The IRS doesn’t automatically keep tax refunds simply because you didn’t file a tax return in a previous year. However, in some cases the IRS may keep your refund if you have not filed a prior-year return and it appears that you’ll owe money when you do. If you’re concerned about your refund being held because of unfiled returns, you have a couple of options to reduce or eliminate any extra wait for your current-year refund.
Possible tax balances on unfiled returns
When you don’t file a return, the IRS uses information in its system to determine whether you’re at risk for owing tax. The information in the IRS system includes forms provided by third parties, like your W-2, 1099 and 1098 forms.
When the IRS uses this information to estimate your tax, it does not consider your filing status or deductions because the IRS doesn’t know what you’re eligible to claim on an unfiled return. So, just because the IRS thinks you might owe, it doesn’t necessarily mean you will. The only way to know for sure is to prepare your unfiled return.
If a refund of yours is being held because the IRS thinks you’ll owe tax on a prior-year unfiled return, you’ll receive a CP88 notice from the IRS. This notice explains why your refund is being held and lists the return years you need to file to get your refund released.
When you receive a CP88 notice, a response form will be attached. You can use this form to tell the IRS about your unfiled returns and mail it back, or call the toll free number in the upper right corner of the notice and speak with an agent directly.
Examples of responses you can make:
- No filing requirement -- Use this explanation if you weren’t required to file for that year, based on IRS criteria.
- Already filed -- If you already filed the returns the IRS is concerned about, tell the IRS when and where the returns were filed. It isn’t uncommon for returns to take 8 to 12 weeks to process, so if you filed within this time frame, it’s possible that your returns were not in the IRS system when the CP88 notice was generated.
- Reason for filing late -- If circumstances beyond your control prevent you from filing any outstanding return, let the IRS know. Examples of acceptable reasons for late filing include loss of records, family issues, medical restrictions and required periods of absence from the United States. Depending on your circumstance, the IRS may be able to help you get the documents and forms you need to get your returns prepared.
Release of refund
If the IRS keeps your refund because of outstanding returns, the agency will release it either when the IRS receives your missing returns or after you explain that you aren’t required to file for the years listed in your notice.
If you do owe tax on your unfiled returns, the IRS will use your refund toward those balances after you file. If any refund remains, you’ll receive the balance within a few weeks after the tax on your previously unfiled returns is paid.