Purpose: This section of the IRM contains processing guidance for working Refund Hold inventory. Refund Hold (RH) inventory occurs when the Service holds individual income tax refunds and credit elects when a current year refund return is filed and the taxpayer's account has at least one unfiled tax return within the five years prior to the RH tax year. This includes modules where no Transaction Code (TC) 140 is present. This section of the IRM contains the delinquency criteria for holding a taxpayer's refund while the Service investigates the delinquent return(s) and the functional procedures for screening, working and monitoring these cases.

Scope: The RH Program is under the direction of Wage and Investment (W&I) Filing and Payment Compliance. The program is consolidated at the Austin site for Compliance Services Collection Operation (CSCO) and is worked in collaboration with (W&I) and Small Business/Self Employed (SB/SE) Compliance Services Examination Operation (CSEO). The refund is used to offset any balance due on the delinquent return(s). If there is no balance due, or an amount remains after offsetting, the refund is released to the taxpayer.

The Refund Hold Program is based on IRC Section 6402 (a) which provides that the Secretary may, within the applicable period of limitations, credit the amount of any overpayment against any tax liability of the person who made the overpayment. IRC Section 6402 (b), Authority to make credits or refunds - Credits against estimated tax,states, "The Secretary is authorized to prescribe regulations providing for the crediting against the estimated income tax for any taxable year of the amount determined by the taxpayer or the Secretary to be an overpayment of the income tax for a preceding taxable year."

If after initial contact, the delinquent return(s) are not filed, a Statutory Notice of Deficiency may be issued. Once issued, the refund is applied to the tax year of the proposed deficiency(ies). It will remain there until a return is filed or the Service imposes the proposed assessment after the appropriate suspense period. See IRM 5.18.1.7.11.38 (5) for Automated Substitute for Return (ASFR) Statutory Notice of Deficiency time frames.

A refund will be released if:

The following functions will have RH cases assigned in their inventory:

Each functional area that is assigned a RH case is responsible for monitoring its cases and ensuring disposition of the case is expeditious and timely. IRC Section 6611(e) provides that there is no interest if an overpayment is refunded within 45 days after the due date of the return, or in the case of a late filed return, within 45 days after the return is filed. If, however, the refund is not made within the 45 day period, interest must be paid from the date of overpayment. Thus, it is imperative RH cases be processed expeditiously and monitored for the most expeditious resolution possible to prevent additional cost to the Service while processing these cases.

The Service holds individual income tax refunds and credit elects when a current year return is filed with the established refund amount in LEM 25.12.1.2 (1), Refund Hold Case Criteria, and the account has at least one module within five years prior to the RH where IRPTR information exists and no return has been filed.

Refunds held by this program contain all of the following codes on IDRS:

Refund Hold modules allow for offset during the designated hold period see LEM 25.12.1.2(2), Refund Hold Case Criteria, Refund freezes will be released per LEM 25.12.1.14.1, Release of the Refund Hold Freeze only.

Research tools that will assist in resolving RH cases include, but are not limited to, the following systems, IRMs, LEMs and documents:

When dealing with joint filing, research both spouse's accounts.

The Transcript Delivery System (TDS) can be used to send Wage and Income Information Documents to the taxpayer, in lieu of any procedures throughout this IRM that state to send IRPTR or SUPOL supplements with the appropriate IRS letter.

A Refund Hold Coordinator (RHC) must be established in the functional areas responsible for RH cases. The functional areas are Compliance Services Collection Operation (CSCO), Automated Substitute For Return (ASFR), Compliance Services Examination Operation (CSEO), and Compliance Field Operations.

The Directors of Compliance within W&I and SB/SE are responsible for the cases assigned to each Business Operating Division (BOD) respectively. Each BOD has Program and Policy Analysts who coordinate and oversee the program.

CSCO and CSEO must designate a RHC(s) who will:

All other functional areas must designate RHCs who will:

The Examination RHC is responsible for contacting the Office of Appeals or Area Counsel to determine the status and history of a RH case in Appeals or Litigation. In coordination with these offices, make a decision immediately whether to release the freeze.

All RHCs must process the RH program cases within their assigned area of responsibility and will:

During weekly analysis, all modules meeting RH criteria are extracted from Master File and created on IDRS. Refund Hold modules are identified on IDRS See IRM 25.12.1.2, How to Identify Delinquent Return Refund Hold. A program is run weekly that identifies all RH modules currently on IDRS and generates the LE6274XZ listings. The LE62741Z (CSCO) and LE62740Z (CSEO) are the tools the RHC uses to identify and if necessary, move the delinquency into the correct functional area's inventory.

An electronic version of the LE6274XZ listings is accessible on Control D. All RHC should have access to Control D. A 5081 is required for access to Control D. The Control D website is located at http://172.27.36.136/bmc-ctd-wa-isapi.dll?0=LoginWindow&. The RHC may print the LE6274XZ from Control D.

The CSCO LE62741Z is divided into three sections; ASFR 8000 assignments, CFf 1000-6900, and all other assignments.

When a return is filed which meets the RH criteria, the taxpayer is notified by:

These letters inform the taxpayer the refund is being held because there are delinquent return(s). The letters direct the taxpayer to file the delinquent return(s) or tell us why there is no filing requirement on his/her account. In addition, the letters advise the taxpayer that if the taxpayer does not file, the Service will file the delinquent return(s) for the taxpayer.

This section provides instructions for functional processing of RH cases. When an account is selected for RH, the functional area to which the account is assigned will be responsible for working the RH case.

Modules not assigned to ASFR, Collection Field function (CFf), or Examination are reviewed and the modules are either referred to ASFR or Examination or closed.

While RH accounts must be worked quickly, guard against asserting potential liabilities without adequate case development and always consider information taxpayers wish to provide.

This section explains the urgency of working RH cases quickly and with sensitivity. While it is important to ensure filing and payment compliance, it is also important to exercise good judgment and reasonableness in special situations.

The RH program only applies to delinquent return modules which are already assigned to Collection or Examination. The assigned function is notified of the RH freeze being set within one week through generation of the LE627XZ listings which ensures the case is quickly identified and receives priority attention.

There may be instances when a refund meets the RH criteria but the case requires special consideration. If a special situation applies, be sensitive to the facts and decide if releasing the freeze is appropriate.

This IRM also includes information for:

The assigned function or employee must work RH accounts expeditiously to:

Within the designated hold period from the filing of the claim for refund, these refunds must be:

Each week review all new RH cases included on the LE62740Z and LE62741Z. The RHC will notify Field Collection of new cases assigned to those inventories. Each function is responsible for reviewing the LE6274XZ list cases assigned to their functional area and determining whether the freeze should be released or the refund applied to the tax year of a proposed liability.

All cases not assigned to CSCO, Field Compliance functions or CSEO will be reviewed by the ASFR/RHC and either transferred to the appropriate inventory or closed by releasing the freeze.

The Service recognizes taxpayers may experience problems associated with the holding of the refund that may meet TAS criteria or consideration see See IRM 13.1.7, Taxpayer Advocate Service Case Criteria for information on case criteria that qualify taxpayers for TAS assistance.

If the case can be resolved or steps taken to resolve the case within 24 hours, then do not forward the case to TAS unless the taxpayer asks to be referred to TAS.

TAS does not have the authority to release refunds when there is an R freeze RH on the account, regardless of the amount of the refund. In situations where TAS determines a freeze release may be appropriate, TAS will request release of the freeze through the Operations Assistance Request (OAR) process in accordance with the TAS/W&I Service Level Agreement.

To prevent delay in systemic release of refunds for taxpayers meeting the criteria in LEM 25.12.1.14.1, Release of the Refund Hold Freeze, TAS caseworkers should only establish control in "B" status when an IDRS control base is required on RH cases.

In cases where TAS determines a manual refund is needed to relieve a taxpayers economic hardship, TAS will include economic hardship documentation with the OAR to support the request. If the economic hardship amount is less than the expected refund, a manual refund should be made for the verified economic hardship amount only. Example: A taxpayers refund has been held. The taxpayer contacts IRS and states he is delinquent in his rent payments and has received an eviction notice. Even though the refund is for $3,000, only $1,200 is needed to avoid eviction. The employee will recommend a manual refund of $1,200.

Examples of economic hardship include but are not limited to:

In certain circumstances, either due to the urgency or the nature of the taxpayers economic hardship, oral or written testimony explaining the hardship may be accepted.

A RH freeze may only be released under certain circumstances. See IRM 25.12.1.1 or LEM 25.12.1 for criteria for releasing the RH freeze. Separate requirements must be met to justify a manual refund, see LEM 25.12.1.14.1, Release of the Refund Hold Freeze.

Refunds are held on modules with -O freezes. Relief is granted by releasing the RH freeze if the taxpayer makes contact and indicates an impact by the disaster. See LEM 25.12.1.14.1, Release of the Refund Hold Freeze.

IRM 25.16, Disaster Assistance and Emergency Relief, provides complete background and multifunctional operating procedures.

Each week CSEO receives notification of Examination RH cases via the LE62740Z report. RH cases are processed in the same manner as other Campus Exam cases; however, they require expedited tax deficiency assessments to meet the time periods established to offset the held refunds.

Within five business days of receiving the LE62740Z listing, CSEO RHC will:

See current year Operating Guidelines for inventory information such as Project/Source/Organization Function Program (OFP) codes.

CP 88 notices are issued to taxpayers when RH exists and there is a related module open on AIMS. A CP 88 notifies a taxpayer that a refund is being held and provides a local contact name, phone number, hours of operation and the toll-free phone number for Examination.

The CSEO RHC must establish an inventory control system to ensure the timely and expeditious resolution of the RH.

Accounts Management (AM) will have minimal interaction with RH because the accounts are assigned to Collection or Examination. The notices issued in relation to RH do not contain AM toll-free numbers.

Refund Hold referral to 1-866-897-3315 should be based on the RH account identification per IRM 25.12.1.2, How to Identify Delinquent Return Refund Hold . DO NOT refer taxpayers wishing to inquire regarding the STATUS of their refund. Follow the normal refund inquiry procedures for your function if there is no evidence of a Delinquent Return Refund Hold on the account. See IRM 25.12.1.2, How to Identify Delinquent Return Refund Hold.

When correspondence or claims are received for a RH account, it must be given priority attention, and referred to the appropriate RH coordinator:

Attempt to contact the taxpayer within 10 days of receiving notification.

This section provides information on disposition of the refund: how and when to release it and how to continue to hold it if more time is needed.

This section describes options to continue holding the refund with the taxpayers agreement or with managerial approval (absent the taxpayers agreement).

If the taxpayer does not voluntarily file the delinquent return(s) and you anticipate a liability. See LEM 25.12.1.2, Refund Hold Case Criteria , issue a Statutory Notice of Deficiency. Once a Statutory Notice of Deficiency (90-day letter) is issued, the refund can be transferred to the tax year of the proposed deficiency. It will remain there until a return is filed or the Service imposes the proposed assesment after the appropriate suspense period. See IRM 5.18.1.7.11.38 (5) for ASFR Statutory Notice of Deficiency time frames.

ELMS Training Module 18666, Correspondence Examination Procedural Module - Refund Hold contains training guidance for Campus Examination operations.