Misdirected Direct Deposit Refunds

Published date22 December 2020
Citation85 FR 83446
Record Number2020-28167
SectionRules and Regulations
CourtInternal Revenue Service
Federal Register, Volume 85 Issue 246 (Tuesday, December 22, 2020)
[Federal Register Volume 85, Number 246 (Tuesday, December 22, 2020)]
                [Rules and Regulations]
                [Pages 83446-83448]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2020-28167]
                =======================================================================
                -----------------------------------------------------------------------
                DEPARTMENT OF THE TREASURY
                Internal Revenue Service
                26 CFR Part 301
                [TD 9940]
                RIN 1545-BP41
                Misdirected Direct Deposit Refunds
                AGENCY: Internal Revenue Service (IRS), Treasury.
                ACTION: Final regulations.
                -----------------------------------------------------------------------
                SUMMARY: These final regulations provide the procedures under section
                6402(n) of the Internal Revenue Code (Code) for identification and
                recovery of a misdirected direct deposit refund. The final regulations
                reflect changes to the law made by the Taxpayer First Act. The final
                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:
                 Effective date: These regulations are effective on December 22,
                2020.
                 Applicability date: These regulations apply to reports to the IRS
                made after [date of publication] that a taxpayer never received a
                direct deposit refund.
                FOR FURTHER INFORMATION CONTACT: Mary C. King at (202) 317-5433 (not a
                toll-free number).
                SUPPLEMENTARY INFORMATION:
                Background
                 This document contains 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. Section 6402(n) was added to the Code by section 1407
                of the Taxpayer First Act, Public Law 116-25, 133 Stat. 981 (2019)
                (TFA) on July 1, 2019. On December 23, 2019, the Department of the
                Treasury (Treasury Department) and the IRS published in the Federal
                Register (84 FR 70462) a notice of proposed rulemaking (REG-116163-19)
                providing the procedures under section 6402(n) for reporting,
                identification, and recovery of a misdirected direct deposit refund.
                The Treasury Department and the IRS received one comment responding to
                the proposed regulations. The comment is available at
                www.regulations.gov or upon request. No public hearing was requested or
                held on the proposed regulations.
                 After consideration of the written comment, this Treasury Decision
                adopts the proposed regulations as final regulations with minor
                modifications, as described in the Summary of Comments and Explanation
                of Provisions. A detailed explanation of these regulations can be found
                in the preamble to the proposed regulations.
                Summary of Comments and Explanation of Provisions
                 The Treasury Department and the IRS received one comment regarding
                the proposed regulations. After consideration of the comment, the
                proposed regulations are adopted as final regulations without any
                substantive changes.
                I. Applicability Date
                 A commenter expressed a concern that the procedures in these
                regulations would not apply to claims for refund from taxable years
                before the applicability date of the final regulations. The commenter
                requested that the procedures should be applied to refund claims for
                prior years. Consistent with the comment, the final regulations clarify
                that these procedures apply to any report of a misdirected direct
                deposit refund for a current or prior year submitted after the
                publication of the final regulations in the Federal Register.
                II. Coordination With Financial Institutions
                 Section 301.6402-2(g)(1) of the proposed regulations defines
                ``misdirected direct deposit refund'' 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. 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 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. An overpayment that is offset or applied as
                mandated by law is not a misdirected direct deposit refund because
                these actions are mandated by law. Section 301.6402-2(g)(1) of the
                final regulations clarifies this by striking the last sentence from the
                proposed regulations, as it is not needed to define a ``misdirected
                direct deposit refund.'' Instead, the final regulations clarify in
                section 301.6402-2(g)(3)(i) that the offset or setoff of an overpayment
                occurs prior to the issuance of a direct deposit. The IRS will
                determine if a reported missing refund is setoff or offset as part of
                the procedure for the identification of the account that received the
                misdirected direct deposit refund. This reorganization simplifies the
                definition of a misdirected direct deposit refund and more accurately
                describes the process of identification of a misdirected direct deposit
                refund.
                 The final regulations reflect this clarification to the definition
                of a misdirected direct deposit refund and the identification
                procedure, but the proposed regulations are otherwise adopted without
                change.
                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 Treasury Department and the Office of Management
                and Budget regarding review of tax regulations.
                 These 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
                Sec. 301.6402-2(g)(2)(ii)(B), some taxpayers may use a form to report
                a missing refund. The collection of information in 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 final regulations.
                 For the purposes of the Paperwork Reduction Act, 44 U.S.C. 3501-
                3520, the reporting burden associated with the
                [[Page 83447]]
                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 in every
                case. There are certain situations in which a taxpayer may instead
                elect to investigate a missing refund over the telephone or in person
                at the Office of the Taxpayer Advocate 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 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 final rule, 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 regulations mirrors the existing process
                and does not change the reporting burden. Accordingly, the Treasury
                Department and the IRS have determined that this Treasury Decision will
                not have a significant economic impact on a substantial number of small
                entities. Pursuant to section 7805(f) of the Code, the notice of
                proposed rulemaking preceding this regulation was submitted to the
                Chief Counsel for Advocacy of the Small Business Administration for
                comment on its impact on small business entities, and no comments were
                received.
                 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. This regulation 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 (titled 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 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.
                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.
                Adoption of Amendments to the Regulations
                 Accordingly, 26 CFR part 301 is amended as follows:
                PART 301--PROCEDURE AND ADMINISTRATION
                0
                Paragraph 1. The authority citation for part 301 is amended by adding
                an entry in numerical order for Sec. 301.6402-2(g) to read in part as
                follows:
                 Authority: 26 U.S.C. 7805 * * *
                * * * * *
                 Section 301.6402-2(g) also issued under 26 U.S.C. 6402(n).
                * * * * *
                0
                Par. 2. Section 301.6402-2 is amended by:
                0
                1. Redesignating paragraph (g) as paragraph (h) and adding new
                paragraph (g).
                0
                2. Revising the subject heading of newly redesignated paragraph (h) and
                adding a sentence at the end of the paragraph.
                 The additions and revision 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.
                 (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, the IRS will confirm that the overpayment
                was issued as a direct deposit. The IRS will confirm that the
                overpayment was not credited or offset pursuant to the law in effect
                immediately prior to the direct deposit being disbursed. If the direct
                deposit described in the report was issued, 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
                [[Page 83448]]
                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 (g)(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 (g)(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 reports described in paragraph (g)(2)(ii) of this section
                made after December 22, 2020.
                Sunita Lough,
                Deputy Commissioner for Services and Enforcement.
                 Approved: December 8, 2020.
                David J. Kautter,
                Assistant Secretary of the Treasury (Tax Policy).
                [FR Doc. 2020-28167 Filed 12-18-20; 4:15 pm]
                BILLING CODE 4830-01-P
                

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT