Each year, we hear from our member financial institutions about the challenges they face with incoming tax refunds that force them to juggle compliance and client/member service. Let’s look at some of the most common questions and the Rules-based answers you can rely on to protect your clients and institution.
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Watch to Learn More!
Tax season is upon us, and you may find folks asking you questions that you may be unsure of how to handle. Watch our short Did You Know video to walk through some common IRS tax refund situations you may face in the coming weeks.
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What do we do about this refund that came into a closed account?
The ACH Rules have specific requirements regarding the availability of Credit Entries to Receivers (Subsection 3.3.1.1 and 3.3.1.2). Generally speaking, you cannot hold the credit until either the Receiver or the IRS ask for the monies. If an ACH Entry cannot be posted, it should be returned. In this case, it would be returned using the R02 Return Reason Code. Depending upon the Right of Offset laws in your state, an IRS tax refund might be eligible for offset if the account was closed with a negative balance. (To determine what the laws in your state say in this regard, contact your state’s Attorney General’s office).
Our account holder received a “HUGE” refund and only maintains a minimal balance with little activity in the account. What should we do?
According to ACH Rules Section 1.2.1, Effect of Illegality, if, as an RDFI, you have reason to believe the funds are illegal, you can “hold” the funds while you investigate the return. You should promptly investigate the suspicious transaction. Your investigation could include contacting the IRS to confirm the validity of the payment. They may instruct you to post the transaction or to return the transaction. If the IRS requests you to return the transaction, you should ask them how to return the Entry. In most cases, you would use the R06 Return Reason Code. You may not be able to get an indemnification letter, so you should document who you spoke to at the IRS.
My account holder is deceased. Is this federal government transaction subject to reclamation?
According to the Green Book, page 5-3, tax refunds are not subject to reclamation.
Have additional questions? The IRS has an FAQ page on its website to help answer nearly any refund-related question. And, of course, our Member Support team is also happy to answer your questions via our helpline (800.500.0100), email (memserve@epcor.org) or chat (epcor.org). Happy tax season!
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Opening Day: Tax Refunds Webinar Recording is Available NOW!
It’s tax season! Check out our Opening Day: Tax Refunds webinar to review your responsibilities and liabilities as an RDFI receiving tax payments and brush up on common tax refund dilemmas before your account holders start lining up with questions. During this 60-minute webinar, we cover the responsibilities and liabilities of RDFIs when processing IRS and state tax refunds, how to respond to common tax refund questions posed by account holders and identify available resources for processing incoming tax returns. We will also walk through scenarios to determine the best way to handle common dilemmas including rejected transactions, account titling, multiple deposits to one account and more. Get your recording today!
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