Misdirected Direct Deposit Refunds

Citation84 FR 70462
Record Number2019-27653
Published date23 December 2019
SectionProposed rules
CourtInternal Revenue Service
Federal Register, Volume 84 Issue 246 (Monday, December 23, 2019)
[Federal Register Volume 84, Number 246 (Monday, December 23, 2019)]
                [Proposed Rules]
                [Pages 70462-70466]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2019-27653]
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                DEPARTMENT OF THE TREASURY
                Internal Revenue Service
                26 CFR Part 301
                [REG-116163-19]
                RIN 1545-BP41
                Misdirected Direct Deposit Refunds
                AGENCY: Internal Revenue Service (IRS), Treasury.
                ACTION: Notice of proposed rulemaking.
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                SUMMARY: These proposed regulations provide guidance on section 6402(n)
                of the Internal Revenue Code (Code), concerning the procedures for
                identification and recovery of a misdirected direct deposit refund. The
                regulations reflect changes to the law made by the Taxpayer First Act.
                The proposed regulations affect taxpayers who have made a claim for
                refund, requested the refund be issued as a direct deposit, but did not
                receive a refund in the account designated on the claim for refund.
                DATES: Comments and requests for a public hearing must be received by
                February 21, 2020.
                ADDRESSES: Submit electronic submissions via the Federal eRulemaking
                Portal at www.regulations.gov (indicate IRS and REG-116163-19) by
                following the online instructions for submitting comments. Once
                submitted to the Federal eRulemaking Portal, comments cannot be edited
                or withdrawn. The Department of the Treasury (Treasury Department) and
                the IRS will publish for public availability any comment received to
                its public docket, whether submitted electronically or in hard copy.
                Send hard copy submissions to: CC:PA:LPD:PR (REG-116163-19), Room 5203,
                Internal Revenue Service, P.O. Box 7604, Ben Franklin Station,
                Washington, DC 20044. Submissions may be hand-delivered Monday through
                Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
                116163-19), Courier's Desk, Internal Revenue Service, 1111 Constitution
                Avenue NW, Washington, DC 20224.
                FOR FURTHER INFORMATION CONTACT: Concerning the proposed amendments to
                the regulations, Mary C. King at (202) 317-5433; concerning submissions
                of comments, or requests for a public hearing, Regina L. Johnson, at
                (202) 317-6901 (not toll-free numbers).
                SUPPLEMENTARY INFORMATION:
                Background
                 This document contains proposed amendments to 26 CFR part 301 under
                section 6402(n) of the Code and provides guidance on the procedures
                used to identify and recover tax refunds issued by electronic funds
                transfer (direct deposit) that were not delivered to the account
                designated to receive the direct deposit refund on the federal tax
                return or other claim for refund. These proposed regulations implement
                section 6402(n) of the Code, a new provision added by section 1407 of
                the Taxpayer First Act, Public Law 116-25, 133 Stat. 981 (2019) (TFA).
                 Section 6402(a) provides the Secretary of the Treasury or his
                delegate (Secretary) with the authority to refund the balance of an
                overpayment after first crediting the overpayment amount against any
                tax liability of the person who made the overpayment. Before any refund
                is issued, the balance must also be offset against certain nontax
                liabilities. Sections 6402(a), (c), (d), (e), and (f) require a
                taxpayer's overpayment to be applied to any outstanding Federal tax
                debt, past-due child support, Federal agency non-tax debt, State income
                tax obligation, or certain unemployment compensation debts owed to a
                state prior to crediting the overpayment to a future tax or issuing a
                refund. This application of a tax overpayment is called a refund
                offset. An offset occurs after a refund is certified by the IRS but
                prior to the issuance of the refund.
                 The procedures for making a claim for refund are set out in Sec.
                301.6402-2 of the Procedure and Administration Regulations. Those
                regulations include procedures for the mailing of a check in payment of
                allowed claims for refund. See Sec. 301.6402-2(f). The procedures for
                sending a refund by direct deposit are set out in the Treasury
                Financial Manual, the Bureau of the Fiscal Service Green Book, and the
                regulations under 31 CFR part 210. The Treasury Financial Manual is
                available for downloading at the Bureau of the Fiscal Service's website
                at https://tfm.fiscal.treasury.gov/home.html. The Green Book is
                available for downloading at the Bureau of the Fiscal Service's website
                at https://www.fiscal.treasury.gov/reference-guidance/green-book/.
                 The IRS generally issues a refund in the manner requested on the
                claim for refund. This includes splitting a refund by authorizing
                direct deposits into multiple accounts using Form 8888, ``Allocation of
                Refund (Including Savings Bond Purchases).'' Under current procedures,
                if a taxpayer requests that the refund be issued as a direct deposit on
                a current year tax return, the IRS will generally issue the refund it
                determines to the account number and routing number designated on the
                claim. A direct deposit may be stopped or unable to be delivered for a
                number of reasons, including, but not limited to, an invalid routing
                number, rejection by a financial institution, or a processing error. If
                the direct deposit is stopped or returned prior to the delivery of the
                refund to the account designated on the claim for refund, the IRS will
                generally issue the refund in the form of a paper check.
                 Under current procedures, set out in Internal Revenue Manual
                (I.R.M.) sections 21.4.1, 21.4.2, and 21.4.3 and available at https://www.irs.gov/irm, a taxpayer or authorized representative may report a
                missing refund to the IRS by using an IRS customer service line or
                filing a Form 3911, ``Taxpayer Statement Regarding Refund.'' A taxpayer
                or authorized representative may also report a missing refund to the
                IRS through the Office of the Taxpayer Advocate (commonly referred to
                as the Taxpayer Advocate Service (TAS)). When a missing refund is
                reported, the IRS will first determine if a refund was issued to the
                taxpayer and whether a direct deposit transaction was made. If the
                refund was issued as a direct deposit, the IRS will verify the accuracy
                of the taxpayer's account number and routing number.
                 If the taxpayer reports a missing refund and the IRS confirms a
                refund was issued, the IRS will generally conduct a refund trace to
                determine why the refund was not delivered to the account of the
                taxpayer. A refund trace is the process by which the IRS tracks stolen,
                lost, or misplaced refund checks or verifies a financial institution
                received direct deposits and may replace an authorized refund to the
                taxpayer if warranted. A refund trace will be initiated when a taxpayer
                reports a missing refund and the IRS confirms a refund was issued as a
                direct deposit, even if the taxpayer reports that the account
                information designated on the claim for refund was incorrect. A refund
                trace is initiated by inputting a trace code into the IRS's Integrated
                Data Retrieval System (IDRS), which sends a request to the Treasury
                Department's Bureau of the Fiscal Service (BFS) for
                [[Page 70463]]
                assistance in identifying information about the account into which the
                refund was made.
                 When the BFS receives a refund trace request from the IRS for a tax
                refund issued as a direct deposit, the BFS asks financial institutions
                for assistance in verifying that the institution received the direct
                deposit, identifying information about the account where the refund was
                made, and recovery of such amounts. The correct financial institution
                is identified by the routing number that appears on the claim for
                refund. The BFS uses FS Form 150.1, which is an official request from
                the Treasury Department to the financial institution to recover more
                information regarding the direct deposit. The information requested
                includes whether the financial institution received the refund; whether
                the financial institution returned the refund, will return the refund,
                or if no funds are available for return; whether the refund was
                deposited into the account of the taxpayer on whose behalf the request
                is being made; and the account number and account owner's identifying
                information.
                 When the IRS determines that a refund or a portion of a refund was
                made by direct deposit to an account that is not the account designated
                on the taxpayer's claim for refund, the refund is considered to be a
                misdirected direct deposit refund. A misdirected direct deposit refund
                occurs when the IRS has caused the error, such as when the IRS
                mistakenly inputs an incorrect account number from the claim for
                refund, or when a financial institution credits the payment to an
                account other than the account designated in the IRS's direct deposit
                instruction. See 31 CFR 210.8; see also Bureau of the Fiscal Service,
                Green Book: A Guide to Federal Government ACH Payments, at 2-6 (2016)
                (where a financial institution has misdirected a payment, the financial
                institution may be liable to the issuing agency if there is a resulting
                loss by the agency). When a misdirected direct deposit refund is
                discovered, the IRS will issue a replacement refund to the taxpayer in
                the full amount of the refund that was misdirected. This replacement
                refund is issued regardless of whether the IRS is able to recover the
                misdirected direct deposit refund that the taxpayer did not receive.
                 Occasionally, a taxpayer or authorized representative will
                designate an incorrect account or routing number on the claim for
                refund that will cause a refund to be disbursed to an account that is
                not the account of the taxpayer. When the IRS determines that a refund
                or a portion of a refund was made by direct deposit to the account
                designated on the taxpayer's claim for refund, the refund is not
                considered to be a ``misdirected direct deposit refund.'' Nevertheless,
                the IRS should generally initiate a refund trace for any reported
                missing refund that is issued as a direct deposit. In some instances,
                such as when the date of the direct deposit is less than five calendar
                days from when the missing refund is reported, the IRS will not
                initiate a refund trace immediately. Through the refund trace
                procedure, the IRS will coordinate with financial institutions and the
                BFS to request the return of a refund not deposited into the account of
                the taxpayer on whose behalf the request is being made. In cases when
                the taxpayer designates an incorrect account number on the claim for
                refund, the IRS will issue a replacement refund only after the IRS has
                recovered the original refund or a portion of the refund that was
                deposited in the incorrect account from the financial institution. When
                the financial institution returns the refund, the IRS will issue a
                replacement refund in the amount recovered. When the IRS has recovered
                only a portion of the refund that was directed to the incorrect
                account, only the portion recovered will be refunded to the taxpayer.
                 In other instances, a refund will be disbursed to the account
                designated to receive the refund, but the taxpayer will nevertheless
                not receive the refund that was disbursed. The IRS has separate
                procedures, reflected in I.R.M. 21.4.1, 21.4.2, and 21.4.3, to assist
                taxpayers whose refunds are not delivered to them despite the deposit
                of the refund in the account designated on the return or claim for
                refund. These procedures also include information on when the IRS will
                issue a replacement refund to victims of tax return preparer
                misconduct. See Form 14157-A, Tax Return Preparer Fraud or Misconduct
                Affidavit. However, refunds that are diverted from the correct taxpayer
                due to tax return preparer misconduct are not considered to be
                ``misdirected direct deposit refunds'' because they are deposited into
                the account listed on the claim for refund.
                 The TFA added section 6402(n) to the Code. Pursuant to section
                6402(n)(1), the Secretary is required to establish procedures to allow
                taxpayers to report when a refund is not deposited into the taxpayer's
                account. Section 6402(n)(2) further directs the Secretary to establish
                procedures for coordination with financial institutions to identify the
                account to which a misdirected direct deposit refund has been made and
                to recover such refunds. Finally, under section 6402(n)(3), the
                Secretary is directed to establish procedures to allow a misdirected
                direct deposit refund to be delivered to the correct account of the
                taxpayer. These proposed regulations describe the procedures under
                section 6402(n) that will be used when a taxpayer or authorized
                representative notifies the IRS that the requested refund was not
                received. The proposed regulations adopt current IRS procedures for the
                reporting, identification, recovery, and delivery of misdirected direct
                deposit refunds.
                Explanation of Provisions
                I. Definitions
                 In Sec. 301.6402-2(g)(1) of the proposed regulations, a
                misdirected direct deposit refund is defined as any refund of an
                overpayment of tax that is disbursed as a direct deposit but is not
                deposited into the account designated on the claim for refund to
                receive the direct deposit refund. This typically occurs when the IRS
                mistakenly inputs an incorrect account or routing number from the claim
                for refund, usually as a result of a processing or computer error. A
                misdirected direct deposit refund can also occur if a financial
                institution mistakenly credits the payment to an account other than the
                account designated in the IRS's direct deposit instruction. These
                proposed regulations are intended to serve taxpayers as part of the
                IRS's mission to provide top quality service by increasing awareness of
                the IRS procedures taxpayers may use to report missing direct deposit
                refunds and to streamline the identification and recovery of
                misdirected refunds. See H.R. Rep. No. 116-39, pt. 1, at 62 (2019)
                (although this report is for a prior, un-enacted version of the
                Taxpayer First Act, H.R. 1957, 116th Cong. (2019), section 1407 of that
                bill and that of the bill that was passed by the same Congress as
                Public Law 116-25 are identical).
                 Not all instances where a taxpayer fails to receive a direct
                deposit in the account designated on the claim for refund are the
                result of a misdirected direct deposit refund. The requested tax refund
                may have instead been issued in the form of a paper check or may not
                have been issued at all if the IRS adjusted the requested refund amount
                during the processing of the tax return or offset the requested tax
                refund to pay certain debts. In some scenarios, the refund is disbursed
                as a direct deposit, but is not deposited into the account in which the
                taxpayer expects the refund to be deposited. This includes instances of
                tax return preparer misconduct and taxpayers designating an incorrect
                account or routing number on the claim
                [[Page 70464]]
                for refund. There are no significant variances between the proposed
                regulations and current I.R.M. procedures with regards to refunds that
                are deposited into the accounts designated on the claims for refund
                which are ultimately not received by the taxpayer.
                 The proposed regulations include in the definition of a misdirected
                direct deposit refund only those refunds which are actually issued as a
                direct deposit. A misdirected direct deposit refund therefore does not
                include an overpayment that is credited against another outstanding tax
                liability of the taxpayer pursuant to section 6402(a) or that is offset
                pursuant to the law. A refund that is offset or applied as mandated by
                law is not a misdirected direct deposit refund because these actions
                are mandated by law.
                 A refund issued as a check is not a misdirected direct deposit
                refund merely because the taxpayer requested the refund in the form of
                a direct deposit. Under current procedures, there are many reasons why
                a requested direct deposit will be issued as a paper check, including
                if the financial institution rejects or returns the direct deposit or
                the claim for refund is filed more than a year after the close of the
                tax year. Additional information on reasons why a direct deposit may be
                rejected can be found in I.R.M. 21.4.1.5.8.1, Direct Deposit Reject
                Reason Codes. If a refund is issued as a check, the taxpayer may then
                deposit the refund into the correct account.
                II. Reporting
                 Section 301.6402-2(g)(2) of the proposed regulations designates the
                method of reporting a misdirected direct deposit refund. Under current
                procedures, taxpayers may submit Form 3911 to the IRS to report a
                missing refund. The Form 3911, including any future version of the
                Form, should be filed in accordance with the instructions provided.
                Alternatively, a taxpayer may report a missing refund orally through an
                IRS customer service line. If the IRS is unable to verify the identity
                of the caller through oral statements, the taxpayer may have to submit
                a written request on the Form 3911 to report a missing refund.
                Taxpayers may also report a missing refund, after scheduling an
                appointment, through submission of the Form 3911 in person at a
                Taxpayer Assistance Center. Where a taxpayer is experiencing a
                hardship, the taxpayer may report a missing refund to TAS by telephone,
                facsimile, mail or in person.
                 The proposed regulations direct taxpayers to use current
                procedures, including by allowing missing direct deposit refunds to be
                reported via Form 3911, a customer service line, TAS, and at Taxpayer
                Assistance Centers. This continuity aids in administering the refund
                procedures by using processes with which the public and the IRS are
                familiar. Any taxpayer missing a refund or a portion of a refund made
                by direct deposit may use the reporting procedures set out in Sec.
                301.6402-2(g)(2) of the proposed regulations. If the IRS determines a
                direct deposit was issued, it will initiate a refund trace for any
                missing refund in accordance with the procedures set out in Sec.
                301.6402-2(g)(3) of the proposed regulations.
                III. Coordination With Financial Institutions
                 Under current procedures, the IRS coordinates with the BFS as well
                as financial institutions to locate and recover misdirected direct
                deposit refunds. When a taxpayer reports a missing direct deposit
                refund, the IRS will review its records to determine if a refund was
                issued or if there are indicators on the account signifying that an
                offset may have occurred. If the IRS determines that a refund was
                issued as a direct deposit, the IRS will initiate a refund trace, which
                sends a refund trace inquiry to the BFS. The BFS sends an official
                request on FS Form 150.1 to the financial institution to search for the
                electronic funds transfer. FS Form 150.1 requests the financial
                institution to identify the account into which the refund was made, as
                well as the identifying information of the account holder, including
                name and Social Security number.
                 The refund trace will ask for the assistance of the financial
                institution in the recovery of the refund if the refund was deposited
                into an account in error. If the financial institution is unable or
                unwilling to recover the refund, the IRS will separately contact the
                financial institution to request assistance in recovering the refund.
                The financial institution may return the refund through the procedures
                determined by the BFS. See Bureau of the Fiscal Service, Green Book: A
                Guide to Federal Government ACH Payments (2016). If the refund is
                recovered, a credit will be added to the taxpayer's account to reflect
                the return of the refund.
                 Section 301.6402-2(g)(3) of the proposed regulations formalizes
                current procedures. Where a direct deposit has been misdirected, this
                section of the regulations proposes to require the IRS to contact banks
                through the BFS to obtain the information necessary to identify whether
                the financial institution received the refund and the owner of the
                deposit account to whom the deposit was disbursed. The regulations
                further direct the IRS to utilize either BFS procedures or directly
                seek the assistance of the bank holding the misdirected direct deposit
                refund to recover the amount.
                IV. Delivery of the Refund to the Correct Account
                 Section 301.6402-2(g)(4) of the proposed regulations establishes
                that when a misdirected direct deposit refund has been identified by
                the IRS, the IRS will issue a replacement refund in the full amount of
                the refund that was misdirected. The refund will generally be issued as
                soon as possible to make the taxpayer whole and limit credit interest.
                When a financial institution has indicated that a misdirected direct
                deposit refund will be returned to the IRS, the IRS generally issues a
                replacement refund after the misdirected refund is returned. The timing
                of the replacement refund is calculated to ensure that a replacement
                refund is not issued twice as a result of a returned refund being
                credited back to a taxpayer's account after a replacement refund has
                already been issued, resulting in an erroneous refund to the taxpayer.
                An erroneous refund is defined as the receipt of any money from the IRS
                to which the recipient is not entitled.
                 A replacement refund will generally be issued as a paper check,
                which the taxpayer may deposit into the correct account. The IRS is
                generally unable to change the account information for a direct deposit
                after the information has been input. For example, where the IRS has
                determined the refund is a misdirected direct deposit refund because it
                mistakenly input the account number from a claim for refund, the IRS
                usually cannot correct the incorrect account number. Thus, the taxpayer
                will receive the refund as a paper check. The check will be sent via
                postal service to the address listed on the master file. If the
                taxpayer updates their address through the Form 3911, the check will be
                mailed to the updated address.
                 In some limited instances, such as when TAS has worked with a
                taxpayer to establish hardship criteria, a replacement refund may be
                issued as a direct deposit. In general, however, to effectively
                administer the issuance of a replacement refund, the taxpayer will
                receive the refund in the form of a check. The taxpayer may then
                deposit the check into the proper account.
                V. Application of Procedures to Missing Refunds
                 Section 301.6402-2(g)(5) of the proposed regulations provides that
                the
                [[Page 70465]]
                reporting and coordination procedures found in Sec. 301.6402-2(g)(2)
                through (3)(i) of the proposed regulations for misdirected direct
                deposit refunds should be used for any refund issued as a direct
                deposit that the taxpayer believes is missing. As with a misdirected
                direct deposit refund, once a refund is reporting as missing the IRS
                will coordinate with the BFS to track the missing refund and gather
                available information about the account into which the refund was
                deposited. Section 301.6402-2(g)(5) of the proposed regulations also
                provides that if a missing refund or a portion of a refund is returned
                to the IRS resulting in an overpayment on the taxpayer's account, the
                IRS will issue a refund in accordance with the law. As with a
                misdirected direct deposit refund, such overpayment may be credited
                against a federal tax liability or offset against certain non-tax
                liabilities prior to the issuance of a refund.
                Proposed Applicability Date
                 The applicability date for these proposed regulations applies to
                claims for refund filed after the date final regulations are published
                in the Federal Register.
                Special Analyses
                 This regulation is not subject to review under section 6(b) of
                Executive Order 12866 pursuant to the Memorandum of Agreement (April
                11, 2018) between the Department of the Treasury and the Office of
                Management and Budget regarding review of tax regulations.
                 These proposed regulations do not impose any additional information
                collection requirements in the form of reporting, recordkeeping
                requirements, or third-party disclosure requirements related to tax
                compliance. However, because a taxpayer or a taxpayer's representative
                may elect to report a missing refund using the procedures described in
                proposed Sec. 301.6402-2(g)(2)(ii)(B), some taxpayers may use a form
                to report a missing refund. The collection of information in proposed
                Sec. 301.6402-2(g)(2)(ii)(B) is through use of a Form 3911, ``Taxpayer
                Statement Regarding Refund,'' and is the sole collection of information
                requirement established by the proposed regulations.
                 For the purposes of the Paperwork Reduction Act, 44 U.S.C. 3501-
                3520, the reporting burden associated with the collection of
                information with respect to section 6402(n) will be reflected in
                Paperwork Reduction Act submissions for IRS Form 3911 (OMB Control
                Number 1545-1384). The estimated average time to complete Form 3911 is
                five minutes. However, use of a form is not required. A taxpayer may
                instead elect to investigate a missing refund over the telephone or in
                person at a Taxpayer Assistance Center and, after the IRS identifies
                the tax refund and informs the taxpayer that the refund was issued as a
                direct deposit, orally report that the already-identified refund is
                missing. An agency may not conduct or sponsor, and a person is not
                required to respond to, a collection of information unless it displays
                a valid control number assigned by the Office of Management and Budget.
                 It is hereby certified that these proposed regulations will not
                have a significant economic impact on a substantial number of small
                entities within the meaning of section 601(6) of the Regulatory
                Flexibility Act (5 U.S.C. chapter 6). The certification is based on the
                information that follows. There is no significant impact from these
                regulations on any small entity utilizing the procedures prescribed by
                these regulations to report a missing refund because there is no
                significant cost associated with reporting a missing refund. There is
                no fee charged in connection with reporting a missing refund, and the
                estimated time to complete a Form 3911, ``Taxpayer Statement Regarding
                Refund,'' is five minutes. There are no tax consequences associated
                with the proposed regulations, as it merely sets forth the procedures
                for reporting a missing refund and describes the process the IRS uses
                in locating a missing refund and, in some instances, issuing a
                replacement refund. The process in these proposed regulations mirrors
                the existing process and does not change the reporting burden.
                Accordingly, this regulation is not expected to have a significant
                economic impact on a substantial number of small entities. Pursuant to
                section 7805(f) of the Code, this notice of proposed rulemaking will be
                submitted to the Chief Counsel for Advocacy of the Small Business
                Administration for comment on its impact on small business entities.
                The Treasury Department and the IRS invite comments on any impact these
                proposed regulations would have on small business entities.
                 Section 202 of the Unfunded Mandates Reform Act of 1995 requires
                that agencies assess anticipated costs and benefits and take certain
                other actions before issuing a final rule that includes any Federal
                mandate that may result in expenditures in any one year by a state,
                local, or tribal government, in the aggregate, or by the private
                sector, of $100 million in 1995 dollars, updated annually for
                inflation. In 2018, that threshold is approximately $150 million. This
                rule does not include any Federal mandate that may result in
                expenditures by state, local, or tribal governments, or by the private
                sector in excess of that threshold.
                 Executive Order 13132 (entitled Federalism) prohibits an agency
                from publishing any rule that has federalism implications if the rule
                either imposes substantial, direct compliance costs on state and local
                governments, and is not required by statute, or preempts state law,
                unless the agency meets the consultation and funding requirements of
                section 6 of the Executive Order. This proposed rule does not have
                federalism implications, and does not impose substantial direct
                compliance costs on state and local governments or preempt state law,
                within the meaning of the Executive Order.
                Comments and Requests for a Public Hearing
                 Before these proposed amendments to the regulations are adopted as
                final regulations, consideration will be given to any comments that are
                submitted timely to the IRS as prescribed in the preamble under the
                ADDRESSES section. The Treasury Department and the IRS request comments
                on all aspects of the proposed regulations. All comments submitted will
                be made available at http://www.regulations.gov or upon request. A
                public hearing will be scheduled if requested in writing by any person
                that timely submits written comments. If a public hearing is scheduled,
                then notice of the date, time, and place for the public hearing will be
                published in the Federal Register.
                Drafting Information
                 The principal author of these regulations is Mary C. King of the
                Office of the Associate Chief Counsel (Procedure and Administration).
                Other personnel from the Treasury Department and the IRS participated
                in the development of the regulations.
                List of Subjects in 26 CFR Part 301
                 Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
                taxes, Penalties, Reporting and recordkeeping requirements.
                Proposed Amendments to the Regulations
                 Accordingly, 26 CFR part 301 is proposed to be amended as follows:
                PART 301--PROCEDURE AND ADMINISTRATION
                0
                Paragraph 1. The authority citation for part 301 is amended by adding
                [[Page 70466]]
                entries in numerical order to read in part as follows:
                 Authority: 26 U.S.C. 7805 * * *
                * * * * *
                 Section 301.6402-2(g) also issued under section 6402(n).
                * * * * *
                0
                Par. 2. Section 6402-2 is amended by:
                0
                1. Redesignating paragraph (g) as paragraph (h) and adding new
                paragraph (g).
                0
                2. Revising the paragraph heading of newly redesignated paragraph (h)
                and adding a sentence at the end of the paragraph.
                 The additions and revisions read as follows:
                Sec. 301.6402-2 Claims for credit or refund.
                * * * * *
                 (g) Misdirected direct deposit refund--(1) Definition. The term
                misdirected direct deposit refund includes any refund of an overpayment
                of tax that is disbursed as a direct deposit but is not deposited into
                the account designated on the claim for refund to receive the direct
                deposit refund. A misdirected direct deposit refund does not include
                any amount that is credited or offset pursuant to the law in effect
                immediately prior to the direct deposit being disbursed.
                 (2) Procedures for reporting a misdirected direct deposit refund--
                (i) In general. A taxpayer or a taxpayer's authorized representative
                may report to the IRS that the taxpayer never received a direct deposit
                refund and request a replacement refund. The report must include the
                name of the taxpayer who requested the refund, the taxpayer
                identification number of the taxpayer, the taxpayer's mailing address,
                the type of return to which the refund is related, the account number
                and routing number that the taxpayer requested the refund be directly
                deposited into, and any other information necessary to locate the
                misdirected direct deposit refund.
                 (ii) How to report a misdirected direct deposit refund. A reporting
                described in paragraph (g)(2)(i) of this section may be made in the
                following ways:
                 (A) By calling the IRS;
                 (B) On the form prescribed by the IRS and in accordance with the
                applicable publications, instructions, or other appropriate guidance;
                 (C) By contacting the Office of the Taxpayer Advocate by telephone,
                by mail, facsimile, or in person; or
                 (D) By submitting the appropriate form in person at a Taxpayer
                Assistance Center.
                 (3) Procedures for coordination with financial institutions--(i)
                Identification of the account that received the misdirected direct
                deposit refund. If the IRS receives a report described in paragraph
                (g)(2)(ii) of this section and confirms that the refund described in
                the report was issued as a direct deposit, the IRS will initiate a
                refund trace to request the assistance of the Department of the
                Treasury's Bureau of the Fiscal Service. In accordance with its own
                procedures, the Bureau of the Fiscal Service coordinates with the
                financial institution that holds directly or indirectly the deposit
                account into which the refund was made, requesting from the financial
                institution such information as is necessary to identify whether the
                financial institution received the refund; whether the financial
                institution returned, or will return, the refund to the IRS, or if no
                funds are available for return; whether a deposit was made into the
                account designated on the claim for refund; and the identity of the
                deposit account owner to whom the deposit was disbursed.
                 (ii) Coordination to recover the amounts transferred. Recovery of
                the misdirected direct deposit refund from a financial institution
                shall follow the procedures established by the Bureau of the Fiscal
                Service. The Bureau of the Fiscal Service shall request the return of
                the misdirected direct deposit refund from the financial institution
                that received it. The IRS may contact the financial institution
                directly to recover the misdirected direct deposit refund.
                 (4) Issuance of replacement refund. When the IRS has determined
                that a misdirected direct deposit refund has occurred, the IRS will
                issue a replacement refund in the full amount of the refund that was
                misdirected. The replacement refund may be issued as a direct deposit
                or as a paper check sent to the taxpayer's last known address.
                 (5) Applicability of this paragraph (g) to missing refunds. The
                provisions of paragraphs (g)(2) through (3)(i) of this section should
                be used for any refund that was disbursed as a direct deposit and that
                the taxpayer reports as missing. For example, although a refund that
                was deposited into an incorrect bank account because the taxpayer
                transposed two digits in their bank account number is not considered to
                be a misdirected direct deposit refund, the provisions of paragraphs
                (g)(2) through (3)(i) of this section should be used. If the
                application of these procedures results in an amount recovered by the
                IRS, the recovered amount will be refunded or credited as allowed by
                law.
                * * * * *
                 (h) Applicability dates. * * * Paragraph (g) of this section
                applies to claims for refund filed after [DATE THE FINAL REGULATIONS
                ARE PUBLISHED IN THE Federal Register].
                Sunita Lough,
                Deputy Commissioner for Services and Enforcement.
                [FR Doc. 2019-27653 Filed 12-19-19; 4:15 pm]
                 BILLING CODE 4830-01-P
                

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