Employees in the Accounts Management (AM) organization respond to taxpayer inquiries and process claims and other internal adjustment requests.

Authority for these procedures is found in IRM 1.2.1.13, Policy Statements for Customer Account Services Activities.

The Taxpayer Services Commissioner has overall responsibility for the policy related to this IRM, which is published on a yearly basis.

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 Reports: The program reports provided in this IRM are for identification purposes for the Accounts Management Customer Service Representatives (CSRs) and Tax Examiners (TEs). For reports concerning quality, inventory, and aged listings, please refer to IRM 1.4.16, Accounts Management Guide for Managers. Aged listings can also be viewed by accessing Control Data Analysis, Project PCD, on the Control D/Web Access server, which has a login program control.

Program Effectiveness: Program Effectiveness is determined by Accounts Management’s employees successfully using IRM guidance to perform necessary account actions and duties.

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, Embedded Quality (EQ) for Accounts Management, Campus Compliance, Field Assistance, Tax Exempt/Government Entities, Return Integrity and Compliance Services (RICS) and Electronic Products and Services Support.

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

See table below for common acronyms in this IRM:

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 accord with taxpayer rights. See IRC 7803(a)(3), Execution of Duties in Accord with Taxpayer Rights. For additional information about the TBOR, see Taxpayer Bill of Rights.

Additional related resources include:

The following Statutes of Limitation are used when recovering erroneous refunds:

Category A1 erroneous refunds involve the following types of taxes: income tax, estate tax, gift tax and excise tax. The Category A1 erroneous refund occurs when the tax liability has been understated due to an error on either a tax assessment or on an adjustment to the tax liability and the error results in a refund.

The Category A1 erroneous refund is generally recovered with a deficiency assessment by the Examination function. The notice of deficiency must be issued within the assessment statute period or by the ASED. See IRC 6501 (a) or IRM 25.6.1.9.2, General Assessment Period.

Once the erroneous amount has been assessed, normal collection procedures apply, and the amount can be recovered within the Collection Statute. See IRC 6502 or IRM 25.6.1.12, Collection Statute Expiration Date (CSED).

Take the following account actions to recover Category A1 erroneous refunds:

If the Category A1 erroneous refund is identified during a telephone contact with the taxpayer, advise the taxpayer a referral will be made to the Examination division. See IRM 21.4.5.12, How to Repay an Erroneous Refund or Return an Erroneous Refund Check or Direct Deposit, if the taxpayer volunteers to repay the amount. It is not necessary to advise the taxpayer the referral is being made unless the error is identified through direct telephone contact.

The Letter 510C, Refund in Error; Return Check, is not issued on Category A1 erroneous refunds. Do not input a TC 470 or a TC 844 on these accounts.

See the following table:

Category A2 erroneous refunds involve errors on refundable or non-refundable credits that are subject to deficiency procedures. These credits include, but are not limited to:

If the taxpayer files two tax returns, one with an ITIN and one with an SSN, and receives two refunds, follow Category A2 procedures for the portion of the refund attributable to refundable/non-refundable credits (e.g., EITC, Child Tax Credit, etc.). Follow Category B procedures for the portion of the refund attributable to the pre-paid credits, such as withholding and estimated tax payments.

The Category A2 erroneous refund is generally recovered with a deficiency assessment by the Examination function. The notice of deficiency must be mailed within the assessment statute period or by the ASED. See IRC 6501 (a) or IRM 25.6.1.9.2, General Assessment Period.

Once the erroneous amount has been assessed, normal collection procedures apply, and the amount can be recovered within the CSED. See IRC 6502 or IRM 25.6.1.12, Collection Statute Expiration Date (CSED).

Take the following actions to recover Category A2 erroneous refunds:

When the Category A2 erroneous refund is identified during a telephone contact with the taxpayer, advise the taxpayer a referral will be made to the Examination division. See IRM 21.4.5.12, How to Repay an Erroneous Refund or Return an Erroneous Refund Check or Direct Deposit, if the taxpayer volunteers to repay the amount. It is not necessary to advise the taxpayer the referral is being made unless the error is identified through a direct telephone contact.

The Letter 510C, Refund in Error; Return Check, is not issued on Category A2 erroneous refunds. Do not input a TC 470 or TC 844 on these accounts.

See the following table:

The Category B erroneous refunds occur when taxpayers overstate their Federal income tax withholding credits or estimated income tax payments on a return or a claim for refund.

If the IRS caused the overstatement of withholding or estimated tax payments, the erroneous refund becomes a Category D erroneous refund and can only be recovered through the Category D erroneous refund procedures. See IRM 21.4.5.6.1, Account Actions for Category D Erroneous Refunds.

If the taxpayer files two tax returns, one with an ITIN and one with an SSN, and receives two refunds, follow Category B procedures for the portion of the refund attributable to pre-paid credits (i.e., withholding and estimated tax payments). Other erroneous refund procedures (e.g., Category A2) may apply for the remainder of the refund not attributable to Category B.

IRC 6201(a)(3) gives the IRS the authority to assess an overstatement, on a return or claim for refund, of Federal income tax withholding credit or estimated income tax payment without deficiency or math error procedures:

As a result, Category B erroneous refunds are generally recovered with an assessment (a TC 290) for the amount of the overstated withholding credit or in limited circumstances with a reversal (TC 807) of the overstated amount.

A TC 290 results in a legal assessment that allows the IRS to correct the overstated credits using the provisions of IRC 6201(a)(3). The TC 807 or the reversal of estimated income tax payments is not a legal assessment. Another determining factor is whether the taxpayer claimed the overstated amount as a refund or if the overstated credits resulted in a refund or credit transfer.

Therefore, if the overstated amount of withholding credit or estimated payments did not result in a refund or a credit transfer, and the taxpayer did not claim the overstated amount as a refund, the overstated credit can be recovered with a reversal of the credit (i.e., TC 807, TC 662).

The TC 290 assessment is done using command code (CC) REQ54 and inputting a TC 290 for the overstated amount with a Reason Code 051. See Exhibit 2.4.16-4, Input Screen CC ADJ54, for an example of TC 290 input screen.

In the Remarks Section of the ADJ54 screen, provide sufficient comments to support the adjustment. Cite the reason the withholding is being adjusted.

While the Category B assessments are not subject to the deficiency procedures, the assessments must be made within the ASED. See IRC 6501.

Once the amount of the overstated withholding credit or estimated payments has been assessed or reversed, normal collection procedures apply, and the assessment can be recovered within the CSED. See IRM 25.6.1.12, Collection Statute Expiration Date (CSED).

If the overstated amount was applied as a credit elect, the IRS can make an assessment for either tax year. The overstated amount can be assessed on the year in which the overstatement was made, or it can be assessed on the year the credit elect was claimed.

Input a TC 971 AC 663. See Exhibit 21.4.5-1, TC 971 AC 663 - Identifying Erroneous Refunds, for more information.

The Letter 510C, Refund in Error; Return Check, is not issued on category B erroneous refunds. Do not input a TC 470 or TC 844 on these accounts. Do not use hold codes on the adjustment that will prevent the notice from being generated.

Category C erroneous refunds involve Business Master File (BMF) accounts and taxes reported on forms such as Form 940 (Employer's Annual Federal Unemployment Tax Return), Form 941 (Employer's QUARTERLY Federal Tax Return), Form 943 (Employer's Annual Tax Return for Agricultural Employees), Form 944 (Employer's ANNUAL Federal Tax Return), and Form 945 (Annual Return of Withheld Federal Income Tax). The erroneous refund can result from the IRS accepting a taxpayer representation and later determining that it is in error. The following examples are Category C erroneous refunds recoverable by assessment, however not all erroneous refunds based on an IRS mistake are assessable as Category C erroneous refunds.

Category C erroneous refunds are generally recovered by an assessment (a TC 290) within the assessment statute period and must be assessed by the ASED. Once the assessment has been made, the CSED will apply. See IRM 25.6.1.12, Collection Statute Expiration Date (CSED).

Whenever the tax shown on an original or amended return is reduced because of a processing error, rather than a redetermination of tax, IRS may immediately assess the difference between the tax that was reported on the return and the tax that was previously assessed. Ensure the total tax shown on the account is the amount the taxpayer reported on their original return. If the taxpayer files an amended return, base the tax assessment on the amended return. Adjust the tax:

Category D erroneous refunds include any erroneous refund that is not included in any other erroneous refund category.

The Category D erroneous refunds can also include any Category A1, Category A2, Category B, and Category C erroneous refunds if the ASED has expired but the ERSED is still open. See IRM 21.4.5.10, Categories A1, A2, B and C Erroneous Refunds Processed as a Category D Erroneous Refund Using the ERSED, and IRM 21.4.5.15, Collection Methods for Category D Erroneous Refunds.

Category D erroneous refunds are controlled by the ERSED and can only be recovered by an erroneous refund lawsuit, refund offset, or voluntary repayment. Administrative collection actions such as the filing of a Notice of Federal Tax Lien or issuance of a levy cannot be taken to recover Category D erroneous refunds. The ASED and the CSED do not apply to this category of erroneous refunds.

If the taxpayer does not repay the erroneous refund, the refund amount can be considered income to the taxpayer in the year received. See IRM 3.17.80.1.30, Form 1099 - Unrecoverable Unassessable Erroneous Refunds.

The following are examples and causes of Category D erroneous refunds. This list is not all-inclusive:

Integrated Automation Technologies (IAT) has developed an erroneous refund tool to automate processes related to Category D erroneous refund processing. Accounts Management is required to use the IAT tools per Exhibit 21.2.2-2, Accounts Management Mandated IAT Tools.

A Duplicate Manual Erroneous Refund (DMER) is created anytime a manual refund (TC 840) and a computer-generated refund (TC 846) or two manual refunds are issued for the same overpayment, one of which the taxpayer is not entitled to receive. This definition applies regardless of taxpayer intent or whether the error that caused the DMER was made by the IRS, the taxpayer, or a third party.

DMERs can be created by:

When a DMER is identified, in addition to Form 12356, Erroneous Refund Worksheet, a Form 14165, Erroneous TC 840/846 Report, must be completed and included in the case file. DMER case files cannot be mailed to the Accounting Erroneous Refund Teams. All DMER case files will be saved on the DMER Shared Drive per the instructions in (6) below.

Anytime a Form 14165 is created and scanned to the DMER Shared Drive, input a history item on IDRS and in AMS indicating "F14165SENT" . Make sure to indicate in the AMS history that the case file was scanned into the DMER Shared Drive. The entire case file must be scanned into the folder for the month the file was completed.

When a DMER is identified, the discovering employee must contact the appropriate BOD POC listed in Exhibit 21.4.5-2, DMER Site Contacts.

When the DMER case file is received from the originator/preparer, the BOD POC will load the file to the DMER Shared Folder.

An IDT case is a DMER if, after the case was identified as IDT, a systemic refund (TC 846) was inadvertently generated (by the input of an incorrect account action) and a manual refund is issued.

The necessary account actions will depend on what caused the erroneous refund:

Employees who identify a Category D erroneous refund are responsible for creating an erroneous refund package and completing the necessary actions before referring the case to the appropriate A/ER Unit. An erroneous refund package must include the following information:

Prepare Form 12356, Erroneous Refund Worksheet. Refer to IRM 21.4.5.6.2, Preparing Form 12356, Erroneous Refund Worksheet.

Send the taxpayer a Letter 510C, Refund in Error; Return Check, or an equivalent letter (e.g., Letter 274C, Offer in Compromise; Installment Payment Due, used by Offer in Compromise), using the IAT Letters Tool. This is the method used by the IRS to "demand" the erroneous refund be repaid. The date of the letter is considered the date of demand. See IRM 21.4.5.14, Interest and Penalty Consideration for Category D Erroneous Refunds.

When applicable, selective paragraphs in the letter may be used to advise the taxpayer if they repay the erroneous refund within 21 calendar days from the date of the letter, interest will not be charged (see exceptions at IRM 21.4.5.14, Interest and Penalty Consideration for Category D Erroneous Refunds).

To determine whether the taxpayer owes interest when issuing a Letter 510C see the table below.

Employees must input a TC 844 using CC REQ77/FRM77 when a Category D erroneous refund is identified. The TC 844 generates a "-U" freeze on the account.

Employees must input a TC 470 using CC REQ77/FRM77 to stop all systemic notices and collection processes. If the taxpayer's account will be in a balance due status, use a cc 93. See Exhibit 2.4.19-2, Command Code REQ77 Response, for an example of FRM77 input screen.

Input a TC 971 AC 663. See Exhibit 21.4.5-1, TC 971 AC 663 - Identifying Erroneous Refunds, for more information.

Update the Integrated Data Retrieval System (IDRS) Category Code to ERRF, reassign the IDRS control base to the appropriate A/ER unit, change the status to "M" with activity code "ERRORREF" . The first five digits of the Erroneous Refund Units IDRS numbers are as follows:

On identity theft cases where a refund has been offset to a false secondary TIN, process the ERRF as follows:

The following are line-by-line instructions for completing Form 12356, Erroneous Refund Worksheet:

Effective October 1, 2020, all Category D erroneous refunds will be emailed to the organizational mailbox established for each A/ER function. The email will include all required documentation as discussed in IRM 21.4.5.6.1 (2) and be merged into one pdf document. The Form 12356 needs to be the first page of the document. No Form 3210 will be needed any longer. The subject line on the email and the file will be the Refund Schedule Number (RSN)_last four digits on TIN. Example: 2014094175W_6081.

To determine the appropriate campus for routing the erroneous refund package, use the 8th and 9th position of the Refund Schedule Number (RSN). See Exhibit 3.17.79-4, Refund Schedule Number Format.

The gaining A/ER function will:

Situations exist where a newly identified erroneous refund has already been fully repaid. The erroneous refund may have been satisfied by:

Even though the balance has been repaid, an incorrect refund was issued to the taxpayer and it is necessary to follow the Category D erroneous refund procedures to protect the taxpayer. Per IRC 6404(e)(2), the interest is abated until the date of demand if the erroneous refund is $50,000 or less and the taxpayer (or related party) did not cause the erroneous refund. Since the erroneous refund was repaid prior to the issuance of a notice of demand (Letter 510C), no interest is due on the erroneous refund amount.

If the account has been fully paid by an offset or by the taxpayer submitting full payment on the account, take the following actions:

If the taxpayer returned the treasury check and there is a TC 841 with "99999" in the DLN on the account, then take the following actions:

All IRS direct deposit errors are Category D erroneous refunds and have an ERSED of two-years from the refund issuance date.

If the RTN or bank account numbers differ from that shown on the return and the IRS caused the error, issue a manual refund to the correct taxpayer as soon as possible to limit the amount of credit interest paid to the taxpayer.

If the financial institution or The Bureau of Fiscal Services (BFS) (formerly Financial Management Service (FMS)) identifies the account owner of the erroneous direct deposit, and the bank does not return the credit, the Refund Inquiry Unit must follow Category D erroneous refund procedures. Upon obtaining the account owner's name, TIN and address, complete the following actions on the erroneous refund account:

If the financial institution or BFS (formerly FMS) does not identify the account owner of the erroneous direct deposit, and the bank does not return the credit, the Refund Inquiry Unit will take the following actions:

When the disposition of the direct deposit is learned and the identity of the taxpayer in receipt of the erroneous direct deposit (unintended recipient) is not obtainable, the Refund Inquiry Unit must email the case file to the appropriate A/ER function, noting recipient of the direct deposit could not be identified. See IRM 21.4.1.5.7.5, Non-Receipt of Direct Deposit Refunds - "Refund Inquiry Employees" .

Except where the abatement of interest is required by statute, interest must be charged. IRC 6404(e)(2) requires abatement of interest on erroneous refunds of $50,000 or less unless the taxpayer (or related party) caused the erroneous refund. The IRS also has discretionary authority to abate interest when the erroneous refund exceeds $50,000. Permission to abate debit interest must be requested from an individual listed in Delegation Order 20-1. See IRM 1.2.2.13.1, Delegation Order 20-1, Abatement of Interest, (Rev.2, formally DO-228, Rev 3), Abatement of Interest. More information on the factors considered for discretionary abatement is in IRM 20.2.7.7, IRC 6404(e)(2), Erroneous Refunds.

Before referring an erroneous refund case to the appropriate A/ER function, ensure the applicable Statute of Limitation is not about to expire. Two common occurrences in which the CSED expires before the ERSED are: