6.9 Tax Refund Offsets

Under I.R.C. § 6402, the IRS may offset tax refunds to satisfy unpaid federal taxes. That is, the agency will seize tax refunds in subsequent years to satisfy liability arising from an earlier tax year. A tax refund may also be offset for child support, state taxes, or past due federal debts.

If the refund was offset for federal taxes, the taxpayer who disputes the tax liability may claim and sue for a refund. If the refund was offset for debts other than federal tax, the taxpayer must dispute the offset with the agency or creditor that initiated the offset.1 There is no right to sue the IRS for recovery of a refund erroneously paid to another agency.2 Review the notice informing the taxpayer of the offset. If another agency is listed as the agency receiving the refund, this is not a dispute with the IRS. The name, address, and phone number of the other agency should be on the IRS Notice of Offset. If it is not, this agency information may be obtained from Treasury’s Financial Management Services at 800-304-3107. 

If the federal tax refund is later determined to be incorrect, the IRS does not have to recover the erroneous offset payment from the agency that received the offset payment, but the agency may be required to pay back the wrongly seized refund.3

• 1If the offset refund exceeded the amount of child support owed, there is an administrative procedure for correcting the error. See, e.g., 31 C.F.R. § 285.3.
• 2I.R.C. § 6402(f).
• 3IRS Nat’l Office Field Serv. Advice, Chief, Field Serv. Proc. Branch Memorandum No. 199938004 (Sept. 24, 1999).