Big, unexpected IRS check? Don't cash it
The agency shows no mercy even if it erroneously sent the money in the first place.
This post comes from Sally Herigstad of MSN Money.
I recently got a check I wasn't expecting from the Internal Revenue Service for $1,356. There was no explanation. A few days later, I got a letter from the IRS that was high on paper usage and low on actual information.
A Baltimore woman was in a similar situation, only worse: She received an unexpected check from the IRS for $40,000.What made it worse was that the check turned out to be in error -- a fact the woman claimed she hadn't discovered until after she cashed it and spent the money. Now she has to figure out how to pay it back.
Unexpected checks from the IRS are not unusual. Karla K. Dennis, the owner of Cohesive Tax, a tax and accounting firm in Cypress, Calif., says more than 5% of her tax-practice clients received unexpected refunds last year.
"It was very disturbing," she says. "Many of the refunds were because IRS processed the returns incorrectly through their electronic filing system. When clients receive refunds unexpectedly, they immediately blame their preparer because they believe the IRS is correct."
Joy at receiving such a windfall is usually short-lived. If they tell their tax professional, they'll be advised not to cash the check yet. "Eighty percent of the time, the checks were issued erroneously, and we must send them back," Dennis says.
If someone just cashes a check anyway and heads for Vegas, there can be trouble when the IRS discovers that, say, an estimated payment had been applied to the wrong year or that some other error was made. The taxpayer will have to repay the money with penalties and interest. The IRS shows no mercy just because it sent the money in the first place. Post continues after video.
What to do
Small checks may not be worth tracking down. They're usually from some small calculation adjustment. Take your jackpot to a coffee shop and celebrate.
If you receive a large mystery check from the IRS, however, follow these steps:
- Contact your accountant immediately. Give him or her copies of all correspondence from the IRS, and follow your accountant's instructions. Do not deposit the check or send it back until instructed.
- If you prepare your own taxes, call or write the IRS and ask for an explanation. Hold the check until you know if it's correct. Don't deposit it, even into an interest-bearing account, thinking you could pay it back later. The interest and penalties from the IRS would outweigh anything you made on your temporary balance.
- If you decide the check was a mistake before cashing it, write "VOID" in the space you would usually sign the check and mail it back to the IRS with a letter of explanation. Be sure to get a certified return receipt.
In my case, I called the IRS for an explanation. A representative went through my return with me line by line, and we had it narrowed down to something in my inventory calculations. The representative said, "Nobody made any notes to say what they did or how they did it." He left a note in the file that I had called. Then the line went dead.
I cashed the check. It looks like flying lessons money to me, but I'll keep it in a safe place just in case. Sometimes that's the best you can do.
Sally Herigstad is a certified public accountant and author of "Help! I Can't Pay My Bills," published by St. Martin Griffin Books. She is a personal-finance writer who has contributed to MSN Money since 1998.
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You talk about checks mailed in error, what about if you are still waiting to receive a refund? I went through a free service and e-filed mine in Feb and I am still waiting to receive my refund. I have contacted the IRS several times and each time I am told that I have to wait another 30 days to find out about it. I earn between 12,000 and 15,000 a year and was told that they are "reviewing" it, but have not been told why after all it is not like I earn a very large yearly income. I did receive one letter just recently, but there was still no reason given for the delay just that they are "investigating" it. I had received my state refund 2 weeks after filing, when I usually have to wait longer for the state refund. I think that I deserve an explanation for why it is taking so long, but I am not going to call again now, seems every time I call it is delayed another 30 days. I bet though that if I owed them the amount I am getting back, they would have already sent me a notice, and I would be paying interest and late fees, but they should be paying me interest and late payments for making me wait so long. Yea fat chance for that.
When a business makes a mistake and they can't get it corrected in time ( like a store ) they either retract it and post the retraction on the door or they simply suck it up and take 'the hit', they back it out of their taxes and call it administrative error. I have had my share of problems with the IRS. By the time my accountant gets done with them they wind up owing me more money than if they had just left me alone.
The IRS has so many lives in it's hand it is just plain scary. More than ever before people are jobless, many are homeless and folks are scratching dirt to get by. Still most pay their taxes. It is inexcusable for them to make errors at this point in time. Folks need their refunds and they need it now, not when the government finally gets it figured out.
Our government continues to raise our taxes with no end in sight for our own good. Individual households MUST live within their means, we have no choice. The government continues to spend without rhyme or reason. Congress needs to tighten up their own belts take a 30% cut in pay ( just like the citizenry ) and just deal with it! The rest of the country has.
Our present income tax system has grown past human comprehension . . . or even human control (though, of course, that is a feature, not a bug, to our congressional masters, as it allows them to reward large contributors--and potential post-congressional career employers--with credits, deductions, accelerated depreciation, etc.) The average individual, including the average small businessman, should not need to use a professional tax preparer to file his taxes. Perhaps even more crucially, the present income tax severely handicaps the productive economy by distorting the price system on which the efficient allocation of resources depends.
We need to move to the Fair Tax, a national sales tax that is applied to the final price of retail transactions; it is most emphatically not a VAT, which is embedded within the price history of the production and handling process of goods and services, and hence can be hidden from public view. (My European friends tell me that the same politicians who load on the VAT markups will then shamelessly turn around and lambaste producers for price gouging . . . much like the Kabuki theater that ensues in Congress every time the price of gasoline rises steeply.)
Inform yourselves about the Fair Tax, then call your congressmen and senators to demand the replacement of the present opaque system with this paradisaically simple alternative.
Great extra money when we needed it... that is until we got the dreaded letter from IRS one month later stating that we had received a check in error and that we had to pay it back. I called them explaining that WE did not make the mistake, that WE called them twice and was assured everything was fine so how is this our problem? Ha Ha...it's always our problem IRS never owns up to their mistakes and if they do they never take responsibility for them. This is so wrong and this type of mistake causes families hardships above what they are all dealing with already. Why are we always accountable when it is their mistake? and why do we owe even more than what they send if we can't send it back the next day? I don't know what more we could have done, they were not going to say keep it, sorry our error. They become blood suckers on the prowl and very demanding, even threatening.
Don't trust them when they quickly respond with a cheery go ahead and spend, hang onto the check for as long as possible. Also send the money Back quickly or pay a daily penalty...You have to have no heart to work for IRS, I could not be a part of that kind of evil. Remember if it has to do with IRS, there are no Happy endings, if you didn't expect the check then it was a mistake.
You have to be brain dead to cash an IRS check that YOU KNOW you were not supposed to be receiving.
Stop playing stupid with the comments that you didn't know it wasn't valid !!!
This isn't news: IRS had been a menagerie of bungling, vicious criminals since its misbegotten gargoyle birth. The tyrannical (incapable of anything remotely approaching unifom or rational interpretation, it can only be made operative by a dictatorship) Tax Code is neither enforceable Constitutionally as a statute bearing punitive (criminal) authority or as a matter of contract (which, like any law, must be understandable by the parties). Neither can a nation such as this one purports - free, with free markets - hope to recover from the economic crisis it now faces on account of it idiotic revenue system until IRS and the tax code are done away with.
Wake up, "America!" You have been stolen and handed over into bondage.
Everyone should send the IRS a check for $1.00 and see what they would do to figure out how to handle it. No address or phone numbers on the check, no reference, no letter. Just the check
Fortunately I have never had to deal with such an incident. However that being said I fully understand that the IRS is, after all, a huge bureaucracy. As such it has no heart or soul but simply exists based upon its rules and regulations. For that reason I have used a professional tax accountant for the past 10 years and rely exclusively on his calculations and advice.
There are just too many 'gottchas' and discrete little changes in the tax laws every year for me to take the time to keep up with them. That is why that I question anything that doesn't agree with my accountant's calculations because trying to resolve issues with a huge bureaucracy is rather like arguing with a big rock. You lose every time unless you are willing to really bring out the big guns and spend a lot of time, effort, and money to fight them. LOL
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