Erroneous Refunds

This section provides information on processing erroneous refunds. The IRS sometimes issues a refund to a taxpayer who is not entitled to the money. When this occurs, the refund is known as an Erroneous Refund. See IRM 21.4.5, Erroneous Refunds, for more detailed instructions on classifying and processing Erroneous Refunds and for procedures not listed below.

An Erroneous Refund is defined as any receipt of money from the IRS to which the recipient is not entitled. This definition includes all erroneous payments to taxpayers, even if the non-entitlement could not have been known at the time of the refund. The taxpayer may or may not have made an intentional misstatement of income or credits to the IRS.

When an erroneous refund is identified, determine the appropriate erroneous refund category :

Category A1: involves the following types of taxes: income tax, estate tax, gift tax and excise tax. The Category A1 erroneous refund occurs when the tax liability has been understated due to an error on either a tax assessment or on an adjustment to the tax liability and the error results in a refund. See IRM 21.4.5.5.1, Category A1 Erroneous Refunds, for more information.

Category A2: involves errors on refundable or non-refundable credits that are subject to deficiency procedures. See IRM 21.4.5.5.2, Category A2 Erroneous Refunds, for more information.

Category B: involves the overstatement of Federal income tax withholding credits or estimated income tax payments on a return or a claim for refund. See IRM 21.4.5.5.3, Category B Erroneous Refunds, for more information.

Category C: involves Business Master File (BMF) accounts and taxes reported on forms such as Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, Form 941, Employer's QUARTERLY Federal Tax Return, Form 943, Employer's Annual Tax Return for Agricultural Employees, Form 944, Employer's ANNUAL Federal Tax Return, and Form 945, Annual Return of Withheld Federal Income Tax. The erroneous refund can result from an error made by the taxpayer or by the IRS. See IRM 21.4.5.5.4, Category C Erroneous Refunds, for more information.

Category D: include any erroneous refund that is not included in any other erroneous refund category. See IRM 21.4.5.5.5, Overview of Category D Erroneous Refunds, for more information.

Duplicate Manual Erroneous Refunds (DMERs) are created anytime a manual refund (TC 840) and a computer-generated refund (TC 846) or two manual refunds are issued for the same overpayment, one of which the taxpayer is not entitled to receive. See IRM 21.4.5.5.6, Duplicate Manual Erroneous Refunds (DMER), for more information.