What To Do When The IRS Sends You A Weird Tax Refund

It’s pretty cool to get checks in the mail. It’s even more fun to get a check from the IRS. But what if you get an unusual check from the IRS or a tax refund amount other than the one you expected? Is it a time for mourning if the amount is lower than planned? Is it a time for celebration when you get back more than requested?

No. It’s not time for either one. In fact, it’s a time for caution. When you get a check with a different amount than you expected from the IRS it means there is a problem. It means the IRS has a different view about your tax return than you do and that requires your immediate attention my friend. The last people you want to be at odds with are those who work for the IRS.

So forget about the money for the time being. When you get a strange check from the IRS you need to get to the bottom of what’s going on as soon as you can.

IRS Explanations

Often the check comes in the mail with no explanation whatsoever. But don’t fret. Sooner or later the IRS will send you a letter detailing why they sent you an amount different from the one you were expecting. Don’t ask me why they don’t send the letter with the check. (This is just a demonstration of the genius behind the IRS and something they alone can understand.)

In the letter, they’ll try to explain the reason for the discrepancy. Sometimes it’s as simple as a tiny math error they think you made or as complicated as applying the wrong credits or deductions. Regardless, they will explain their position in the letter they send you.

Neal’s Notes: The IRS also make mistakes. Maybe they didn’t credit you with a tax payment you made or they made another error. But even if their error benefits you, don’t be complacent. If they later discover their error you’ll be socked with penalties and interest despite the fact that they were the cause of the problem. Nice.

Interpreting The IRS Explanation

When you get the IRS letter, it will typically show the information you submitted on your tax return and compare it to the data they think should have been submitted. This will help you pinpoint where the problem is.

If this change results in additional interest, penalties levied against you, don’t worry – they’ll tell you about it in the letter too.  If you still don’t quite get what the IRS is trying to say, don’t be alarmed. Most IRS letters provide a phone number and contact person to call. A quick conversation might be all you need to clear things up.

Even if you do understand what they are saying, I strongly recommend you send a copy of the letter and the check to your tax professional as soon as you get it. That’s exactly what I do whenever the IRS writes to me. I let CPA Ron handle it from beginning to end. Life is good.

What To Do With The Check

Of course, I’d take my CPAs advice on what to do with the money but my preference would be to hold on to the check rather than cash it until I was sure the money was mine. This way, if the check turns out to have been sent out in error, I can return it and the IRS probably won’t compound the problem by misunderstanding and crediting the wrong account or person. I’ve learned the hard way how easy it is for the Treasury to misapply checks and how painful (for me) their mistakes can be.

Many years ago I sent a tax payment to the IRS for the current year. Rather than apply that payment towards the current year, they credited the payments as a pre-payment for the following year. Why they did this even though the amount I sent was exactly the amount I owed was a secret that mortal minds will never understand. Again, this is another example of IRS brain genius.

As a result, I showed as overpaid for the following year but underpaid for the current tax year. And since I only discovered this mistake 6 months later I racked up all kinds of penalties and interest. That’s right. And even this was their fault, the IRS forced me to pay the penalties and interest in order to clear up the mess and regain my sanity. Very unfair. Very painful. Very true.

If you get a check from the IRS with an amount you didn’t expect, don’t rest until you get to the underlying reasons behind the discrepancy. Even if you have to pay your CPA to work it out with the IRS, its money well spent. The IRS is an organization you shouldn’t trifle with Pilgrim. At least that has been my experience.

Have you ever received an unexpected amount from the IRS? What did you do? What was the reason for the discrepancy?