[Federal Register Volume 85, Number 246 (Tuesday, December 22, 2020)]
[Rules and Regulations]
[Pages 83446-83448]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28167]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 9940]
RIN 1545-BP41


Misdirected Direct Deposit Refunds

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: These final regulations provide the procedures under section 
6402(n) of the Internal Revenue Code (Code) for identification and 
recovery of a misdirected direct deposit refund. The final regulations 
reflect changes to the law made by the Taxpayer First Act. The final 
regulations affect taxpayers who have made a claim for refund, 
requested the refund be issued as a direct deposit, but did not receive 
a refund in the account designated on the claim for refund.

DATES: 
    Effective date: These regulations are effective on December 22, 
2020.
    Applicability date: These regulations apply to reports to the IRS 
made after [date of publication] that a taxpayer never received a 
direct deposit refund.

FOR FURTHER INFORMATION CONTACT: Mary C. King at (202) 317-5433 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to 26 CFR part 301 under section 
6402(n) of the Code and provides guidance on the procedures used to 
identify and recover tax refunds issued by electronic funds transfer 
(direct deposit) that were not delivered to the account designated to 
receive the direct deposit refund on the federal tax return or other 
claim for refund. Section 6402(n) was added to the Code by section 1407 
of the Taxpayer First Act, Public Law 116-25, 133 Stat. 981 (2019) 
(TFA) on July 1, 2019. On December 23, 2019, the Department of the 
Treasury (Treasury Department) and the IRS published in the Federal 
Register (84 FR 70462) a notice of proposed rulemaking (REG-116163-19) 
providing the procedures under section 6402(n) for reporting, 
identification, and recovery of a misdirected direct deposit refund. 
The Treasury Department and the IRS received one comment responding to 
the proposed regulations. The comment is available at 
www.regulations.gov or upon request. No public hearing was requested or 
held on the proposed regulations.
    After consideration of the written comment, this Treasury Decision 
adopts the proposed regulations as final regulations with minor 
modifications, as described in the Summary of Comments and Explanation 
of Provisions. A detailed explanation of these regulations can be found 
in the preamble to the proposed regulations.

Summary of Comments and Explanation of Provisions

    The Treasury Department and the IRS received one comment regarding 
the proposed regulations. After consideration of the comment, the 
proposed regulations are adopted as final regulations without any 
substantive changes.

I. Applicability Date

    A commenter expressed a concern that the procedures in these 
regulations would not apply to claims for refund from taxable years 
before the applicability date of the final regulations. The commenter 
requested that the procedures should be applied to refund claims for 
prior years. Consistent with the comment, the final regulations clarify 
that these procedures apply to any report of a misdirected direct 
deposit refund for a current or prior year submitted after the 
publication of the final regulations in the Federal Register.

II. Coordination With Financial Institutions

    Section 301.6402-2(g)(1) of the proposed regulations defines 
``misdirected direct deposit refund'' as any refund of an overpayment 
of tax that is disbursed as a direct deposit but is not deposited into 
the account designated on the claim for refund to receive the direct 
deposit refund. The proposed regulations include in the definition of a 
misdirected direct deposit refund only those refunds which are actually 
issued as a direct deposit. A misdirected direct deposit refund does 
not include an overpayment that is credited against another outstanding 
tax liability of the taxpayer pursuant to section 6402(a) or that is 
offset pursuant to the law. An overpayment that is offset or applied as 
mandated by law is not a misdirected direct deposit refund because 
these actions are mandated by law. Section 301.6402-2(g)(1) of the 
final regulations clarifies this by striking the last sentence from the 
proposed regulations, as it is not needed to define a ``misdirected 
direct deposit refund.'' Instead, the final regulations clarify in 
section 301.6402-2(g)(3)(i) that the offset or setoff of an overpayment 
occurs prior to the issuance of a direct deposit. The IRS will 
determine if a reported missing refund is setoff or offset as part of 
the procedure for the identification of the account that received the 
misdirected direct deposit refund. This reorganization simplifies the 
definition of a misdirected direct deposit refund and more accurately 
describes the process of identification of a misdirected direct deposit 
refund.
    The final regulations reflect this clarification to the definition 
of a misdirected direct deposit refund and the identification 
procedure, but the proposed regulations are otherwise adopted without 
change.

Special Analyses

    This regulation is not subject to review under section 6(b) of 
Executive Order 12866 pursuant to the Memorandum of Agreement (April 
11, 2018) between the Treasury Department and the Office of Management 
and Budget regarding review of tax regulations.
    These regulations do not impose any additional information 
collection requirements in the form of reporting, recordkeeping 
requirements, or third-party disclosure requirements related to tax 
compliance. However, because a taxpayer or a taxpayer's representative 
may elect to report a missing refund using the procedures described in 
Sec.  301.6402-2(g)(2)(ii)(B), some taxpayers may use a form to report 
a missing refund. The collection of information in Sec.  301.6402-
2(g)(2)(ii)(B) is through use of a Form 3911, ``Taxpayer Statement 
Regarding Refund,'' and is the sole collection of information 
requirement established by the final regulations.
    For the purposes of the Paperwork Reduction Act, 44 U.S.C. 3501-
3520, the reporting burden associated with the

[[Page 83447]]

collection of information with respect to section 6402(n) will be 
reflected in Paperwork Reduction Act submissions for IRS Form 3911 (OMB 
Control Number 1545-1384). The estimated average time to complete Form 
3911 is five minutes. However, use of a form is not required in every 
case. There are certain situations in which a taxpayer may instead 
elect to investigate a missing refund over the telephone or in person 
at the Office of the Taxpayer Advocate and, after the IRS identifies 
the tax refund and informs the taxpayer that the refund was issued as a 
direct deposit, orally report that the already-identified refund is 
missing. An agency may not conduct or sponsor, and a person is not 
required to respond to, a collection of information unless it displays 
a valid control number assigned by the Office of Management and Budget.
    It is hereby certified that these regulations will not have a 
significant economic impact on a substantial number of small entities 
within the meaning of section 601(6) of the Regulatory Flexibility Act 
(5 U.S.C. chapter 6). The certification is based on the information 
that follows. There is no significant impact from these regulations on 
any small entity utilizing the procedures prescribed by these 
regulations to report a missing refund because there is no significant 
cost associated with reporting a missing refund. There is no fee 
charged in connection with reporting a missing refund, and the 
estimated time to complete a Form 3911, ``Taxpayer Statement Regarding 
Refund,'' is five minutes. There are no tax consequences associated 
with the final rule, as it merely sets forth the procedures for 
reporting a missing refund and describes the process the IRS uses in 
locating a missing refund and, in some instances, issuing a replacement 
refund. The process in these regulations mirrors the existing process 
and does not change the reporting burden. Accordingly, the Treasury 
Department and the IRS have determined that this Treasury Decision will 
not have a significant economic impact on a substantial number of small 
entities. Pursuant to section 7805(f) of the Code, the notice of 
proposed rulemaking preceding this regulation was submitted to the 
Chief Counsel for Advocacy of the Small Business Administration for 
comment on its impact on small business entities, and no comments were 
received.
    Section 202 of the Unfunded Mandates Reform Act of 1995 requires 
that agencies assess anticipated costs and benefits and take certain 
other actions before issuing a final rule that includes any Federal 
mandate that may result in expenditures in any one year by a state, 
local, or tribal government, in the aggregate, or by the private 
sector, of $100 million in 1995 dollars, updated annually for 
inflation. This regulation does not include any Federal mandate that 
may result in expenditures by state, local, or tribal governments, or 
by the private sector in excess of that threshold.
    Executive Order 13132 (titled Federalism) prohibits an agency from 
publishing any rule that has federalism implications if the rule either 
imposes substantial, direct compliance costs on state and local 
governments, and is not required by statute, or preempts state law, 
unless the agency meets the consultation and funding requirements of 
section 6 of the Executive Order. This rule does not have federalism 
implications and does not impose substantial direct compliance costs on 
state and local governments or preempt state law, within the meaning of 
the Executive Order.

Drafting Information

    The principal author of these regulations is Mary C. King of the 
Office of the Associate Chief Counsel (Procedure and Administration). 
Other personnel from the Treasury Department and the IRS participated 
in the development of the regulations.

List of Subjects in 26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

0
Paragraph 1. The authority citation for part 301 is amended by adding 
an entry in numerical order for Sec.  301.6402-2(g) to read in part as 
follows:

    Authority: 26 U.S.C. 7805 * * *
* * * * *
    Section 301.6402-2(g) also issued under 26 U.S.C. 6402(n).
* * * * *

0
Par. 2. Section 301.6402-2 is amended by:
0
1. Redesignating paragraph (g) as paragraph (h) and adding new 
paragraph (g).
0
2. Revising the subject heading of newly redesignated paragraph (h) and 
adding a sentence at the end of the paragraph.
    The additions and revision read as follows:


Sec.  301.6402-2  Claims for credit or refund.

* * * * *
    (g) Misdirected direct deposit refund--(1) Definition. The term 
misdirected direct deposit refund includes any refund of an overpayment 
of tax that is disbursed as a direct deposit but is not deposited into 
the account designated on the claim for refund to receive the direct 
deposit refund.
    (2) Procedures for reporting a misdirected direct deposit refund--
(i) In general. A taxpayer or a taxpayer's authorized representative 
may report to the IRS that the taxpayer never received a direct deposit 
refund and request a replacement refund. The report must include the 
name of the taxpayer who requested the refund, the taxpayer 
identification number of the taxpayer, the taxpayer's mailing address, 
the type of return to which the refund is related, the account number 
and routing number that the taxpayer requested the refund be directly 
deposited into, and any other information necessary to locate the 
misdirected direct deposit refund.
    (ii) How to report a misdirected direct deposit refund. A reporting 
described in paragraph (g)(2)(i) of this section may be made in the 
following ways:
    (A) By calling the IRS;
    (B) On the form prescribed by the IRS and in accordance with the 
applicable publications, instructions, or other appropriate guidance;
    (C) By contacting the Office of the Taxpayer Advocate by telephone, 
by mail, facsimile, or in person; or
    (D) By submitting the appropriate form in person at a Taxpayer 
Assistance Center.
    (3) Procedures for coordination with financial institutions--(i) 
Identification of the account that received the misdirected direct 
deposit refund. If the IRS receives a report described in paragraph 
(g)(2)(ii) of this section, the IRS will confirm that the overpayment 
was issued as a direct deposit. The IRS will confirm that the 
overpayment was not credited or offset pursuant to the law in effect 
immediately prior to the direct deposit being disbursed. If the direct 
deposit described in the report was issued, the IRS will initiate a 
refund trace to request the assistance of the Department of the 
Treasury's Bureau of the Fiscal Service. In accordance with its own 
procedures, the Bureau of the Fiscal Service coordinates with the 
financial institution that holds directly or indirectly the deposit 
account into

[[Page 83448]]

which the refund was made, requesting from the financial institution 
such information as is necessary to identify whether the financial 
institution received the refund; whether the financial institution 
returned, or will return, the refund to the IRS, or if no funds are 
available for return; whether a deposit was made into the account 
designated on the claim for refund; and the identity of the deposit 
account owner to whom the deposit was disbursed.
    (ii) Coordination to recover the amounts transferred. Recovery of 
the misdirected direct deposit refund from a financial institution 
shall follow the procedures established by the Bureau of the Fiscal 
Service. The Bureau of the Fiscal Service shall request the return of 
the misdirected direct deposit refund from the financial institution 
that received it. The IRS may contact the financial institution 
directly to recover the misdirected direct deposit refund.
    (4) Issuance of replacement refund. When the IRS has determined 
that a misdirected direct deposit refund has occurred, the IRS will 
issue a replacement refund in the full amount of the refund that was 
misdirected. The replacement refund may be issued as a direct deposit 
or as a paper check sent to the taxpayer's last known address.
    (5) Applicability of this paragraph (g) to missing refunds. The 
provisions of paragraphs (g)(2) through (g)(3)(i) of this section 
should be used for any refund that was disbursed as a direct deposit 
and that the taxpayer reports as missing. For example, although a 
refund that was deposited into an incorrect bank account because the 
taxpayer transposed two digits in their bank account number is not 
considered to be a misdirected direct deposit refund, the provisions of 
paragraphs (g)(2) through (g)(3)(i) of this section should be used. If 
the application of these procedures results in an amount recovered by 
the IRS, the recovered amount will be refunded or credited as allowed 
by law.
    (h) Applicability dates. * * * Paragraph (g) of this section 
applies to reports described in paragraph (g)(2)(ii) of this section 
made after December 22, 2020.

Sunita Lough,
Deputy Commissioner for Services and Enforcement.
    Approved: December 8, 2020.
David J. Kautter,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2020-28167 Filed 12-18-20; 4:15 pm]
BILLING CODE 4830-01-P