Received a Tax Refund Check You Weren’t Expecting? 

Have you just received an unexpected IRS tax refund? If you look through your records and realize that this is not your refund, you must return it to the IRS. You may have received an erroneous refund due to a processing error, IRS mistake, duplicate tax return filings, or because someone stole your identity. 

The process for returning the refund varies based on how you received the payment, but if you don't return it, you will owe the IRS the funds plus interest. While an unexpected windfall may feel like a positive, it can be hard to deal with, and if your identity has been compromised, you will need to take additional steps to protect it.

What is an Erroneous Refund?

The IRS classifies all refunds issued incorrectly as erroneous refunds. That includes refunds issued due to fraud, mistakes, or any other reasons. Erroneous refunds must be repaid to the IRS, and if not, you can face penalties, interest, collection actions, and possible lawsuits as the IRS tries to reclaim the funds. 

Note that if an erroneous refund was issued to an identity thief but tied to your name and Social Security Number, you will not have to repay that. However, if you had the refund in your possession and then a criminal convinced you to give them the money, the IRS may hold you financially responsible for that payment.

First Steps: What to Do Immediately

Do not spend the money. If the payment was issued incorrectly, the IRS will expect to receive this money back, and failure to repay can lead to significant consequences. 

If the refund was erroneous, you need to send it back to the IRS, but first, you should double-check the situation to make sure the check was issued in error. There are cases where taxpayers receive unexpected refunds, and the money is really theirs. In those situations, you should obviously keep the money. 

To figure out whether or not the refund was issued erroneously, you can check your IRS online account, talk with a tax pro, or call the IRS for more details.

How to Repay an Erroneous Refund

If you determine that the payment was incorrect, follow the steps below to return the money to the IRS. The process varies based on whether you have an uncashed check, a cashed check, or a direct deposit.

Check - Not Cashed

If you mistakenly received a refund check from the IRS but have not cashed it, you should write "void" on the check and mail it back to the IRS. The address you use varies based on where you live, but you can check this IRS webpage or Form 3911 for the address in your area. 

Send the check via Certified Mail or any other option that allows you to track the receipt, along with a letter explaining why you are returning the payment. Mail this as soon as possible but at least within 21 days of receiving payment. Do not bend or staple the check.

Check - Cashed

If you cashed an erroneous refund check, you should return the funds to the IRS within 21 days of the date you cashed the check. If you accidentally spent the money, you may be able to set up an installment agreement. Note that interest will accrue on the payment if you don't pay in full within 21 days. 

Send the payment to your filing campus which is on the IRS's website or Form 3911. Also, include a letter explaining why you are sending the money to the IRS. 

Direct Deposit

You can return an erroneous direct deposit by contacting your bank and asking them to return the deposit. Generally, you should ask to speak to the ACH department. If you take this route, call the IRS to explain why the deposit is being returned. You can call their general numbers at 800-829-1040 for individuals or 800-829-4933 for businesses. 

Alternatively, you can mail the funds back to the IRS. If you write a check or send a money order, note the tax year, your tax ID number, and "Payment of Erroneous Refund" in the memo line. If you're returning the payment for another reason, note that. For example, people who received a stimulus check erroneously would have noted EIP (Economic Impact Payment) on the memo line. Also, include a written explanation of why you're sending the funds. If you don't, the IRS may credit the payment to your tax account, leading to even more confusion.

What Happens If You Don’t Return the Erroneous Refund?

If you don't return an erroneous refund, the IRS will generally take steps to assess the tax against you. The agency typically must do so by the Assessment Statute Expiration Date, which is three years from the original return filing date. 

Once the taxes are assessed, the agency has 10 years to collect them, and if you don't comply with voluntary collection efforts, the IRS will seize your future tax refunds. The agency may also issue a tax lien, levy your bank account or other assets, and/or garnish your wages. 

However, there are a few types of erroneous refunds that cannot lead to a tax assessment for one reason or another, and in those cases (referred to as Category D erroneous refunds), the IRS may bring forward a lawsuit. The agency generally only has two years to do so. 

They must take action by the Erroneous Refund Statute Expiration Date (ERSED), which is two years from the date of the check or direct deposit, but if fraud or misrepresentation of material fact was involved, the IRS has five years. 

Potential Reasons for Erroneous Refunds

You may receive an erroneous refund due to any of the following reasons:

• Misapplied payments - For example, another taxpayer's payment was credited to your account, leading to a refund.
• Payment applied to wrong tax or year - For example, you sent in a payment for the current tax year, but the IRS applied it to a previous year and issued a refund.
• Payment applied before expected action - For example, this may happen if you have a pending penalty on your account, you send in a payment that includes the penalty, but the IRS hasn't assessed the penalty yet so they send you a refund.
• Refund of credit you're not entitled to - This type of erroneous refund may happen if you incorrectly claim a credit you're not entitled to on your tax return or if the IRS adjusts your return and applies a credit incorrectly.
• Joint refund issued incorrectly - For example, the refund is issued in only one spouse's name. 
• Multiple refunds received by the same taxpayer - This may happen if a taxpayer fraudulently or accidentally requests several refunds with their taxpayer ID.
• Duplicate overpayment refunds - The IRS processes some refunds through its computers and others manually. There are situations where a taxpayer may receive both a manual and a computer-generated refund for the same overpayment. 
• Lost refund - If you report a lost refund, receive payment, and then find and cash the original refund check, you have an erroneous refund.
• Interest mistakes - Sometimes, a taxpayer may receive a refund check incorrectly because the IRS has calculated the interest on one or more of their payments incorrectly. 
• Incorrect bank details - Taxpayers may receive an incorrect refund if the IRS sends a refund to the wrong bank account. For example, if another taxpayer puts down the wrong numbers and they happen to align with another person's account. 

Taxpayers may also receive erroneous refunds due to identity theft. In this case, you must still return the refund. Make sure that you are returning the refund to the IRS. In some cases, bad actors pretend to be the IRS and convince people to send the money to them. To protect yourself, you may want to work with a tax pro.

Why Did I Receive a Tax Refund Due to Identity Theft?

With tax-related identity theft, bad actors typically file tax returns with other people's tax ID numbers, and then they direct the IRS to send the money to the bad actor's address or bank account. However, in some cases, these fraudulent refunds get directed to the victim's account. 

If that has happened to you, you should contact the IRS and return the funds. If you still need to file a tax return, you will need to do so. If you have already filed and the refund you received is more than the amount claimed on your tax return, you may only need to return the difference. 

Talk with a tax pro or contact the IRS to get more assistance on this issue. 

How to Get Help

If you're struggling to deal with this situation, you should reach out to a tax professional. A tax pro can help you determine if the payment was issued correctly or incorrectly. They can talk with the IRS on your behalf to sort out the situation, and if the IRS is coming after you for repayment, a tax pro can help you set up payments and/or appeal collection actions. A tax attorney can also represent you in court if the IRS uses a lawsuit to reclaim the funds. 

If you're facing unexpected delays dealing with erroneous refunds or getting your own refund after dealing with this type of issue, you may want to reach out to the Taxpayer Advocate Service (TAS). 

FAQs About Erroneous Refunds

Does the IRS make mistakes on refunds?

Yes, the IRS issues many tax refunds in error. There are several different reasons that can lead to the IRS incorrectly issuing a tax refund, but unfortunately, if you receive a refund erroneously, you are required to pay it along with interest and possible penalties.

Why did I get an unexpected tax refund with no explanation?

If you got an unexpected refund, the IRS may have made a mistake with your tax account, or another taxpayer may have mistakenly deposited their refund into your bank account. Contact the IRS immediately to report the issue. If you don't repay the refund, the IRS may start collection processes or potentially even sue to recoup the funds.

What should I do with an unexpected tax refund check?

Check your records to make sure that the refund is incorrect. If you're unsure, call the IRS or contact a tax pro to review your situation. If the check is erroneous, do not cash it. Write "void" and mail it back to the IRS with a letter explaining the situation. 

What should I do if the IRS overpaid me?

If the refund you received is more than expected, contact the IRS to find out why. If the agency adjusted your return, the overpayment may legitimately be yours. However, if the overpayment was issued in error, you will be required to pay it back. 

Should I file Form 14039?

You should file Form 14039 if you are a victim of identity theft. This form alerts the IRS that identity theft has occurred on your tax account, and the agency will send you a PIN that you can use to verify your identity on future tax returns. 

However, you should not file this return if you are not the victim of identity theft. You also don't need to file this form if the IRS has alerted you about the potential ID theft by sending you a notice like CP5071C or LT4883C. 

Should I file Form 3911?

Do not file Form 3911 if you receive an unexpected tax refund. This form is for taxpayers who have lost their tax refunds or who haven't received them.

What if I receive a tax refund after filing Form 3911?

In some cases, taxpayers file Form 3911 for a missing tax refund, and then they find their refund check or realize that their refund was already deposited into their account. In cases where this leads to you receiving a duplicate tax refund, you must return the extra money to the IRS as explained throughout this article. 

Get Help With Tax Refunds Today

Navigating the IRS's systems can be confusing and frustrating, even if you're trying to return money to the agency. To get trustworthy, experienced assistance, use TaxCure to search for a tax professional today. TaxCure has a curated directory of tax attorneys, CPAs, and enrolled agents from around the country, and you can narrow down your results to find a pro who specifically has experience with tax refunds. Don't delay—get help today.