Can the IRS Hold Your Tax Refund if You Didn't File in Previous Years?

Although you may not be required to file tax returns each year because you didn’t have enough taxable income, the IRS may question if you have an erratic tax-filing history. Large income fluctuations also raise a red flag with the IRS. As a precautionary measure against potential tax evasion, the IRS might hold your tax refund. If you follow IRS procedure, however, you will get your funds released -- especially if you can demonstrate that you have no outstanding liability.

CP88 Notice

The IRS sends notices if you’re owed a refund but haven’t filed a return for previous years; these notices are called CP88 notices. The notice specifies the missing tax years and includes a response form that you should complete. You must check to ensure that your name, Social Security number and tax years are correct.


You’ll need to explain why you didn’t file a return in previous years. Ideally you'll be able to demonstrate that you weren't required to file a tax return. If, however, you were required to file a return, you must file your return and pay any taxes, if any, that are owed from the prior tax years. The IRS will use the refund it’s holding to satisfy any outstanding debts and will release any part of the refund that exceeds the amount owed.

Refund Release

If you were required to file returns in previous years, the IRS will hold your current tax refund until all of your obligations from prior years are met. You must file returns for all years that you’re required to file and pay the outstanding taxes, if any, which will be increased by interest and penalties for late payment. If you weren’t required to file a return, you must explain why you weren’t required to file to the IRS and your refund will be released. You may pay any prior obligations out of pocket or you can apply your current refund to satisfy your prior obligations.

Interest and Penalties

Failing to file your tax returns on time when you owe the IRS results in a significantly higher tax bill. If you pay your taxes after the date they’re due, you’ll face late-payment penalties plus interest on the amount owed until the taxes are paid in full. Failing to file within 60 days of the due date increases the late-filing penalty to at least $135 or up to the full amount of the taxes owed.

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About the Author

Kay Lee began freelance writing for Answerbag and eHow in 2010. She is an attorney in Washington, DC, practicing since 2006. Lee specializes in employee benefits and executive compensation. She holds a Juris Doctor from the Columbus School of Law and a Master of Laws from Georgetown University Law Center.

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