Unclaimed Tax Refunds Exceed $1 Billion: Are You Missing Out on Money?

Key Concepts

Government shutdown, IRS budget cuts, IRS personnel changes, tax filing season, FinCEN reporting rules, DeFi reporting repeal, IRS transcript code TC 570, unclaimed tax refunds, gold in IRAs, Required Minimum Distributions (RMDs), business executive economic outlook.

Government Shutdown and IRS Funding

As the deadline approached, Congress voted to avoid a government shutdown. The vote followed an earlier vote in the House to fund the government through September 30, 2025. The Congressional Budget Office (CBO) estimates the bill will cost $1.6 trillion, with $893 billion for defense and $78 billion for non-defense spending. The continuing resolution (CR) largely mirrors the previous year's funding, increasing military spending by $6 billion and cutting $13 billion in non-defense spending. It also includes a boost in Immigration and Customs Enforcement (ICE) deportation operations and claws back $20.2 billion of IRS funding, in addition to earlier cuts.

IRS Shakeups and Personnel Cuts

Acting Chief Counsel William Paul was removed, reportedly because he refused to cooperate with Elon Musk's Department of Government Efficiency (Doge), which allegedly sought to share taxpayer information with other federal agencies. The Chief Counsel is the chief legal advisor to the IRS Commissioner, dating back to 1866. The Chief Counsel organization had approximately 2,600 employees before recent personnel counts. Approximately 7,000 probationary IRS employees have been fired. A US District Judge in California called the terminations of probationary employees unlawful and ordered their reinstatement. Reports suggest the IRS will make additional dramatic cuts to its workforce, estimated between 20 and 50%.

Tax Filing Season and IRS Data

IRS data from the fifth week of the tax filing season (ending February 28, 2025) suggests that taxpayers are not excited about filing this tax season. Numbers for tax filing and processing of tax returns remain low.

FinCEN and DeFi Reporting

The Treasury's Financial Crimes Enforcement Network (FinCEN) is seeking more information about financial transactions for those who live or do business in 30 ZIP codes in California and Texas near the border. Beginning in April, FinCEN will require money service businesses (MSBs) in those ZIP codes to report Americans who spend more than $200 in cash or cash equivalents on items like money orders and travelers checks. This is a dramatic expansion of the standard $10,000 cash reporting rule. MSBs include businesses like check-cashing services, sellers of travelers' checks or money orders, and money transmitters. The House of Representatives voted to repeal a Biden-era reporting requirement focused on decentralized finance (DeFi). The bill reverses the DeFi broker rule published by the Treasury in December 2024, which created reporting requirements for trading front-end service providers that work directly with users on digital asset transactions. DeFi refers to peer-to-peer financial services on the blockchain. DeFi Brokers are decentralized and do not collect information from users that would be needed to comply with the rule.

Taxpayer Question: IRS Transcript Code TC 570

A reader asked about a TC 570 code on their tax transcript. TC 570 means there's a delay in processing the tax return and is typically accompanied by the words "additional account action pending." It doesn't necessarily mean the taxpayer did anything wrong. The IRS may send a letter asking for more information, often when testing indicates potential fraud. If identity theft is suspected, the taxpayer will typically receive a letter 5071C asking to verify their identity. TC 570 could also be triggered by questions about credits or income reported. If a letter is received, it's important to respond promptly. Once the issue is resolved, TC 571 may appear, followed by TC 846 when the refund is issued. The "Where's My Refund" tool on IRS.gov is the fastest way to check refund status.

Unclaimed Tax Refunds

The IRS says that more than $1 billion in outstanding tax refunds remains unclaimed from the 2021 tax year. More than 1.1 million taxpayers might have qualified for a tax refund but did not file a federal income tax return. Taxpayers usually have three years to file and claim their tax refunds. The three-year window for filing the 2021 tax return closes on April 15, 2025. Taxpayers in New York, Pennsylvania, Rhode Island, Massachusetts, and Illinois are expected to have the highest median potential refund. Taxpayers in California, Idaho, New Jersey, Minnesota, and Montana are expected to have the lowest refunds. More than 100,000 taxpayers in each of California and Texas may be entitled to a tax refund for the 2021 tax year.

Tax Trivia

In the first year of the modern federal income tax system (1914), the IRS received approximately 350,000 tax returns. By 1945, the IRS was processing 50 million individual tax returns annually. In 2024, the IRS received 139,137,000 individual income tax returns by tax day and 164,473,000 by year-end.

Gold and Retirement Accounts

The tax code allows certain precious metals to be held in an IRA under Section 408(m)(3). Gold must meet specific purity standards (typically at least 99.5% pure) and be stored in an IRS-approved depository. Personal storage of gold is prohibited. Collectible coins are usually not permitted. An IRA can buy shares of an exchange-traded fund (ETF) that follows the value of a precious metal (Private Letter Ruling 200732023).

Quick Tax and Accounting News

April 1st is the deadline for retirees who turned 73 in 2024 to begin receiving required minimum distributions (RMDs) from IRAs, 401(k)s, and other retirement plans. IRA owners and participants born after December 31, 1950, and who turned 73 in 2024 can delay their first RMD until April 1, 2025. For subsequent years, the distribution is due by December 31st. Taxpayers receiving their first RMD for 2024 in 2025 must take out a second RMD for 2025 by December 31, 2025. A post-election boost in business executives' optimism about the US economy has moderated, declining from 67% last quarter to 47% this quarter, according to the AICPA and CIMA economic outlook survey. The shift reflects growing concerns about inflation and tariffs.

Synthesis/Conclusion

The episode covers a wide range of tax-related topics, from government funding and IRS changes to taxpayer questions and investment strategies. Key takeaways include the potential impact of budget cuts on the IRS, the importance of understanding IRS transcript codes, the deadline for claiming unclaimed tax refunds, and the rules for investing in gold within an IRA. The information is relevant for both taxpayers and tax professionals, providing insights into current events and practical advice for navigating the tax landscape.