recovery rebate credit

[Ofrenda]

If a client owes back taxes and the recovery rebate credit results in a refund due to them, will irs seize the refund even though it is recovery rebate?

[sjrcpa]

If the refund is due on the 1040, I would think so.

[Just-Lisa-Now-]

Technically it shouldn't, since the EIP wasn't supposed to be taken to pay past due tax obligations, but you never know!

We'll have to wait and see how it ends up working.

[sjrcpa]

I agree Lisa. i just do not have any confidence that the IRS system can separate the EIP portion of a refund from the rest of a refund.

[BobKamman]

No.  The CARES Act provided.

“Any credit or refund allowed or made to any individual by reason of section 6428 of the Internal Revenue Code of 1986 (as added by this section) or by reason of subsection (c) of this section shall not be—

“(1) subject to reduction or offset pursuant to section 3716 or 3720A of title 31, United States Code,

“(2) subject to reduction or offset pursuant to subsection (d), (e), or (f) of section 6402 of the Internal Revenue Code of 1986, or

“(3) reduced or offset by other assessed Federal taxes that would otherwise be subject to levy or collection.”

[itonewbie]

Not sure if anyone noticed but the terms for Exception from Reduction or Offset in relation to §6428 and §6428A are different.  What Bob cited is from the CARES Act in relation to §6428.  Interestingly, Sec. 272(d) of the COVID-Related Tax Relief Act, stipulates the following (emphasis added):

EXCEPTION FROM REDUCTION OR OFFSET .— Any refund payable by reason of section 6428A(f) of the Internal Revenue Code of 1986 (as added by this section), or any such refund payable by reason of subsection (c) of this section, shall not be—
(A) subject to reduction or offset pursuant to section 3716 or 3720A of title 31, United States Code,
(B) subject to reduction or offset pursuant to subsection (c), (d), (e), or (f) of section 6402 of the Internal Revenue Code of 1986, or
(C) reduced or offset by other assessed Federal taxes that would otherwise be subject to levy or collection.

While the CARES Act simply refers to §6428, which covers both the Recovery Rebates Credit under subsection (a) and the Advance Refund under subsection (f), the COVID-Related Tax Relief Act limits this to §6428(f), which only deals with the Advance Refund.

It is not clear if this is an oversight, especially since it is apparent from the structure of §6428A and the amendments to §6428 that Congress intends to make these payments more broadly available.  If it is not an oversight, these would create a bifurcation of the treatments and I'm not even sure whether the IRS' system would be able to cater to that.  If it is an oversight, it may take a technical correction to fix this.

[BobKamman]

@itonewbie  “the COVID-Related Tax Relief Act limits this to §6428(f), which only deals with the Advance Refund.”

Are you sure of that? This is what you quoted and I’m reading:

EXCEPTION FROM REDUCTION OR OFFSET .— Any refund payable by reason of section 6428A(f) of the Internal Revenue Code of 1986 (as added by this section), or any such refund payable by reason of subsection (c) of this section, . . .

Subsection ( c) of “this section” still refers to Section 6428A, which sets the AGI limits on the subsection (a) credit otherwise allowed. And yes, they intentionally omitted the offset for delinquent child support, because it created too many “injured spouse” cases.

[itonewbie]

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@BobKamman wrote:

Are you sure of that? This is what you quoted and I’m reading:

EXCEPTION FROM REDUCTION OR OFFSET .— Any refund payable by reason of section 6428A(f) of the Internal Revenue Code of 1986 (as added by this section), or any such refund payable by reason of subsection (c) of this section, . . .

Subsection ( c) of “this section” still refers to Section 6428A, which sets the AGI limits on the subsection (a) credit otherwise allowed. And yes, they intentionally omitted the offset for delinquent child support, because it created too many “injured spouse” cases.

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Yes, I'm sure of that.  The subsections (c) referred to in your citation and mine are not  subsections (c) of §6428 or §6428A but §2201(c) of the CARES Act and §272(c) of the COVID-Related Tax Relief Act, both of which are related to Treatment of Possessions.

[itonewbie]

Reading also the JCT report on the CARES Act and the Senate Finance Committee summary on the COVID-Related Tax Relief Act again, it may even look like the limitation for offset to advance refunds in §6428A was deliberate.

In the summary for Additional Recovery Rebates Credit, it reads (emphasis added): Advance payments are generally not subject to administrative offset for past due federal or state debts. In addition, the payments are protected from bank garnishment or levy by private creditors or debt collectors.

In comparison, the JCT report says this about the Recovery Rebates Credit and advance refund (emphasis added): Any overpayment resulting from the recovery rebate credit or from related payments to the U.S. territories is not subject to reduction or offset by other assessed Federal taxes that would otherwise be subject to levy or collection. In addition, such overpayments are not subject to offset for other taxes or non-tax debts owed to the Federal government or State governments, except for certain claims for delinquent child support payments.

It is evident from the texts above that Recovery Rebates Credit is only mentioned in the JCT report on the CARES Act but not in the summary for the COVID-Related Tax Relief Act.