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When the IRS Holds Your Refund

June 3, 2014

If you have not filed past tax returns, the IRS will not send you a refund until you file the unfiled returns. The IRS has the legal right to hold your refund until you file your unfiled tax return. Notice CP 88 is sent to inform you that your tax refund is being held by the IRS because they did not receive your tax return.

The IRS holds tax refunds for unfiled returns because they want to ensure that the taxpayer does not have a tax debt after they file. Sometimes, taxpayers do not file their returns because they cannot fulfill their entire tax liability. In such a case, the IRS uses the refund amount to fulfill the maximum amount of unpaid taxes. So, if you cannot pay your entire tax bill from previous years and you have a refund, your refund will be used to pay for the tax debt.

Tax professionals encourage taxpayers to file their tax returns even when they are not required to file because they may be due a refund. You should check if you qualify for certain tax credits that may enable you to receive a refund. If you do, you must then file your return to take advantage benefit.

When you receive CP 88, you must either file any unfiled tax returns (if you are required to file and did not file), or contact the IRS to explain to them that you filed or are not required to file. If Notice CP 88 is ignored, then the IRS may file a substitute tax return on your behalf and begin collection actions if you owe taxes. They will use a part of, or your entire tax refund to satisfy the tax debt, depending on the amount of unpaid taxes.

It is important to understand that you need to file all past unfiled tax returns, especially if you owe back taxes and want to resolve it using a payment plan. Therefore, it is best to file your tax return and pay as much of your taxes as you can. That will be a step forward in the resolution of your tax case.

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