Section 6. Refund Offset

(1) This transmits revised IRM 21.4.6, Refund Inquiries, Refund Offsets procedures.

Material Changes

(1) IRM 21.4.6.5.2 (2) 21) Added additional ways to receive information for incomplete Form 8379

(2) IRM 21.4.6.5.2 (11) New for Application 21 assistors to transfer taxpayers who are proficient in English to Application 35, Renumber remaining section

(3) IRM 21.4.6.5.8.2 (6) IPU 22U1210 issued 12-16-2022 Added After sending Letter 3179C close your case

(4) IRM 21.4.6.5.8.3 (1) IPU 22U1210 issued 12-16-2022 Added Injured Spouse must be worked with within the 45-day interest free period to avoid paying interest

(5) IRM 21.4.6.5.8.3 (17) d) Added additional suspense time for overseas letters

(6) IRM 21.4.6.5.8.3 (17) h) Updated procedures for V- freeze.

(7) IRM 21.4.6.5.8.8 (1) 3) and (2) Added additional suspense time for overseas letters

(8) IRM 21.4.6.5.8.9 (3) IPU 22U1210 issued 12-16-2022 Added Use a HC 3, RC 086, SC 7 when inputting the TC 290 for .00

(9) IRM 21.4.6.5.9 (1) h) Added additional suspense time for overseas letters

(10) IRM 21.4.6.5.10.2 (3) New Note regarding the exception added to IRC 32 allowing some taxpayers to claim the EITC on MFS returns

(11) IRM 21.4.6.5.10.3 (3) IPU 22U1210 issued 12-16-2022 Added "non EIP" to first sentence Subtract any previous offset or non EIP refund

(12) IRM 21.4.6.5.15.1 (3) Reminder added and the Form 8379 was timely

(13) IRM 21.4.6.5.33.3 (1) Added tax year 2021 and that EIP 3, issued in 2021, was not subject to offset.

(14) IRM 21.4.6.5.33.3 (3) IPU 22U1210 issued 12-16-2022 Added additional information regarding RRC split

(15) IRM 21.4.6.5.33.4 (4) IPU 22U1210 issued 12-16-2022 New Allocate CTC 50/50 if the taxpayer does not allocate

(16) IRM 21.4.6 Editorial changes made throughout this revision

Effect on Other Documents

IRM 21.4.6, Refund Inquiries, Refund Offsets, dated September 6, 2022 effective October 1, 2022 is superseded. The following IRM procedural updates (IPU), has been incorporated into this IRM: IPU 22U1210 dated 12-16-2022.

Audience

All Internal Revenue Service employees working paper and phone Form 8379, Injured Spouse Allocation and Refund Offset inquires.

Effective Date

Joseph Dianto
Director, Accounts Management
Wage & Investment Division

Program Scope and Objectives

1. Purpose: This section covers processing related to Refund Offsets and Offset Reversals. This includes the offset of tax overpayments to outstanding Federal tax debts, child support, Treasury Offset Program debts, State Income tax obligations, and Unemployment Compensation debts. Also covered is the processing of Form 8379, Injured Spouse Allocation, and Offset Bypass Indicator (BPI), and processes for reversing offsets when Mixed Entity, Mixed Period, ID Theft, Hardship and Offset Bypass Refunds, and First-Time Homebuyer Credit Recapture is involved.

Reminder:

Internal phone numbers for the TOP Liaisons Headquarters Staff, and Centralized Insolvency Operation (CIO) have been labeled as Official Use Only (OUO).

Authority

1. Authority for these procedures is found in IRC 6511. Refer to IRM 1.4.3.1.2, Authorities, for more information.

Responsibilities

1. The Wage and Investment Commissioner has overall responsibility for the policy related to this IRM which is published on a yearly basis.
2. AM’s PPB Section has responsibility for information in this IRM.
3. The Director of Accounts Management is responsible for policy related to this IRM.
4. The Chief of this team is responsible for ensuring this IRM is timely submitted to publishing each year.
5. Additional information is found in IRM 1.1.13.7.3 Accounts Management and IRM 21.1.1, Accounts Management and Compliance Services Overview.

Program Controls

1. Program Reports : The program reports provided in this IRM are for identification purposes for the AM Customer Service Representatives (CSRs) and Tax Examiners (TEs). For reports concerning quality, inventory, and auto aged listing (AAL), please refer to IRM 1.4.16, Accounts Management Guide for Managers. AALs can also be viewed by accessing Control Data Analysis, and Project PCD, which are on the Control-D/Web Access server. This server has a login program control.
2. Program Effectiveness: Program Effectiveness is determined by AM employees successfully using IRM guidance to perform necessary account actions.
3. Program Controls: Goals, measures and operating guidelines are listed in the yearly Program Letter. Quality data and guidelines for measurement are referenced in IRM 21.10.1, Quality Assurance - Embedded Quality (EQ) Program for Accounts Management, Campus Compliance, Field Assistance, TEGE, Return Integrity and Compliance Services (RICS), and Electronic Products and Services Support.

Acronyms

1. For a comprehensive listing of the IRS acronyms, please refer to the Acronym Database.

Related Resources, Taxpayer Bill of Rights (TBOR) and Civil Rights

1. Refer to IRM 20.1.1.1.6, Related Resources, for information on related resources that impact internal controls.
2. The Taxpayer Bill of Rights (TBOR) lists rights that already existed in the tax code, putting them in simple language and grouping them into 10 fundamental rights. Employees are responsible for being familiar with and acting in accordance with taxpayer rights. See IRC 7803(a)(3), Execution of Duties in Accord with Taxpayer Rights. For additional information about the TBOR, see https://www.gov/taxpayer-bill-of-rights.
3. The IRS mission is to provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.
4. Under these rights taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the , to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS, and to speak to a supervisor about inadequate service.
5. If a taxpayer believes they have been discriminated against on the basis of sex, race, color, national origin (including limited English proficiency), disability, reprisal, religion, or age, advise the taxpayer that they can forward an email to *EDI.Civil.Rights.Division@.gov, or send a written complaint to: Internal Revenue Service, Office of Equity, Diversity and Inclusion, CRU , 1111 Constitution, NW, Room 2413, Washington, DC 20224. A complaint form can be obtained at https://www.gov/about-/your-civil-rights-are-protected

What Is a Refund Offset?

1. Under Internal Revenue Code IRC 6402(a), the IRS may apply a taxpayer’s overpayment to an outstanding federal tax debt. Similarly, sections 6402(c), (d), (e), and (f) require the IRS to apply a taxpayer’s overpayment to outstanding child support debts, federal agency nontax debts, state income tax obligations, or unemployment compensation, respectively. This application of a tax overpayment is called a “refund offset”. Overpayments credited against unpaid federal tax liabilities must be credited within the applicable period of limitations see IRC 6402 (a).
2. Refund offsets to child support, TOP debts, State income tax obligations, and Unemployment Compensation debts are handled by the Treasury's Bureau of the Fiscal Service, (BFS) formerly Financial Management Service (FMS), through the Treasury Offset Program. This occurs after a refund is certified by Internal Revenue Service for payment by BFS, but before the refund check is issued.

Note:

For the State Income Tax Levy Program (SITLP), refer to IRM 21.5.7.4.7.17, State Income Tax Levy Program (SITLP).

Note:

Do not use the Agency or Sub Agency codes found on CC TXMOD or CC IMFOL for processing an injured spouse allocation, nor for advising the taxpayer of the existence/non-existence of a TOP debt at the Bureau of the Fiscal Service.

Disclosure and Retention Records

1. Review procedures in IRM 11.3.1, Introduction to Disclosure, for official disclosure information.
2. Be sure you are speaking with the taxpayer or authorized representative. Refer to IRM 21.1.3.2, General Disclosure Guidelines, for more information.
3. Review procedures in IRM 10.5.1.6.7.2 , Answering Machine or Voice Mail, before leaving a message on a taxpayer's or authorized representative's answering machine or voice mail.
4. Review procedures in IRM 21.1.3.9, Mailing and Faxing Tax Account Information, before faxing or mailing confidential information to the taxpayer or authorized representative.
5. Review procedures in IRM 21.3.4.3.7, Use of Fax for Taxpayer Submission, before accepting faxed information.
6. Per Document 12990, Records and Information Management Record Control Schedules, we are maintaining all paper and electronic records accordingly.

Refund Offset Research

1. There are two types of refund offsets:

• Federal tax offset
• Treasury Offset Program offset (effective 01/11/1999)

• (I) IRS Debt

Note:

The (I) indicator is not always set for all Federal tax debts. To determine if there is an outstanding Federal tax debt, you must also research Command Code (CC) IMFOL, CC BMFOL, and/or CC TXMOD as well as CC INOLES even on "N" indicator cases. See IRM 21.4.6.5.8.3 , Processing of Form 8379 Injured Spouse Allocation, for conditions when the remaining overpayment may not offset.

Note:

The IAT Results IS screen may respond with a debt indicator "N" when an invalid Social Security Number (SSN) indicator follows the Taxpayer Identification Number (TIN). The IAT Tool is designed to research CC INOLET when the invalid indicator is present. If CC INOLET does not display a debt indicator, then the IAT Results IS screen displays the "N" . Additional research is needed if the secondary TIN is invalid.

1. Federal Tax, Primary Taxpayer Identification Number (TIN)
2. Individual Retirement Account (additional tax reported on Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts).
3. Shared Responsibility Payment (SRP) see IRM 4.19.13.10.7 Shared Responsibility Payment (SRP)
4. Civil Penalty
5. Federal Tax (Secondary TIN)
6. Business Master File (BMF)
7. Non-Master File (NMF)
8. Treasury Offset Program
9. Credit Elect

Note:

The Collection Statute Expiration Date (CSED) must be considered in all cases and the overpayment will offset to the earliest unexpired Imminent CSED for all MFT 29, MFT 30, MFT 31, MFT 35, or MFT 55 modules.

1. Office of Child Support Enforcement
   - Temporary Assistance to Needy Families (TANF) (payments to the state) and/or
   - Non-Temporary Assistance to Needy Families (non-TANF) (payments to the custodial parent through the state)

Note:

1. Individual Master File (IMF) primary or spousal tax debt
2. Business Master File (BMF) tax debt
3. Non Master File (NMF) tax debt (V— freeze, Transaction Code (TC) 130 on entity
4. Refund Freeze (TC 810)
5. Taxpayer Delinquency Investigation (TDI)
6. Bankruptcy (—V or —W freeze, TC 520 on account with closing code 60-67, 81 or 83-89 on the account.)
7. Criminal Investigation (CI) (Z— or —Z freeze, TC 914/TC 916/TC 918)

Caution:

There are instances in which one of the above is valid, however if the (I) indicator is not set, see IRM 21.4.6.4 , Refund Offset Research, paragraph (2).

1. If the indicator on CC TXMOD is a "0" , the debt indicator on CC INOLE will be an "N" or an "I" . If the CC TXMOD debt liability indicator is a "1" the debt liability indicator on CC INOLE will be an "F" , or a "B" .
2. If a "0" or "1" debt liability indicator is set on CC TXMOD, it does not guarantee that an offset will or will not occur. This is due to the timing involved in the data exchange between the Bureau of the Fiscal Service and the IRS.
3. A TC 898 or TC 971 AC 598 (manual input of TOP offset record) may be present on the tax module even though the indicator is set to "0" . In addition, a TC 898 or TC 971 AC 598 may not be present when the indicator is set to "1" . The debt indicator on CC INOLE is updated daily.

Tax Offset

1. A refund offset to an outstanding IMF, BMF, or NMF tax debt is referred to as a tax offset. Tax offsets appear on a tax module as:

• Transaction Code (TC) 820, manual credit transfer
• TC 826, computer-generated tax offset
• TC 896, computer-generated tax offset from IMF to BMF, Individual Retirement Account File (IRAF) or Shared Responsibility Payment (MFT 35) without an Agency/Sub-Agency (AG/SA) Code

Reminder:

TC 896 without an AG/SA code is not a DMF offset. Refer to Document 6209 , Section 8 - Master File Codes, for additional information.

Exception:

A TC 896 with an Agency/Sub-Agency (AG/SA) Code reflects a computer-generated offset to the DMF made from 1984 through January 11,1999. It is not a DMF offset if there is no AG/SA code present. Refer to Document 6209 , Section 5 - Debtor Master File (DMF), for agency listing.

Tax Offset Reversal

1. A tax offset reversal may be required if the taxpayer's response to the tax assessment results in either a full or partial abatement on a married filing joint (MFJ) account. Any refund generated by the abatement must be paid jointly to both spouses unless one or more TC 706 credits is present and all four of the following items are true:

• The spouses' names on the account do not both appear on the originating account. Meaning, the TC 706 credits must transfer from one spouse on the originating account either as a single or separate filer or as a joint filer with a new spouse.

Example:

Mary Cod filed single for 2019. Her 2019 overpayment offsets with TC 706 to the 2017 account filed as John & Mary Cod, married filing joint.

Note:

Example:

Husband and wife file a joint return for tax year 2019. The IRS assesses an additional $800.00 for their 2019 joint liability based on an examination of the return. The taxpayers divorce. The wife later files an income tax return for 2020 that claims a $500.00 overpayment. The husband does not file an income tax return for 2020 that claims an overpayment. Because of the outstanding tax assessment, the wife's $500.00 credit is transferred in April 2021 to the married filing joint (MFJ) tax liability for 2019. No other payments or credits are made to the 20119 MFJ account. On September 1, 2021, the IRS partially abates $400.00 of the 2019 tax assessment. Because all four requirements in paragraph (1) above are met move the $100.00 credit that results from the partial abatement back to the wife's 2020 account to prevent the credit from refunding from the 2019 MFJ account.

Example:

Husband and wife file a joint return for 2019. The IRS assesses an additional $800.00 for their 2019 joint liability based on an examination of the return. Taxpayers divorce. The wife files an income tax return for 2020 that claims a $500.00 overpayment. The husband files an income tax return for 2020 that claims a $300.00 overpayment. Because of the outstanding tax assessment, the $500.00 and $300.00 credits are transferred in April 2021 to the MFJ tax liability for 2019. No other payments or credits are made to the 2019 MFJ account. On September 1, 2021, the IRS fully abates the tax assessment on tax year 2019. Because all four requirements above are met, move the $500.00 credit back to the wife's 2020 account and the $300.00 credit back to the husband's 2020 account. To prevent the credits from refunding from the 2019 MFJ account, move the credit(s) before abating the tax on that year.

Caution:

If an adjustment is made to abate the tax, the appropriate hold code 1, 2 or 4 is needed to prevent the generation of the refund on the 2019 MFJ account and a TC 570 must be used for the credit transfer when posting the credit(s) back to the originating account(s). Otherwise, the computer will automatically offset the credit(s) back to pay the balance due.

1. Reverse the TC 706(s) to the originating account and input TC 570 on the credit side. If credit interest was allowed on the offset, the credit interest must also be reversed with TC 772.
2. Input TC 571 with Posting Delay Code 1 on the originating account to allow refund to issue after the adjustment to the joint account posts and satisfies that module.
3. Input adjustment to the joint module, using the appropriate hold code 1, 2 or 4 as appropriate to ensure the overpayment does not offset.