Direct deposit mistakes give IRS refunds to wrong person
In most cases, mistakes on your tax return either mean you have to file a correction, or your refund check is undeliverable because of a wrong address. But make a mistake on your direct deposit instructions, and your refund can end up in some stranger's pocket.
After more than a year and a half of writing letters, making phone calls and even taking time off work, Debbra Knowles is still trying to collect her $1,044 refund from her 2009 tax return.
"It was supposed to be deposited into my bank account," said Knowles.
Like many taxpayers, Knowles and her husband filed electronically. They chose direct deposit for their refund, instead of getting a check in the mail. The IRS encourages direct deposit because it's more efficient and you get your money more quickly. But weeks after Knowles' refund should have been deposited, the money wasn't there. It took several calls to the IRS and her bank to discover what had happened.
"Somewhere along the line, we discovered that I typed in the wrong account number," she said.
Knowles acknowledges it was her error. Hitting two wrong digits when she typed in her account number.
"I contacted the bank, Bank of America, and sure enough, my money was in someone else's account." Knowles said.
Knowles figured an explanation would be enough to clear up the confusion. She was wrong. The bank's response?
"You'll need to contact the IRS and they have to send us something.", Knowles explained.
To her frustration, the response from the IRS was equally dismissive.
"We can't give you your money. We directed it to the account you told us to and you have to get your money back from the bank." Knowles continued.
Over a period of more than 18 months, Knowles says she was referred from one IRS employee to the next -- one bank employee to the next. She enlisted the help of an IRS Taxpayer Advocate, but says weeks went by with no reply. She contacted the U.S. Treasury Department, which issues IRS checks. They acknowledged that the name on the bank account did not match the name on her return. But that's it. Knowles said she went back and forth with the bank -- to no avail. Because of privacy laws, the bank could not tell her anything about the person who had her money, and Knowles said the bank would not contact the account holder about the mistake. Neither the IRS nor the bank will budge.
"It's really, really, really frustrating," Knowles said. Adding that during her battle to document her mistake and get someone to help her correct it, the money was withdrawn from the mistaken account. Her refund is gone.
I contacted the IRS and Bank of America to find out why they could not verify the error and help rectify the situation. The IRS told me they fulfilled their obligation by depositing the refund into the account specified by the taxpayer and that's all they can do, especially since refunds are often designated to different accounts for child support, dispute settlements and a variety of other reasons. Bank of America told me they followed the direct deposit instructions they were given.
"Bank of America correctly followed the instructions given to us in crediting the specified account number indicated on the ACH deposit and in this case we would not have the authority to deduct funds from someone else's account, therefore this issue must be taken up with the IRS," wrote Britney W. Sheehan in Bank Of America's Media Relations division.
Other banks say in this situation, they would not be inclined to move any money from any account without a reverse payment order from the IRS. It's different when the customer makes the mistake, versus an account number error on the part of the bank or government, which is easier to correct.
Bottom line: Direct deposit may be faster, but it's not always safer. Make an account number mistake on a direct deposit tax refund, and you have little or no recourse. The money will go to the account number you indicate. Some taxpayers report losing thousands of dollars this way. With a refund check on the other hand, the IRS at least has legal and administrative options for tracing a check and recovering money if the check is mis-delivered or cashed by someone other than you.
Regardless of the situation, but especially with tax refunds, either be 100 percent certain your account numbers are correct, or go with the check.
It's also a good idea to contact your financial institution in advance, and ask a manager to find out exactly what their policy is when a customer's error causes money to be deposited to the wrong account. While most taxpayers who've had this problem report running into the same brick wall as Debbra Knowles, others report better success with their banks.
After more than a year and a half of writing letters, making phone calls and even taking time off work, Debbra Knowles is still trying to collect her $1,044 refund from her 2009 tax return.
"It was supposed to be deposited into my bank account," said Knowles.
Like many taxpayers, Knowles and her husband filed electronically. They chose direct deposit for their refund, instead of getting a check in the mail. The IRS encourages direct deposit because it's more efficient and you get your money more quickly. But weeks after Knowles' refund should have been deposited, the money wasn't there. It took several calls to the IRS and her bank to discover what had happened.
"Somewhere along the line, we discovered that I typed in the wrong account number," she said.
Knowles acknowledges it was her error. Hitting two wrong digits when she typed in her account number.
"I contacted the bank, Bank of America, and sure enough, my money was in someone else's account." Knowles said.
Knowles figured an explanation would be enough to clear up the confusion. She was wrong. The bank's response?
"You'll need to contact the IRS and they have to send us something.", Knowles explained.
To her frustration, the response from the IRS was equally dismissive.
"We can't give you your money. We directed it to the account you told us to and you have to get your money back from the bank." Knowles continued.
Over a period of more than 18 months, Knowles says she was referred from one IRS employee to the next -- one bank employee to the next. She enlisted the help of an IRS Taxpayer Advocate, but says weeks went by with no reply. She contacted the U.S. Treasury Department, which issues IRS checks. They acknowledged that the name on the bank account did not match the name on her return. But that's it. Knowles said she went back and forth with the bank -- to no avail. Because of privacy laws, the bank could not tell her anything about the person who had her money, and Knowles said the bank would not contact the account holder about the mistake. Neither the IRS nor the bank will budge.
"It's really, really, really frustrating," Knowles said. Adding that during her battle to document her mistake and get someone to help her correct it, the money was withdrawn from the mistaken account. Her refund is gone.
I contacted the IRS and Bank of America to find out why they could not verify the error and help rectify the situation. The IRS told me they fulfilled their obligation by depositing the refund into the account specified by the taxpayer and that's all they can do, especially since refunds are often designated to different accounts for child support, dispute settlements and a variety of other reasons. Bank of America told me they followed the direct deposit instructions they were given.
"Bank of America correctly followed the instructions given to us in crediting the specified account number indicated on the ACH deposit and in this case we would not have the authority to deduct funds from someone else's account, therefore this issue must be taken up with the IRS," wrote Britney W. Sheehan in Bank Of America's Media Relations division.
Other banks say in this situation, they would not be inclined to move any money from any account without a reverse payment order from the IRS. It's different when the customer makes the mistake, versus an account number error on the part of the bank or government, which is easier to correct.
Bottom line: Direct deposit may be faster, but it's not always safer. Make an account number mistake on a direct deposit tax refund, and you have little or no recourse. The money will go to the account number you indicate. Some taxpayers report losing thousands of dollars this way. With a refund check on the other hand, the IRS at least has legal and administrative options for tracing a check and recovering money if the check is mis-delivered or cashed by someone other than you.
Regardless of the situation, but especially with tax refunds, either be 100 percent certain your account numbers are correct, or go with the check.
It's also a good idea to contact your financial institution in advance, and ask a manager to find out exactly what their policy is when a customer's error causes money to be deposited to the wrong account. While most taxpayers who've had this problem report running into the same brick wall as Debbra Knowles, others report better success with their banks.
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