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I filed my 2011 taxes on-time and owed about $1000, which I paid with my return. In June I received a check from the US treasury department for $140 for an 'overtax refund'. Besides that one line on the check there was no explanation. I looked over my return and could not find any errors. I was expecting at least a letter with an explanation.

I'm a bit stumped as to 1. Why I would receive a refund when my return showed an amount due and 2. What mistake I made (if any) to cause the refund. My other idea is that this might be for a prior tax year, but I have not filed any amended returns for previous year.

I did file an amended state return 2 years ago but I don't know how that would affect my federal return.
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About 40 years ago I received a check from the IRS for overpayment of tax. No explanation other than that. Being curious and working in corporate accounting, I reverse engineered the amount and found it matched one on my return. The amount was a category subtotal on one of the forms (don't recall which one). My conclusion was the IRS had keypunched the subtotal into a detail line by mistake. That led them to believe there was a math error on my part in calculating the subtotal. The note with the check said not to question the check (IOW, we are the IRS and are all powerful and never wrong), so I cashed the check and kept the money.

Seems hard to believe there could be that kind of error these days with most people filing electronically but who knows.
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so I cashed the check and kept the money.

I tend to agree with billjam. If you used tax software which you are familiar with .. say TurboTax etc and filed electronically I wouuld cash the check. Trying to contact the IRS to sort this out may present more problems than its worth. Just be sure to keep a copy of your 2011 return and supporting documentation for future reference ... if ever needed.

Rich
Arizona
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I will chime in with a different opinion. If you do not deserve the refund then you will be responsible for interest and penalties on the money if, and when, they discover the error. It may be their mistake but it is your responsibility to straighten it out.

Dusty
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I already cashed the check and am probably going to keep it at that.

Dusty - Assuming you are correct, then what would be the appropriate course of action? File an amended return (when my original return was correct)?
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I filed my 2011 taxes on-time and owed about $1000, which I paid with my return. In June I received a check from the US treasury department for $140 for an 'overtax refund'. Besides that one line on the check there was no explanation. I looked over my return and could not find any errors. I was expecting at least a letter with an explanation.

If the IRS authorized the check you should have gotten a separate explanation. (FMS actually issues the government's checks after getting an authorization from the agency.) Unless you saved a copy of the check and are referring to it now, I think your memory is faulty as to the wording of the explanation. I've never heard of an "overtax refund."

If you're curious enough, go to www.irs.gov. On the home page, under "Tools," you'll find a way to request transcripts. If you get one of both the return in question and the account (different error possibilities) you should find the explanation.

For your future reference and for lurkers, the way to approach a check you think is erroneous and authorized by the IRS is to resolve it before you cash it. Otherwise, if it turns out to be erroneous you'll owe interest even if it was their error. Their time limit is either 10 years or 2 years, depending on the type of error that created the overpayment.

Phil
Rule Your Retirement Home Fool
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I did make a photocopy. At the top of the check (above pay to the order to) there are two lines.

First line: date, San Francisco, CA, then 4 digit number + 8 digit number.
Second line: Same 4 + 8 digits, then "20090800 I30 0XXXX ANDOVERTAX REFUND". The XXXX are first four letters of my name.

So I guess its related to my 2009 income tax return.
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"20090800 I30 0XXXX ANDOVERTAX REFUND".

Hee, hee. Now I see how you came up with "overtax refund." Actually, that's ANDOVER TAX REFUND, Andover (Mass) being the IRS processing center which authorized it.

Phil
Rule Your Retirement Home Fool
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A year later I finally figured out what happened after requesting a tax transcript. I compared the transcript to my copy of the return and found a discrepancy which explains the check I received. I never did receive a letter with an explanation, just a check.

I received a state tax refund from the prior year and included it in my 2011 income (line 10 on form 1040). The transcript did not include this income: it showed $0 on line 10. My CPA filed the taxes electronically and somehow what he submitted didn't match what the IRS received (everything else on the transcript matched). Must have been a bug in his tax software.

Anyway the IRS calculated tax due (based on the information they had) and compared that to what I paid and sent a check for the difference (which matched exactly to the line 10 discrepancy). This must have been done by some automated process.

I think I"m going to file an amended return, although I have not yet been audited, the IRS incorrectly issued me a refund.
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I received a state tax refund from the prior year and included it in my 2011 income (line 10 on form 1040). The transcript did not include this income: it showed $0 on line 10.

Is the state tax refund taxable?

If you didn't itemize for the refund's tax year (tax year 2009?) or the deduction didn't matter because of AMT, the refund wouldn't be taxable.
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Another reason that a state income tax refund might be not taxable is that the optional sales tax deduction would be elected.

If there is any doubt about the deductibility of all or part of a state tax refund, a computer tax program will suggest that the preparer complete a worksheet with data from the previous year's return.
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