Refund Offsets: Why the IRS may take your Refund

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IRS tax refunds are issued by the Bureau of Fiscal Services (BFS), Department of Treasury. In certain cases, tax refunds are used by the BFS to fulfill certain federal or state debts. Under the Treasury Offset Program (TOP) of the Department of Treasury, part or all of your tax refund can be offset to pay for:

  • Any past child support payments ordered by the court
  • Federal agency non-tax debts, such as student loans
  • State income tax obligations
  • Certain unemployment compensation debt owed to a state

Essentially, if you owe the government, federal or state, or are not complying with court orders for payments of child support, then your tax refund may be seized by the BFS to fulfill as much of your debt possible. For example, if your refund for a year is $2,000 and you have unpaid child support payments totaling $1,500, then the IRS will only send you a $500 refund for that year and use the balance to satisfy the past due child support payments.

Notice before Seizing Tax Refunds

Before seizing your tax refund, the Department of Treasury is required to send you a notice explaining the reason for the offset, your rights with regard to the offset, and ways to dispute or resolve the debt. Despite this requirement, the Department of Treasury has been known to seize tax refunds without any notice.

The notice sent by the Bureau of Fiscal Services includes your original refund amount, the amount offset, the payment the agency will be receiving, and the address and the telephone number of the agency. Even though the notice is sent by the BFS, the IRS is notified of the amount seized from a refund.

Challenging the Government’s Claim

If you believe that the government is wrong in seizing your tax refund, or the amount of refund seized is incorrect, you can challenge the government’s claim by sending a request for a formal hearing of your case. You should contact the agency on the number provided on the notice. Before challenging the government’s claim, make sure that you have strong arguments against their claims. It is advisable to gather written documents to back your arguments.

If the BFS has seized your refund without sending you a notice, then you should contact the Bureau of Fiscal Service’s call center at 800-304-3107 or TDD 866-297-0517. You can call Monday through Friday, from 7:30 a.m. to 5 p.m.

If the original refund amount on the BFS offset notice is different from your original refund amount on your tax return, then you need to contact the IRS.

Some of the common reasons for contesting a tax refund offset include:

  • The debt does not belong to you or was a result of identity theft
  • You suffer from a permanent disability
  • You suffer from a significant financial hardship
  • You already repaid your debt in full

Injured Spouse Allocation

If you file jointly with your spouse and are not responsible for the debt, you can prevent the BFS from taking your portion of the tax refund. You must be able to prove that you had no knowledge of the debt and that the debt was in no way attributable to you.

To claim the Injured Spouse Allocation, you need to file Form 8379 after receiving the notice. You can attach this form with your joint tax return, your amended joint tax return or only send Form 8379. Usually, the IRS takes 11 weeks to process an electronic tax return with Form 8379. For paper returns, the processing typically takes 14 weeks.

From the author: Tax Resolution Legal Team
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