Why is my refund questionable?

January, 06 2016 by Jean Lee Scherkey, EA

Hugh Grant, Elvis and an IRS representative are gathered in my living room. The IRS representative pours a round of Blu-tinis. Just as Hugh Grant offers me a Blu-tini, the IRS representative pulls back his hand and exclaims, “No punch for you!” Cold sweats jolt me straight out of slumber as Elvis begins to hum Blue Christmas.

If only I could blame this dream on the spiked nog I was drinking while watching Bridget Jones’s Diary on New Year’s Eve. But alas, this Christmas I said farewell to the decorations of red that would have decked the boughs of the spruce evergreen tree I planned to buy. My blue Christmas began several months earlier, in May. The rainbow to the financial storm that was 2014 came in the form of a wondrous five digit refund. A few weeks after I filed my 2014 income tax return, an envelope from the IRS arrived. In the place of my refund check was a “Dear Taxpayer” letter. Always the consummate professional, the IRS let me know they received my income tax return and were reviewing it thoroughly for accuracy before issuing my refund. So as to not disrupt my spring, the letter stated I did not have to do a thing, they would take care of everything! In just a brief sixty days I would either receive my refund or be contacted with additional information. They even provided a toll free telephone number if I did not receive my refund or hear from them in the time allotted.

The sixty days came and went. I called the telephone number and was told my return was still being reviewed.  Another sixty days came and went, and then another ─ and still there was nothing but an echo in my mailbox. Oh, IRS please don’t be so cruel and release my refund in time to spread some holiday cheer!

The correspondence at the focus of my holiday lament is IRS Letter 4464C, otherwise known as the Questionable Refund 3^rd Party Notification. The IRS began issuing this letter in 2013, predominately in response to the increase of identity theft and to ensure the income tax returns submitted by taxpayers are accurate, especially before issuing any refunds. IRS Letter 4464C is not an audit notice. However, the IRS does have the authority to escalate the review into a formal audit or examination. If the review is escalated, the taxpayer should receive a letter from the IRS indicating this.

Part of the return review may include the IRS contacting other third parties in order to validate the information listed on the return. An example of a third party would be an employer, bank, investment advisor, etc. If they do contact another party, you have the right to receive a list of the contacted parties.

Many times these letters will list the area of the return that is being reviewed. Some of the more common areas of review are wage, retirement and investment income and income tax withholding, business income, tax credits claimed and dependency exemptions reported. A return may also be reviewed because one of the Social Security numbers listed was used on another filed return or is not valid. It is also possible the IRS will issue this letter without listing a specific area they are reviewing. Keep in mind that, as part of its “returned mail” procedure, the IRS destroys any undelivered letters that are returned to them. If the taxpayer moved without notifying the IRS of their new address, did not leave a forwarding address with the post office, or the address on the return was entered incorrectly, it is possible the taxpayer may never know their return is being reviewed.

So what can be done? Consistency is key. If it has been over 60 days since you received the letter and you have not received your refund or additional information, contacting the IRS is a great first step. If the IRS says the return is still being reviewed, try to get as much information as possible as to why. The IRS is very understaffed and, more often than not, the delay will be due to a lack of manpower. It is important to continue to follow-up every 60-90 days. If you are experiencing significant financial hardship because of the delay in your refund, you may contact the Taxpayer Advocate Service, or TAS, to request help. The toll free number to the TAS unit is 1-877-777-4778. Unfortunately, there are times when contacting the IRS and TAS unit does not release the return from review. If it has been over six months and you have tried all other avenues, you may want to consider contacting your local Congressperson. Many times a Congressperson is able to cut through the red tape at the IRS.