Tax mistake almost cost man thousands

January 8, 2009 6:59:27 PM PST
It's hard to believe that tax season is rolling around again. If you're one of the millions who are expecting a tax refund, 7 On Your Side has a word of caution.

More and more of us are filing electronically and getting refunds electronically. But watch out because even the tiniest computer mistake can cost you a bundle. For one Bay Area man, one misplaced digit nearly cost him $8,000.

Tax time can be a big hassle, so getting your refund direct-deposited to your bank account can smooth things out. But for Richard Ceely of San Francisco that's where the hassle started.

"It was like a nightmare scenario. It was like people didn't care whether you got your money or not," said Ceely.

Richard was supposed to get his $8,000 tax refund deposited directly to his account at Bank of America last April, but it never arrived. He contacted the IRS, then the bank and the bank tracked it down.

"My accountant transposed one number and it went into someone else's account at Bank of America," said Ceely. "This guy was evidently an artist but he didn't take care of his money, his brother did and their concern was to get the money out before he spent it."

That's where it gets really frustrating. The bank said legally it could not remove money from someone's account; the IRS can't do it either. The money was stuck, just when Richard and his partner needed it for their upcoming wedding and honeymoon.

"I was completely disgusted and I was talking to 7 On Your Side the whole time," said Ceely.

Certified public accountant Teresa Mason says taxpayers are responsible for mistakes on their forms.

"When they actually sign their return, they're saying to my knowledge everything on the tax form is true and correct and I've got the backup to support it," said Mason.

And she warns, direct deposit could be even trickier now because of all the bank mergers.

"Filing your return anywhere close to these merger dates I would probably be cautious about whether you do it electronically for refunds," said Mason.

Bank of America told 7 On Your Side in order to get Richard's money back, the bank needed to receive written permission from both the IRS and the person who got the money by mistake. In this case, the bank contact that person and he agreed to give back the money.

"I looked in my bank account and sure enough they moved it right in there. I was like, oh my god the money's there," said Ceely. "I was so happy about it, i spent it all immediately."

Once money goes into the wrong account it can be very hard to get it back. The lesson here is, even if you have a tax preparer, you should go over every single item on your tax return before signing it.

Direct Deposit Warning

From IRS Instructions for Tax Forms 1040, 1040A, 1040EZ:

"The IRS is not responsible for a lost refund if you enter the wrong account information. Check with your financial institution to get the correct routing and account numbers and to make sure your direct deposit will be accepted. Do not use the routing number on a deposit slip if it is different from the routing number on your checks."

From IRS:

If a taxpayer contacts the IRS about their misdirected direct deposit, we advise them to work with their bank to resolve the situation.

If a taxpayer contacts us saying they have received another taxpayer's direct deposit in error, we advise them to contact the Automated Clearing House (ACH) Department of their bank or financial institution to have the deposit returned to the IRS.

Title 31 §210.8(d) of the Code of Federal Regulations requires financial institutions that become aware that an agency has directed a payment to an account that is not owned by the payee whose name appears in the ACH payment information to promptly notify the agency. The financial institution can either issue a Notification of Change with the correct account and/or Routing and Transit Number information, or return the credit to the agency to satisfy this requirement. Source: IRS Instructions