These have been a rough couple of years for us all and there were special tax credits enacted during the pandemic to help. If your refund is still on hold from 2020 or 2021 and maybe even 2022 there were and still are certain credits people claimed that could have caused a hold on your refund if the IRS feels you may not be qualified. Therefore, here is how to avoid tax refund problems that could lead to huge IRS penalties before it is too late.
What Are the Tax Credits That Could Cause IRS Penalties and Refund Delay?
There were social media posts mentioning ways to really boost your refund claiming the Sick and Family Leave credit and the Fuel Tax credit. You may have gone to a tax preparer and they promised you a large refund if you claimed one or both of those credits. And if you are qualified for them great! But you may not be and that’s where the delays come into play.
What’s even worse due to these social media schemes the IRS could hit you with a $5,000 frivolous filing penalty too. So if you call the IRS they may tell you: “your return is being reviewed.” A notice may be sent to request additional documents to support the claim.
The IRS will encourage you to review your return, and if a correction is needed, instruct you to file an amended return. They will advise you to allow 180 days, from the date of the call, for a letter to be issued.
After the 180 days if a letter wasn’t issued, and you have this particular freeze on your refund, they will have to send a referral to the IRS group conducting the review and that referral could take another 60 days.
How to Deal With a Frivilous Filing Penalty Notice
You could look at your account transcripts with the IRS for that year. And if you see a transaction 810 with responsibility code 4 that’s this particular freeze. Furthermore, if you want to see the instructions the IRS representative is referencing here’s a link to the Internal Revenue Manual. Your account could have a minus E freeze which is placed on your account for a variety of reasons from a return sent to exam or for a frivolous filing issue.
I understand you relied on a preparer and trusted he knew what he or she was doing as protection from possible tax refund problems and IRS penalties. They could make a mistake, they could be incompetent, or they could be disreputable people thinking they could score a nice fat fee on a big refund.
But ask yourself does this sound to be to good to be true? It may be just that a fantasy of a refund for a credit or credits you will never get and maybe even a $5,000 penalty to boot!
For instance, one of those credits is the Fuel Tax credit on form 4136 that is for certain nontaxable uses (or sales) of fuel during your income tax year. Does that sound something you should have claimed?
And don’t think you could point a finger at the preparer because you signed the return.
Other delays can be easy fixes. For example, many get “math error” notices like the CP11, CP12, or CP13. This is because the person screwed up a dependent’s social security number or maybe a form is missing.
Regarding the missing form, this can happen if the return is mailed since sometimes it will go missing during processing. But if you get a math error notice try calling the IRS and they may be able to fix it over the phone. Sometimes they may ask you to fax them the missing form. And be prepared, in the case of the bad SSN for a dependent to provide the name, date of birth, and correct SSN. Many, not all, of these types of errors can be fixed with a phone call.
So if your refund is still missing, you should call the IRS and ask why. It’s easier to get through right now to avoid these tax refund problems and IRS penalties. The IRS has and is still hiring more people and hold times are getting shorter. Don’t panic just listen to what the IRS representative is telling you and if you claimed one of those credits that you shouldn’t have and there is a review going on, then look at your return and review it yourself.