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The seizure of IRS tax refunds

Many Michigan taxpayers anticipate receiving a tax refund. However, sometimes the processing of a refund takes time. And, unfortunately, there are also certain circumstances when the refund may never come.

The Treasury Department's Bureau of the Fiscal Service does more than just issue tax refunds. In some circumstances, its job is to seize all or a portion of a taxpayer’s refund. As the world’s most powerful collection agency, federal authorities can seize assets, garnish wages, and even shutdown a business when collecting back taxes.

Some of the most common reasons for withholding tax refunds by the Bureau of the Fiscal Service include:

  • Unpaid federal taxes: Authorities can deduct the necessary amount from a federal refund to cover any balance. But before this occurs, a taxpayer should receive a notice of such a withholding along with an explanation for such an action.
  • State income tax debt: Federal authorities can withhold all or a portion of a federal refund to pay for state taxes owed.
  • Student loans: Defaulting on a student loan does have consequences. The Treasury Department can take at least a portion of a refund to help pay for an unpaid amount of a student loan. Even so, they must provide an advance notice of such a seizure to provide a taxpayer the chance to catch up on back payments, and to give them the opportunity to challenge the action.
  • Child support and spousal support payments: When a taxpayer is behind on court-ordered child support payments, the state's child support enforcement office can make a request with the IRS to seize any refund to make up for the missing payments. In the event a spousal support order was also a part of a child support order, the enforcement office can also make a similar request.
  • Unemployment compensation: A state can request the U.S. Treasury to offset any tax refund for alleged overpayments of unemployment compensation.

These are just some of the methods the IRS and other federal authorities use to seize part or all of your tax refund. Likely such a seizure will happen at exactly the wrong time when you need the money the most. But while a seizure can prove painful for both you and your family, in many instances it is possible to challenge such actions. It is therefore useful to speak to a knowledgeable tax attorney to discuss all of your options.

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