DIRECT DEPOSIT - IS THERE A PROBLEM?

I have been recommending direct deposit to my 1040 clients for years now.  I tell clients –

 

“Uncle Sam gives you the option of having your federal income tax refund directly deposited into a checking or savings account.

 

By choosing direct deposit you should receive your refund about 10 DAYS EARLIER than by mail.  PLUS you avoid any problems or delays caused by the US Postal Service

 

You will NOT receive a special acknowledgement from your bank that the money has been received.  You must check your bank balance or statement to verify receipt.”

 

I have never used Form 8880 for a client, but with this form you can “directly deposit your tax refund to either two or three of your accounts at a bank or other financial institution (such as a mutual fund, brokerage firm, or credit union) in the United States”. 

 

You can have your refund directly deposited to a checking account, savings account, IRA, Coverdell Education Savings Account, or a Treasury Direct account to use the money to buy US Savings Bonds.

 

Over the years I have never heard from a client of any problems with a direct deposit, other than taking longer than expected for the refund to be deposited – until now.

 

So far two clients have contacted me to report an issue – one with a 2011 refund and one with a 2012 refund.  In both cases the refund was not directly deposited to the requested account.  Instead it was applied to the subsequent year’s estimated tax.  It was as if the taxpayer, or I, had entered the full amount of the refund on Line 75, although we clearly did not.

 

In both cases the client discovered this FU when it called the IRS directly after checking the status of the refund using the Service’s “Where’s My Refund” tool.  In both cases the IRS eventually directly deposited the refund to the requested account, after being told to do so by the taxpayer.

 

I am curious – have any other tax professionals come across this problem with 2011 or 2012 returns?  Is this a systemic problem that needs to be brought to the attention of the IRS?

 

TAFN