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Bad Debt Scenario – IRS Takebacks

IRS takebacks most commonly occur when a joint tax return is intercepted by Child Support Services (CSS) and the non-custodial parent’s (NCP) spouse files an injured spouse claim on their portion of their IRS refund.  The IRS will “takeback” the spouse’s portion of the intercept and refund it to the injured spouse directly. Consequently, this can cause an overpayment if the funds have already been issued or refunded. Below outlines the IRS take back scenarios and processes:

  • Receipt has been distributed and:

    • Issued – Custodial Person (CP) Bad Debt (BD) will be created automatically when the receipt adjustment is performed
    • Pended – Because receipt has not been issued, a BD is not created
    • Refunded – The Center for Finance and Budget (CFB) will create an NCP BD in OSIS
  • IRS Intercept is suspect

    – due to increased fraud with tax returns, CFB runs a program against all IRS intercepts once they are received. This program checks for certain case conditions to determine if a case should be reviewed to determine if the intercept requires further action. If it is determined that the receipt could be fraudulent the following actions occur:

    • Receipt remains in undistributed (UNDL) with a CFN note “LETTER REQUIRED”
    • Letter is sent to the NCP at the address on the case as well as the address on the tax return requesting identity verification (photo ID and tax returns) be sent to CFB
    • Upon CFB verification of the legitimacy of the return, the receipt is logged to the case
    • If not response is received, the receipt remains in UNDL for six months
NOTE: There is no status of limitations on the length of time a spouse can complete an injured spouse request or the IRS can perform a take-back. For more information, see the Center for Coordinated Programs Infonet Page.