What would you do - 2010 Fed Refund after successful OIC

[BulldogTom]

Client calls today and is thrilled that the IRS sent them a refund check of about 1K.   For 2010!   

When the client came to me, they were a non-filer.   We prepared all 10 years of returns the IRS wanted to get them current.   IRS had an issue with a credit on the 2010 return we filed.   We replied to their letter, but the client was in OIC review status so nothing happened.   The OIC was accepted in 2019.  I never heard back on the 2010 return, I assumed because it was applied to the balance that was wiped out by the offer.

I know the client is not entitled to the cash, because all refunds for years prior to the offer should have been taken by the IRS.   I hesitate to send it back, because the IRS is so screwed up right now, I think it would make matters worse.   If the IRS was answering the PPL I would give them a call, but last time I had to get in touch with them, it took 3 days and 31 calls, so that is not going to happen.

What would you advise the client to do?

Tom
Longview, TX

   

[Margaret CPA in OH]

Well, if absolutely certain that he is not entitled to it, I would send it back.  However you include an assumption about the 2010 return so it may actually be valid.  Maybe.  One option is to put it into a separate stand alone account and wait some period of time (whatever SOL might be), and see if someone comes knocking.  He has managed to survive until now without the funds so maybe he could be on hold with IRS if really desperate to confirm if it's really his to keep.

[mcb39]

I agree with Margaret.  I would tell them to put it in the bank, but not spend it until SOL or a letter from the IRS; whichever comes first.  They aren't sending explanation letters with their checks; so how are we supposed to know what to do?  I definitely would NOT send it back until asked for., if that ever happens.

[Terry D EA]

Agree with both the above. Cash it, put it away until either the SOL runs out or if questioned.

[mcbreck]

Since they were delinquent and needed an OIC, what are the odds they spend the money if they deposit the check?

 

I've had several clients receive checks with no explanation and we had no clue why. The IRS (or state) then asked for it (or more) back months later with no further explanation. Thankfully all were well off enough for it to not matter but these things are a nightmare scenario for most families.

[mcb39]

I had a client once who came to me with an approximate ongoing debt of $20000 to the IRS.  He was making $500 per month payments regularly and timely.  A few years into our relationship, he had already paid $60000 over ten years and still owed approximately $17,000.  (You read that right).  He came to my office one night in a panic because his payment was due and the IRS had not sent a voucher for that month.  Those were the days when you could still call the IRS and get an answer.  The agent I spoke to said that since he had reached the SOL (10 years) and had paid so faithfully; they had decided to cancel the remaining debt.  They never notified my client; not even after being assured on the phone that the debt was cancelled.  We had an awful time getting that debt removed from his Credit Report.  He had an aneurysm a few years later and passed away in his 50's.

I know this does not really relate to the subject at hand; but it is a glaring example of how the IRS operates at times and, of course, they are almost always right; in their opinion.  For some odd reason, I still keep his paperwork and backups in my deskdrawer some 15 years later.  I don't know why.  He was an awesome guy and we got to be good friends and he relied on and trusted me.  I won't go into the details of how he got the debt in the first place.  I still say that the client in this thread should keep the money; put it away.  If he is foolish enough to go out and spend it now; that will be on him and he will have to deal with the powers that be.  Sending it back now will only muddy the waters more and make his scenario even more of a nightmare.  If he doesn't listen to you, Tom, then I would fire him as a client and let him fight his own battles.