Understanding IRS Offsets
The Internal Revenue Service (IRS) has the authority to offset tax refunds to settle outstanding debts, including federal taxes, child support, federal agency nontax debts, state income tax obligations, and unemployment compensation debts. This process, known as a refund offset, involves applying an overpayment in taxes towards these debts.
Reversal of IRS Offsets
Generally, the IRS cannot reverse an offset once it has been processed. However, there are certain exceptions where an offset may be reversed, such as:
- Undue Hardship: The IRS may choose not to offset a refund if it would create an undue hardship for the taxpayer.
- Error or Mistake: If the offset was made in error or due to a mistake, it may be reversed.
- Bankruptcy: An offset may be reversed if the taxpayer files for bankruptcy.
- Injured Spouse Allocation: A spouse who files a joint tax return but is not responsible for the debt may be eligible for an injured spouse allocation, which allows them to claim a portion of the refund.
- Offset Bypass Indicator (BPI): Taxpayers who meet certain criteria may qualify for a BPI, which prevents their refund from being offset for certain debts.
Procedure for Reversing an Offset
To request a reversal of an offset, taxpayers should contact the IRS and provide documentation supporting their claim. The IRS will review the request and determine if the offset can be reversed.
Additional Considerations
- The IRS has a six-month limitation period to recover certain tax refund offset collections from states that have already forwarded funds to custodial parents.
- Taxpayers should thoroughly research their account for any outstanding debts before filing a Form 8379, Injured Spouse Allocation.
- The IRS may use debt liability indicators in Command Code (CC) INOLE to identify outstanding debts.
- Taxpayers should keep records of all correspondence and documentation related to offset reversals.
While IRS offsets are generally irreversible, there are certain exceptions where a reversal may be possible. Taxpayers who believe they qualify for an offset reversal should contact the IRS for assistance.
What to do when your tax refund is intercepted
FAQ
Can you get offset taxes back?
Can an offset be removed?
How do I stop a Treasury offset?
How do I get my offset bypass refund?
Can a tax refund offset be reversed?
If the tax refund offset has already been applied, the taxpayer cannot reverse the offset. The only exception for the reversal lies with a clerical error from the side of the IRS, but that usually translates to a lower tax refund and not the original amount. RELATED: What Is The IRS Employee Misclassification Amnesty Program?
Will tax refund offsets be reversal in 2022?
This is the case currently, as the ongoing pandemic and the resulting financial fallout has caused the federal government to reconsider the legality of refund offsets. This has led to an across-the-board pause in seizure of tax refunds for some types of debt, as well as a greater cause for tax refund offset reversal in 2022.
What happens if a tax refund is offset?
You’ll get an explanatory letter from the Bureau of the Fiscal Service if your refund is offset. The remainder of your refund will be processed as usual. An offset shouldn’t delay it, unless your entire refund was applied to your debt. More info about refund offsets, including contact info and the appeals process, is available in IRS Tax Topic 203.
Can a tax refund offset reversal be reversed due to economic hardship?
The IRS may allow a tax refund offset reversal due to economic hardship, subject to its own discretion. The taxpayer should: Fill out IRS Form 433-A, “Collection Information Statement for Wage Earners and Self-Employed Individuals.” File only if he or she is encountering financial difficulty in meeting basic necessities, like food.