TAP 05-007

Refund Misleads Taxpayer

Statement of Issue:

When multiple-year tax returns are filed or in cases when the same tax year is adjusted, taxpayers may receive a refund check prior to a notice of a balance due. Taxpayers who receive a refund check might reasonably believe that the refund check fully settles their tax obligations since taxpayers typically do not receive an explanation notice with the check.

Proposal:

TAP proposed:

1. Provide instructions to taxpayers filing multiple year returns on how to signal the IRS that more than one return needs to be processed promptly.
2. Have multiple year returns processed by the same employees, in the same area, at the same time.
3. Place an indicator on the system for each tax return in processing and hold all refunds until all returns have completed processing.
4. Provide an explanation with refund checks warning the taxpayers when there could be outstanding tax liabilities.
5. Provide taxpayers the option to elect to have a refund held until all their tax obligations are determined.

Response Notes: