Does anyone seen an answer to this query:
If someone has not filed a 2019 return but did file a 2018 return with
direct deposit information and that bank account is now closed, what
happens when the bank rejects the electronic funds transfer?
Is the taxpayer put in the queue for an advance payment by paper check
or is the taxpayer dropped from all queues and must rely upon the filing
of the 2020 tax return to obtain the refundable credit?
Not specific to this situation, here is what the IRS part 24.4.1
"If a taxpayer files their tax return and requests a direct deposit
of their refund, but later determines the return contained an
incorrect routing transit number, account number or account is
closed, the direct deposit may be stopped by inputting TC 971 AC 850.
This action must be done prior to the posting of the return (TC 150)
on CC IMFOLT, unless a freeze condition is holding the refund (see
below). Input of a TC 971 AC 850 will result in the issuance of a
paper refund check to the address shown on the taxpayer's tax return.
If the return has posted, the direct deposit refund cannot be
prevented by input of TC 971 AC 850, UNLESS the refund is frozen
(e.g., -R, P- freeze, etc). In the case of a freeze condition, the TC
971 AC 850 must post before, or in the same cycle as the refund. See
IRM 184.108.40.206.7.1, Direct Deposit of Refunds, for further guidance."
There is also this from the "What You Need to Know" section of the IRS
Coronavirus Tax Relief website:
"In the coming weeks, Treasury plans to develop a web-based portal for
individuals to provide their banking information to the IRS online, so that
individuals can receive payments immediately as opposed to checks in the
Unfortunately, there is no indication of a time-frame for establishment of
this portal, and it doesn't seem likely it will be up before distribution of
payments begins next week.
Read the first 4 replies, but I'm interested in the average guy who
doesn't remember that the account used for 2018 was closed.
I am aware that if a bank rejects an electronic Treasury tax refund, the
funds are returned to the Bureau of the Fiscal Service (Treasury agency)
and they cut a paper check. I'm just wondering if the same process will
be followed for an advanced payment of a tax credit.
So this is tangential but I thought I'd place it here.
A friend read that the stimulus payment is a "credit against 2020
taxes" and so is worried that it is just a loan against future tax
liability as opposed to cash in their pocket.
Am I correct in telling them that is is indeed cash in their pocket?
It is a credit against 2020 tax liability. Your 2020 tax liability will be $1200/person (ignoring the $500 dependent credit) less than it would be under the regular tax rules. If you receive the $1200 now, you don't get any more later. If you don't get the full $1200 now, you can get the balance later if your income is below the phaseout threshold. If you get more now than you are entitled to on your 2020 return, you don't have to pay anything back.
For those who can remember back to 2008, this is the same procedure used for the Bush prebate, except that in 2008, the prebate credit could be used to offset existing tax liabilities. The 2020 law only allows offsets against outstanding child support obligations and (I believe) criminal penalties.
Ira Smilovitz, EA