IRS Error in Your Favor
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FacebookI just ran across a new story about a Tennessee woman (Debra Martindale) who checked her bank balance only to find that she had erroneously received a $25,289 tax refund when she was expecting just $4,800. Concerned that the IRS would eventually discover their mistake, and then come after her for interest, penalties and/or fines, she called the IRS to report the error. However the representative the she talked to insisted that the $25k refund amount was right:
After a 30-minute phone conversation, in which Martindale said she continuously disputed the refund and the IRS representative kept insisting the money was hers, Martindale hung up. “I didn’t want to make the IRS mad,” she said.
About two weeks later, Martindale and her husband got a letter from the IRS stating that they had changed the total estimated tax on their return, resulting in a refund of $25,289.09. However, the balance of the information in the letter made it clear that something was wrong… In fact, the letter indicated that she had paid taxes roughly equal to her income for the entire year. But it wasn’t until she contacted an IRS taxpayer advocate instead of going through the ‘normal’ channels that this all got straightened out. It remains unclear what exactly happened, but it appears that the IRS somehow mixed and matched information across returns.
So… What would you do? Would you report the error? And if you were met with resistance, would you persevere and force them to admit their mistake?
[Source: The Daily Times]
Published on April 20th, 2006 - 14 Comments
Filed under: Taxes
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About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!
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14 Responses to “IRS Error in Your Favor”
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April 20th, 2006 at 9:17 am
This same thing happened to mee in January this year. I had to do an ammended return due to an error on my 2004 taxes. It turned out I owed the IRS $1600. I sent in my check. About a month later I received a refund for $3,200. Apparently they messed up when processing my ammended return and decresed my tax by 1600 rather than increasing it, which resulted in the refund for double of the amount I sent in.
Lets just say on the first call I made to them, they kept telling me that I deserved the refund based on my paperwork. I kept fighting and then asked for a supervisor, only then did they realize what happened and that they made an error (apparently they think that never happens). When I look back on it, I should have just kept it, but I feel better knowing that the IRS will not come knocking on my door someday asking for the money.
April 20th, 2006 at 9:20 am
I’d give it back; the money wouldn’t be mine. Until they took it back, though, it would sit in a high interest savings account…
April 20th, 2006 at 9:49 am
I have to agree with Blaine. I’d move the money to an interest bearing account, notify the IRS in writing and then leave the next step up to them.
April 20th, 2006 at 10:00 am
Absolutely. The bank is making money off of that mistake, no matter which case. I am going to try an get a share of the interest…
April 20th, 2006 at 10:18 am
They say ethics are the things you do when no one is looking.
I would have called. It’s not fun to be on the hook to the IRS.
April 20th, 2006 at 11:15 am
Yea – I wouldn’t mess with the IRS. I would inform them, but keep it in a high-yield account until they asked for it back to at least benefit off some interest! It is their bad, afterall!
April 20th, 2006 at 1:58 pm
I agree with mapgirl. And personally, I would’ve sent them a certified letter, rather than calling them on the phone. You’d want to be able to prove that you made a good faith effort to correct the error, just in case the IRS decided to come after. I could just see them blaming that poor woman and charging her interest for the time that she held onto the erroneous refund.
April 20th, 2006 at 2:20 pm
Be very careful here: a lot really depends on whether you received a physical check, or a direct deposit. The taxpayer is absolutely obligated to report errors in their favor to the IRS, and a refund that large certainly qualifies. Penalties and interest are often waived in situations where good-faith efforts at compliance can be demonstrated; behave too dodgily, though, and expect to pay penalties up the wazoo.
So, if you get a physical check, don’t deposit it, no matter how tempted you are. You have to report the error to te IRS no matter what, and depositing a check you knew you didn’t deserve is likely to be interpreted as fraud.
An electronic deposit, on the other hand, is an entirely different story. In that case, I’d still call the IRS to inform them of the error (meanwhile documenting the call), but also transfer it to my HSBC account on the same day if they insist they’re right. I’d also follow up with regular letters (keeping a copy in my files) after that. Since have extensive documentation on your attempts to return the money right, you can demonstrate that there was no attempt to defraud. In that case, you should be able to safely collect another $80/month or so in additional interest while the gears of government slowly turn.
April 21st, 2006 at 12:15 am
I checked my bank account balance today and noticed an extra $3,000 in it. I have no idea how this money got there. It looks like it has been there since 4/18. They will probably ask for it back, so I won’t be spending it. Ethically I would feel bad, even if it was their fault. Just as with the IRS, if they don’t catch it soon, I will let them know.
April 21st, 2006 at 3:22 pm
Int George makes a good point about the physical check v. direct deposit. Perhaps one way to address that is to ask the IRS for a confirmation in writing. I don’t know if they’d do it, but it certainly wouldn’t hurt to ask.
Whether they provided the confirmation in writing or not, I would keep the money ready to return to the IRS once they found their error.
April 24th, 2006 at 12:25 am
Got your message. I saw how our great minds were working alike and I just mentioned it in my post (http://dontmesswithtaxes.typep....._whee.html) about the Carnival.
April 17th, 2007 at 10:27 pm
in jan i got a letter from the irs i owed them 365 dollars for taxes in 2003 i paid them in good faith in march i got a letter and a check for 3054 dollars for over payment in 2005 i made the misstake of thinking they found 1 mistake so they were checking all my returns then in april recieved a letter they made a misstake and i owe them 3054 plus int and penalties i called them told them im on ss and i have no problem paying them back but it will be over time but it was there misstake i don’t agree i should have to pay int or penalites —
August 4th, 2008 at 12:23 pm
they put 271 in my account in may, then in july, put another 271 in my account. Turned around, and took both back out. No warning, no notice. I wouldn’t have figured it out unless they did it the second time. Called my bank and they said they made two mistakes and were correcting them. Funny thing is, the first one was done right after my tax deposit. 1 day apart. I’m thinking they adjusted it and found they owed me more money.
December 9th, 2009 at 1:12 am
well I have something to try and unravel. last year i was claimed as a dependent by my boyfriend, so I filed, did not claim myself, included my tax payment check, and assumed it was done. Later I received a check for X amount in the mail from the IRS saying they had recalculated and I was being sent the check. Now, a year later I get a letter saying “I can’t claim myself if someone else claimed me as a dependent.” I went and looked at my copy of the 1040 and I clearly didn’t claim myself or use the standard deduction. So they must have changed it. Now I am told I need to amend. Amend what? Their mistake???