§1639 Tax Due Notice Requirements Before Tax Refund Offset

June 09, 2023 by Steve Banner, EA, MBA
Woman and Man drinking coffee

“It’s like they don’t trust me or something!” said a very flustered Wendy as she sat herself down at my kitchen table. “I was going to pay them what I owed them, but they didn’t give me a chance to do it. Isn’t it against the law to do that? And what is this Section 1639 thing they’re talking about?” she demanded to know.

I did my best to respond calmly, but sometimes it’s not easy to keep a calm demeanor when your neighbor knocks on your front door first thing on a Saturday morning and demands an explanation for something that the IRS did. In cases like that, it almost feels like you’re being regarded as an accomplice to the perceived insult against the poor victim. “First let me pour you a cup of coffee, and then we’ll talk about it” was all I could manage to say.

Wendy had only moved to Texas a little more than a year ago, and one of the motivations for her relocation was to get away from the income taxes levied by her previous state. I won’t bore you with the details of the back-and-forth conversation with the outraged Wendy, but it all boiled down to the fact that she had received a tax refund of $500 from the IRS instead of the $4,000 that she had expected. The cause of the shortfall turned out to be that she did not realize that she was supposed to have filed a tax return for the part of the year she lived in her previous state before moving to Texas. As a result, she owed a debt of $3,500 to her former state in unpaid taxes.

“I was going to pay them,” she repeated, “but I was just waiting to get my federal income tax refund so I would have the cash to do it with.”

“Well, it looks like the federal government saved you the cost of a stamp to mail your check, because they took the money out of your refund and sent it to the state on your behalf” I replied, in a feeble attempt at humor to lighten her mood. But Wendy was in no mind to lighten up. “But it’s MY money” she insisted “How can they take MY money and give it to someone else?”

Clearly, I wasn’t going to get off the hook lightly. There was no way around it, except to explain in detail how a tax refund offset works. I took a deep breath and mentally pledged to myself that the next time anyone asks me what I do for a living, I will tell them I’m in a secret job with Homeland Security that I’m not allowed to talk about. That should make my weekends a little quieter.

I began by telling her that the U.S. Department of the Treasury is authorized by the U.S. tax code1 and regulations2 to withhold part or all of a taxpayer’s expected Federal tax refund to pay past-due debt of $25 or more that the taxpayer owes to a Federal or State agency. For example, this debt might be for items such as student loans, child support, or – as in this case – state income tax.

She interjected with a dramatic flourish and wave of her arms “So you’re saying Washington can just take my money whenever they feel like it and give it away!”

“No, that’s not how it works” I countered, trying to contain my own frustration. “There are a lot of rules that have to be followed.”

I explained that any debt that is going to be collected by offset of the taxpayer’s refund must have been delinquent for at least three months and less than 10 years at the time the offset is made.

Another requirement is that the taxpayer must be notified in writing and given at least 60 days to dispute the debt and provide evidence that all or part of the amount is either not past-due or not legally enforceable. The taxpayer also has the opportunity during the 60-day period to resolve the matter entirely by simply paying the debt. But if the taxpayer does dispute the debt, the Treasury must review any evidence that the taxpayer provides. After this review, the Treasury can only proceed with the offset if it has determined that an amount of the debt is both past due and legally enforceable.

By now, Wendy had become strangely silent. She rather sheepishly admitted that she had in fact received several letters regarding her debt, but she ignored them while thinking she could use her coming federal tax refund to resolve the situation.

“Ok, well I guess what they did wasn’t against the law”, she grudgingly admitted, “But I wish they would have told me what they were going to do before they did it.”

Part of me wanted to yell, “They did tell you! Both the state and the Feds sent you letters, but you chose to ignore them!” Instead, all I could do was take a deep breath and say “Well, at least it’s over and done with now and you’re free from your previous state. Welcome to tax-free Texas.”

Wendy could have saved herself a considerable amount of mental anguish (not to mention the interest and penalties she paid on her state tax debt) if she had taken the appropriate actions all those months ago when she first learned of her debt to the state.

There is a clear lesson here. Don’t think that debts you may have to a state or federal agency will simply go away if you ignore the letters they send to you. If you’re not sure what the letters mean, you can easily call and consult with one of the experienced tax professionals at TaxAudit. You will be able to talk to an expert to discuss your situation at no cost and with no obligation. They will help you understand the options available to you, and help you set a course for the best way to proceed.

The moral of the story is: Don’t be like Wendy.

And for me, the moral of the story is: Don’t answer the front door at 8am on a Saturday morning!

[1] 31 U.S. Code § 3720A - Reduction of tax refund by amount of debt
[2] 5 CFR § 1639.40-42

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Steve Banner, EA, MBA
Tax Content Developer


Steve Banner began his career in the field of income tax in 1977 and has since gathered business experience in a variety of countries and cultures. In addition to the United States, he has lived and worked for extended periods in Australia, Saudi Arabia, Canada, and Sweden. Along the way he studied Adult Education and earned a Bachelor of Education, Master of Educational Administration, and MBA. He joined TaxAudit in 2016, where he is a Tax Content Developer.


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