IRS Refund Reductions: Debts and Rounding Errors Impact Tax Returns in the U.S.

The U.S. tax season sees the IRS processing returns and issuing refunds. However, the IRS may reduce or cancel refunds for taxpayers with debts to government organizations, including student loans or unpaid child support. The IRS can also seize refunds to cover unemployment compensation debts or state income tax liabilities, utilizing the Treasury Offset Program (TOP). The IRS advises taxpayers to contact them if they notice an unexpected reduction or cancellation of their refund. Furthermore, the IRS may flag tax returns with rounded figures, interpreting this as inaccuracy or attempted evasion. Taxpayers should round figures to the nearest dollar, as exact multiples of 100 on forms like the 1040 can trigger an audit. If audited, taxpayers should respond promptly. The IRS typically audits returns from the last three years, extending to six years if significant errors are found. Audits can occur randomly or due to financial links with other audited entities. Maintaining accurate records is crucial to prevent IRS issues.