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Triple tax-refund saving option

Account errors could erase refund

Even if your refund amount is exactly what you expect, you also want to be sure the money makes it into the correct accounts.

If you send the IRS wrong account information, you could lose your refund entirely. The IRS specifically notes on Form 8888 that the agency assumes no responsibility for refunds lost in the event a taxpayer entered the wrong account information.

Triple account direct deposits were first allowed with 2006 filings and the IRS reported fewer bank routing and account errors than it expected: 95 percent of multiple deposit requests were completed successfully. Things also continued to go relatively without problems last filing season. But if you happened to be among the small percentage of filers who had a problem, you probably weren't too impressed with the expanded direct deposit system.

The Taxpayer Advocate's office in Washington, D.C., which monitors the IRS' activities, says thousands of such wrong account cases appear every year. With the new three-account option, the chances for such errors triple.

If the wrong account number is an active one, the money goes into the account belonging to someone else and it's up to the person who incorrectly got the cash to turn the money back, either to the bank or the IRS. In some cases, banks, upon realizing that the deposit was misdirected because of a misplaced numeral, have worked with customers to get the funds to the appropriate account. But any tracking of and redepositing of refunds erroneously sent to wrong accounts is solely between the bank and its customers.

If the account number is for a nonexistent account, the bank usually sends the money back to Washington. But rather than being reissued, that's where it stays. The problem: The errant refund goes to Federal Financial Management Service, the main U.S. Treasury depository, which is outside the IRS' jurisdiction.

Privacy concerns prevent problem resolution

Further complicating the matter, there's no cross-checking mechanism. Privacy regulations prohibit the IRS from disclosing taxpayer information to banks, and banks aren't allowed in most cases to reveal customer financial data to the government.

The bottom line is that in most of these cases, the taxpayer who should have received the money is out of luck. The IRS will not reissue misdirected refunds in cases of taxpayer account error.

Taxpayer Advocate Nina E. Olson had addressed this concern in her prior year annual reports to Congress. She had proposed that direct deposit refunds be treated the same as checks. When paper payments are lost, stolen, destroyed or defaced, they are reissued.

But until that happens, the accuracy burden remains on taxpayers' shoulders. So in addition to scrutinizing your tax calculations, when you enter one or two or three accounts into which your refund should be directly deposited, be sure to triple check them.

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