My federal tax refund was taken by my state in error for previous years income tax due. Does this money have to be refunded?

State took to much money for state tax owed. They should be refunding me $1200.00 but are now trying to offset that money to my city for fines/tickets. How can they keep that money when it was taken from my federal refund and they took twice the amount that was owed to them?

Dubuque, IA -

Attorney Answers (2)

Richard Gordon Stack

Richard Gordon Stack

Tax Lawyer - Los Angeles, CA
Answered

Internal Revenue Code Sections 6402(c)-(f) allows Federal income tax refunds to be offset against the following types of debts: (1) a debt owed to any Federal agency; (2) debts for past-due child and spousal support payments; (3) past-due, legally enforceable State income tax obligations (see also 31 CFR 285.8); (4) erroneous payment of unemployment compensation due to fraud or failure to report earnings; and (5) failure to make contributions to a State's unemployment fund for which the state has determined the person is liable. Nowhere in the income tax refund offset statute (IRC Secs. 6402(c), (d), (e), and (f)) is any mention made of the ability of a locality to offset a Federal tax refund for debts owed to it, such as real property tax obligations, fines, or traffic tickets. See Turbotax article summarizing tax refund offset program: https://turbotax.intuit.com/tax-tools/tax-tips/....

As a preliminary matter, I would contact the Iowa income tax authority and ask it to provide you with the legal basis pursuant to which it is withholding the balance of your offset Federal tax refund. It is possible that the State of Iowa may have a refund offset statute that allows State income tax refunds to be offset against debts that the taxpayer has incurred to localities. If that statute purports to confer authority upon the State to apply offset Federal tax refunds toward debts that the taxpayer has incurred to localities, it is probably invalid under Federal law and preempted (or overriden) by Section 6402(e).

You may be able to sue the State of Iowa in U.S. District Court (or possibly State court) to obtain recovery of the improperly offset portion of your tax refund. In all likelihood, you will need to file an appropriate claim for refund or recovery of those funds with the State of Iowa and then wait the requisite time period or until disallowance of your claim before filing suit. Due to the small amount at issue, it is not cost-effective for you to hire an attorney. Perhaps you can obtain further assistance at a free legal clinic offered by your county's bar association.

Another possible alternative is to contact your State representatives (assembly member and senator) and request their assistance in recovering your funds. Finally, you may also wish to contact the Treasury Department's Financial Management Service, which administers the Federal tax refund offset program, and ask a knowledgeable employee there about whether Iowa's action was lawful. I don't see any authority in those articles that would allow the offsets in question. See http://www.fms.treas.gov/aboutfms/contacts.html; http://www.fms.treas.gov/debt/top.html; http://www.fms.treas.gov/debt/TOP_state_prog.html; http://www.fms.treas.gov/debt/dca_quickref_inde... and http://www.fms.treas.gov/debt/CFR/31cfr285dot8I....

Good luck in getting your money back!

P.S. - I lived in Iowa from 1969-1985, when I moved to CA. It's a great place. Go Hawkeyes!

The answer to this question does not establish an attorney-client relationship. Moreover, this attorney is... more
Bruce Givner

Bruce Givner

Tax Lawyer - Los Angeles, CA
Answered

You should contact IowaLegalAid.org: 800-532-1275. They handle tax issues and, as the other fine lawyer has pointed out, your matter is too small to hire a lawyer and too complex for you to handle on your own.

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