or even unemployment compensation to which you were not entitled.

Please keep in mind, as with almost every rule there are exceptions and limitations and John Kasperek Co., Inc. strongly recommends you consult a tax professional to best determine how the law affects your unique situation. The IRS also provides a free Taxpayer Advocate Service (TAS) using Form 911. The TAS is designed to assist both businesses and individual taxpayers with tax-related issues. It provides confidential and personalized service to taxpayers who need help resolving IRS problems that they have not been able to resolve through normal IRS channels. 

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