Have you ever asked yourself the question: what is a tax refund offset? Do you want to know how it works? Read on to learn more.
Book a Consultation Call170 million people filed tax returns in the year 2020. 126 million of those taxpayers were happy because they also got an IRS refund. This means 74% of all the people in the US who file taxes typically garner a tax refund.
Are you one of the millions excitedly awaiting your tax refund?
Before you get too excited, do you owe the federal government any money? Do you have an SBA loan in default?
If you're behind, get prepared because your tax refund can be withheld. This is called a tax refund offset.
How does a tax refund offset work? How do you get your refund if you don't want the IRS keeping it?
Unfortunately, the SBA usually finds a way to get their money before letting you have it. Read on to learn more about tax refund offsets, how they work, and why the IRS can offset your refund for a defaulted SBA loan.
If you've been excitedly awaiting a tax refund and found the refund to be much smaller than anticipated, or even worse, you didn't get one.
You might be experiencing a tax refund offset.
When you owe monies or are in arrears, the IRS can prevent your tax refund from being paid out to you by sending the funds to the SBA.
The US Treasury Department would notify you they are about to do an offset to cover a delinquent debt. If you're notified of this and had questions about a delinquent debt, you can call 800-304-3107.
Now and then, there's a scenario where the reduced IRS refund beats the explanation letter. You can contact the IRS for an explanation.
In most cases, though, you'll receive a letter before the offset occurs. The letter will include:
If you get this letter, you would be best served to direct your questions to the entity listed as receiving your money.
You might be wondering what you're behind on, defaulted on, or in arrears before the IRS will make an offset payment?
The good news is that the IRS can't do an offset payment to cover any late bills for private lenders or utilities. They won't take your tax refund if you're behind on your cable bill or credit card bill.
There are, however, several reasons you might get a tax refund offset. If you have any arrears with the federal government, you should assume it could trigger a tax refund offset.
However, for purposes of this article, the reason you are most concerned about a tax refund offset is due to a defaulted SBA loan.
The IRS automatically take any refunds to cover back taxes before even considering a tax offset for an SBA loan.
It's also worth noting that if your offset is related to a federal tax issue, you'll be notified by the IRS. If your offset is for any other reason, then you'll be notified by the Treasury Department’s Bureau of the Fiscal Service (BFS).
There might be a situation where one spouse owes something, and the IRS triggers a tax refund offset. What's tricky is if the married couple files their taxes jointly.
This could mean that the expected tax refund that one spouse thought was coming is instead an offset for the other's debt. Aside from making for quite an awkward dinner conversation, there is something that can be done to get a refund for the non-owing spouse.
You can contact the IRS 800 number, visit your local IRS office, or perhaps the easiest option is to visit the IRS website. You can download and complete IRS Form 8379.
It may not be a fast process, and you'll likely need to provide some documentation, but you can request one spouse's part of the refund money.
If you believe the offset is in error, you can challenge it. In some cases, the offset will be processed while the challenge progresses.
In most cases, when you're notified of the offset, you'll also be provided with directions on how to challenge if you disagree.
Remember, don't start the challenge process just because you don't like the tax offset. You'll need to provide documentation of why the tax offset is being done in error.
Perhaps it's for a debt that's been paid off or you have a payment plan in place for the SBA loan.
A good place to start is by calling your local IRS office to get started. If your offset isn't tax related, contact the Bureau of the Fiscal Service (BFS) as they will have all other offset information for your case.
If you haven't already sought advice for your debts, it might be time to do that before you proceed with challenging an offset. Seek the advice of our SBA attorneys to get tax refund offset advice.
Once you find yourself in conflict with the IRS or the Treasury Department, it's time to seek some professional guidance on the best way to proceed. They may also be able to help you with the best way to challenge an offset and use the right documentation to win your appeal.
Once you have a tax refund offset explained, you can understand how frustrating and upsetting it will be to receive a letter notifying you of a tax refund offset.
If you have questions about your tax offset, we can help. Contact the Protect Law Group so we can get to work helping you.
Millions of Dollars in SBA Debts Resolved via Offer in Compromise and Negotiated Repayment Agreements without our Clients filing for Bankruptcy or Facing Home Foreclosure
Millions of Dollars in Treasury Debts Defended Against via AWG Hearings, Treasury Offset Program Resolution, Cross-servicing Disputes, Private Collection Agency Representation, Compromise Offers and Negotiated Repayment Agreements
Our Attorneys are Authorized by the Agency Practice Act to Represent Federal Debtors Nationwide before the SBA, The SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service.
Client personally guaranteed an SBA 7(a) loan for $100,000 from the lender. The SBA loan went into early default in 2006 less than 12 months from disbursement. The SBA paid the 7(a) guaranty monies to the lender and subsequently acquired the deficiency balance of about $96,000, including the right to collect against the guarantor. However, the SBA sent the Official 60-Day Due Process Notice to the Client's defunct business address instead of his personal residence, which he never received. As a result, the debt was transferred to Treasury's Bureau of Fiscal Service where substantial collection fees were assessed, including accrued interest per the promissory note. Treasury eventually referred the debt to a Private Collection Agency (PCA) - Pioneer Credit Recovery, Inc. Pioneer sent a demand letter claiming a debt balance of almost $310,000 - a shocking 223% increase from the original loan amount assigned to the SBA. Client's social security disability benefits were seized through the Treasury Offset Program (TOP). Client hired the Firm to represent him as the debt continued to snowball despite seizure of his social security benefits and federal tax refunds as the involuntary payments were first applied to Treasury's collection fees, then to accrued interest with minimal allocation to the SBA principal balance.
We initially submitted a Cross-Servicing Dispute (CSD) challenging the referral of the debt to Treasury based on the defective notice sent to the defunct business address. Despite overwhelming evidence proving a violation of the Client's Due Process rights, the SBA still rejected the CSD. As a result, an Appeals Petition was filed with the SBA Office of Hearings & Appeals (OHA) Court challenging the SBA decision and its certification the debt was legally enforceable in the amount claimed. After several months of litigation before the SBA OHA Court, our Firm Attorney successfully negotiated an Offer in Compromise (OIC) Term Workout with the SBA Supervising Trial Attorney for $82,000 spread over a term of 74 months at a significantly reduced interest rate saving the Client an estimated $241,000 in Treasury collection fees, accrued interest (contract interest rate and Current Value of Funds Rate (CVFR)), and the PCA contingency fee.
Clients executed personal and corporate guarantees for an SBA 7(a) loan from a Preferred Lender Provider (PLP). The borrower corporation defaulted on the loan exposing all collateral pledged by the Clients. The SBA subsequently acquired the loan balance from the PLP, including the right to collect against all guarantors. The SBA sent the Official Pre-Referral Notice to the guarantors giving them sixty (60) days to either pay the outstanding balance in full, negotiate a Repayment (Offer in Compromise (OIC) or Structured Workout (SW)), challenge their alleged guarantor liability or file a Request for Hearing (Appeals Petition) with the SBA Office of Hearings & Appeals.
Because the Clients were not financially eligible for an OIC, they opted for Structured Workout negotiations directly with the SBA before the debt was transferred to the Bureau of Fiscal Service, a division of the U.S. Department of Treasury for enforced collection.
The Firm was hired to negotiate a global Workout Agreement directly with the SBA to resolve the personal and corporate guarantees. After submitting the Structured Workout proposal, the assigned SBA Loan Specialist approved the requested terms in under ten (10) days without any lengthy back and forth negotiations.
The favorable terms of the Workout included an extended maturity at an affordable principal amount, along with a significantly reduced interest rate saving the Clients approximately $181,000 in administrative fees, penalties and interest (contract interest rate and Current Value of Funds Rate (CVFR)) as authorized by 31 U.S.C. § 3717(e) had the SBA loan been transferred to BFS.
Client’s small business obtained an SBA 7(a) loan for $750,000. She and her husband signed personal guarantees exposing all of their non-exempt income and assets. With just 18 months left on the maturity date and payment on the remaining balance, the Great Recession of 2008 hit, which ultimately caused the business to fail and default on the loan terms. The 7(a) lender accelerated and sent a demand for full payment of the remaining loan balance. The SBA lender’s note allowed for a default interest rate of about 7% per year. In response to the lender's aggressive collection action, Client's husband filed for Chapter 7 bankruptcy in an attempt to protect against their personal assets. However, his bankruptcy discharge did not relieve the Client's personal guarantee liability for the SBA debt. The SBA lender opted to pursue the SBA 7(a) Guaranty and subsequently assigned the loan and the right to enforce collection against the Client to the SBA. The Client then received the SBA Official 60-Day Notice. After conducting a Case Evaluation with her, she then hired the Firm to respond and negotiate on her behalf with just 34 days left before the impending referral to Treasury. The Client wanted to dispute the SBA’s alleged debt balance as stated in the 60-Day Notice by claiming the 7(a) lender failed to liquidate business collateral in a commercially reasonable manner - which if done properly - proceeds would have paid back the entire debt balance. However, due to time constraints, waivers contained in the SBA loan instruments, including the fact the Client was not able to inspect the SBA's records for investigation purposes before the remaining deadline, Client agreed to submit a Structured Workout for the alleged balance in response to the Official 60-Day Notice as she was not eligible for an Offer in Compromise (OIC) because of equity in non-exempt income and assets. After back and forth negotiations, the SBA Loan Specialist approved the Workout proposal, reducing the Client's purported liability by nearly $142,142.27 in accrued interest, and statutory collection fees. Without the Firm's intervention and subsequent approval of the Workout proposal, the Client's debt amount (with accrued interest, Treasury's statutory collection fee and Treasury's interest based on the Current Value of Funds Rate (CVFR) would have been nearly $291,030.
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