Nonresident Aliens Not Receiving 2014 Refunds

Wade Wilson, CPA

Wilson LLP, as well as other tax preparers, has recently become dumbfounded by the IRS not releasing 2014 tax refunds that are due their nonresident alien clients. A minor problem in 2013, the IRS has determined that identity theft and fraud, particularly with the filing of nonresident alien tax returns, have been such a potential threat that the IRS is now holding many returns and refunds in limbo.

On December 1, 2015, the IRS announced on its website that for nonresident aliens filing Form 1040NR, the IRS will need up to 6 months from the original due date of the return or the date the return was actually filed to issue any refund due.

Wilson has filed over 5,500 nonresident alien tax returns for tax year 2014, with over 4,500 returns reflecting refunds due taxpayers. We are currently working with the IRS, and the Taxpayer Advocate Service to resolve approximately 400 delayed federal refunds.

IRS Taxpayer Protection Division
We believe that the first issue related to these delayed refunds related to potential identity theft. It is the IRS’s Taxpayer Protection Division (TPD) which has been charged with verifying taxpayers’ identity. When a return is filed with the IRS and that return meets certain criteria the return is placed on hold, and generally a letter is sent by the IRS to the taxpayer indicating that they want to protect the taxpayer from potential identity theft. This letter, known as a 5071C letter, requires the taxpayer to call an IRS phone number and provide to the IRS detailed information from the 2014 tax return, the 2013 tax return (if filed), and certain personal information such as birthdate, place of birth, passport number, etc. There is also a website available to provide this information. However, we have found, and it has been verified by the IRS that this online resource will not work for taxpayers who have ITINs (most nonresident aliens) as opposed to Social Security Numbers.

Our firm takes a proactive stance when refunds are not promptly received by our clients. We received approximately twenty-five 5071C letters for various clients. For others, we received no notification whatsoever. We have spent hours contacting TPD in an attempt to get taxpayers’ identity verified. It often takes over an hour on hold before even reaching an IRS agent, then once verified we’re told it will be six – eight weeks before the refund is issued, often finding that after eight weeks, no refund has been received and the taxpayer’s account still in suspension. For those clients not receiving 5071C letters, we obtained statements of account. We are finding that although no 5071C letter was received, that these accounts were placed on a hold status because of potential identity theft.

Taxpayer Advocate Service
The Taxpayer Advocate Service (TAS) was established in order to assist taxpayers with tax issues when they have tried to use normal IRS channels to get issues resolved but with no success. Therefore, after direct contact with the IRS and TPD failed, our next step was to contact TAS asking that they intercede on our behalf and get these refunds issued. We are now being told by TAS that even for returns that have been verified for identity are now going into an examination status where IRS agents are required to verify information reflected on the return, with a particular emphasis on withholding sources. This is why we believe the IRS posted the announcement regarding the six month delay. We are now finding that the IRS is now sending taxpayer letters indicating that it could be up to one year before refunds will be issued.

What Wilson LLP is Doing Now
Recently we filed a letter with TAS asking them to research why our nonresident clients were not receiving refunds. Further we reported to TAS that we believed that a systemic issue existed and filed a report detailing the facts and issues. Wilson has been in contact both with the local Taxpayer Advocate for the International Division as well as a Systemic Program Analyst with the National Taxpayer Advocate. We are finding that on a case by case basis we can resolve these refunds, but it will continue to be a slow process. For returns where no 5071C letter was received, we’re writing letters to the IRS and resubmitting copies of tax returns we’ve previously filed along with documentation proving identity.

We want you to know that we are doing all we can to resolve these refunds and get them issued to our clients as soon as feasible. If you have any questions about what we’re doing on your behalf, please contact us.