Source: Kalexanderson, Flicr.com

Most people who file their tax return demonstrating a refund fall into two groups: those who know they have a refund coming to them and those who just aren’t quite sure.

Tax return preparation and the eligibility requirements behind certain tax credits is not always a trouble-free experience. However, when a taxpayer gets an unanticipated notice from the IRS instead of the refund check they’ve been eagerly awaiting, it’s a good bet one of the following is the culprit.

Here are four reasons why plans for that refund check may evaporate.

You owe another federal or state agency

The IRS Treasury Offset Program is an offshoot of the Department of Treasury’s Financial Management Service, the branch that issues IRS tax refunds. Through this program, your refund or overpayment may be reduced and offset, or compensated out, to pay:

  • Delinquent child support
  • Non-tax debts owed to other federal agencies. Government funded student loans that are in arrears are the biggest example of this.
  • Overdue state income tax balances

Of course, if you owe the IRS from a previous tax year, you also will not be getting a refund. The IRS needs you to clean up all your tax balances before you are eligible to take home a refund. This is true even if you are on an installment agreement and making timely repayment.

You haven’t filed all of your tax returns

If you still have an outstanding legal obligation to file returns previous to this year, the IRS may hold your current year refund until all returns are filed.

This “refund hold” program is designed to bring taxpayers into filing compliance. Once your past-due returns are filed, the IRS will release your refund. If you owe on those returns, in addition to late filing and payment penalties, as well as interest, the IRS will apply your current year refund to any previous balance.

If you do not owe on your returns, your refund will be released in full, but don’t expect any interest for your own tardiness.

You were denied the Earned Income Tax Credit in a previous year

The IRS defines the Earned Income Tax Credit (EITC) as a refundable federal income tax credit for low to moderate income working individuals and families.

Once you’ve been denied the EITC by the IRS, you cannot claim it again unless you submit your return with Form 8862, Information to Claim Earned Income Credit After Disallowance. The form advises the IRS what has changed that now allows you to take the credit. If you fraudulently claim the EITC, the IRS may impose a ban on future claims to the credit.

Dependents aren’t really dependents

Make certain you are meeting all the eligibility requirements to claim a person as a dependent. In order to be a dependent, the person you wish to claim must be what the IRS defines as a “Qualifying Child” or a “Qualifying Relative.”

Originally posted and shared from: http://exm.nr/1algvPn, James Skye, May 17, 2011