Ask Mary: Top Five IRS Tax Refund Questions

It is that time of year again…. Tax season! With the April 15th date looming for many account holders, and some already rejoicing in their refunds, we wanted to share our five most common IRS tax refund questions received by our members.

1. Since this is a federal tax refund, does the name in the transaction have to match the name on the account?

According to Section 3.1.2 of the ACH Rules, a financial institution is not required to match an account name with the transaction being posted to the account. As a financial institution, if you are testing account name and transaction name, you are going above and beyond the Rules requirement, which could lead to additional responsibility.

In the FAQ document provided by the IRS, an RDFI is not liable for an IRS payment sent through the ACH Network to an erroneous or fraudulent account since the IRS provided incorrect account information. The IRS goes on to say that an RDFI should encourage customers that wish to have their tax refund by direct deposit to double check their bank account and RTN they enter for their return to prevent misdirected payments.

2. What if a refund has come in with a closed account number?

The ACH Rules require a credit to be posted or otherwise made available to the Receiver's account. What you do in this situation is a business decision. One option would be to simply return the transaction and let the IRS send the refund via snail mail to the taxpayer. The ACH Rules require you to do something with the credit; you cannot hold onto the credit until either the Receiver or the IRS ask for the monies.

3. How many federal tax refunds can post to one account?

The IRS implemented a rule in 2015 that will only allow for three refunds to be sent to one account before it triggers a red flag. Any additional refunds beyond three will be sent via paper check to the address on the refund. However, there may be special circumstances that a person, such as a tax preparer, could register with the IRS to receive additional refunds to their account.

4. My account holder received a “HUGE” refund and only maintains a minimal balance with little activity in the account. What should I do?

According to Section 1.2.1 of the ACH Rules, Effects of Illegality, as an RDFI if you have reason to believe the funds are illegal you can “hold” the funds while you investigate the return. You should promptly investigate the suspicious transaction. Your investigation could include contacting the IRS to confirm the validity of the payment. The IRS may instruct you to post the transaction or return the transaction. If the IRS requests you return the transaction, you would then ask them how to return the transaction. However, in most cases, you would use the R06 (Returned per ODFI’s Request) return reason code. You may not be able to get an indemnification letter. However, be sure to document who you spoke to at the IRS.

5. My account holder is deceased. Is this federal government transaction subject to reclamation?

According to Section 5-4 of the, the financial institution is not required to take further action, as tax refunds are not subject to reclamation. Tax refunds are not a benefit payment but an overpayment of taxes.

Additional Resources

The IRS has a created an FAQ page on its website to help answer a number of other questions. For additional resources and questions, EPCOR has educated staff on hand to help answer other IRS Tax Refund Questions. Reach out to Member Support at 800.500.0100 or via email at memserve@epcor.org.