According to the Treasury Offset Program (TOP) terms, the IRS cannot approve refunds to taxpayers with outstanding tax debt. Instead, the agency must use refunds to settle a portion or the entire taxpayer’s delinquent debt.
IRS Code 1361 will appear on your account if you have an outstanding federal or state tax debt or are behind on your child support payments. Making a tax deduction claim you’re not eligible for can also be why this code pops up on your account.
We’ll cover every nook and cranny of IRS Code 1361 to help you understand why this freeze code was added to your account.
Table of Contents
Freeze Codes
Section six of the Internal Revenue Manual states that the purpose of freeze codes is ‘to prevent the issuance of refunds, credit offset, or the assessment of accrued interest and/or penalties.
The same section recognizes three types of freeze condition codes. Hence, a freeze code might appear in a taxpayer’s account when:
A) Conditions existing in the module/account that freeze refunds and prevent offsets in or out of the module but do not stop balance-due notices.
B) Conditions freezing balance due notices, refunds, and offsets generated by Integrated Data Retrieval System (IDRS) and Tax Delinquent Account (TDA) issuances.
C) Conditions describing certain issues on a module/account, but the account is not frozen.
When interpreted in the light of these definitions, Code 1361 is a C- Freeze code because it describes specific issues on a module but doesn’t indicate that the account is frozen.
However, the code only indicates that the refund was withheld due to existing tax liability, but it doesn’t specify the source of the debt.
C-Freeze
The IRM lists all standard freeze codes and offers guidelines on follow-up actions. The document stipulates that the IRS cannot issue a refund before February 15 of the current year if a taxpayer claims Earned Income Tax Credit or Additional Child Tax Credit on a return.
Moreover, the portion of the refund that isn’t related to the EITC or ADTC cannot be issued before this deadline due to hardship. Taxpayers who claimed these tax credits on their returns but didn’t meet the qualifying criteria might see Code 1361 on their accounts.
Claiming Deductions on a Tax Return
You may see Code 1361 on your account if you claimed a deduction you’re not eligible for on your tax return. The IRS lets you choose between standard deductions and itemized deductions.
Please bear in mind that your filing status might affect your ability to itemize deductions on a tax return.
Moreover, the standard deduction amount for Single, Married Filing Jointly or Married Filing Separately, and Head of Household statuses isn’t the same.
Opting to itemize deductions on a tax return only makes sense ‘if your allowable itemized deductions are greater than your standard deduction. Or if you must itemize deductions because you can’t use the standard deduction.
Here are some of the most common types of itemized deductions:
- Charitable donations.
- Property taxes.
- Mortgage interests on up to two homes.
Medical and dental expenses that exceed 7.5% of a taxpayer’s adjusted gross income.
Claiming an itemized deduction you’re ineligible for is often why the IRS adds Code 1361 to taxpayers’ accounts.
Understanding Examination Referrals
IRS Code 1361 usually appears on accounts subject to examination referrals. Sometimes this code is added to accounts that are a part of special programs like the Revenue Protection Strategy.
The term Examination Referral might indicate that an account is under Delinquent Return Investigation. The IRM reveals that such cases are created if a return isn’t filed before the deadline.
For more information, please read Part 5, Collecting Process Chapter 1, Field Collecting Procedures, Section 11, Delinquent Return Investigations of the IRM.
An Examination Referral is an internal procedure the IRS uses when one of its agents determines that a taxpayer violates the Abusive Tax Avoidance Transaction Program (ATAT).
An Examination group will review a return with referrals assigned to them by an IRS officer. So, if your tax return was flagged with an examination referral, you’ll probably see Code 1361 on your account.
Analysis of IRS Code 1361
Taxpayers who are using the Where’s My Refund tool on the IRS website don’t see the reference code 1361 often. As we already stated, this code usually appears on an account if a taxpayer claims a deduction they don’t qualify for.
Code’s description reads ‘Refund Withheld for Part/Full Payment of Another Tax Liability,’ followed by V-Freeze IRM 21.5.6.4.34 procedural update. Still, you won’t find a reference to the tax liability in question next to this reference code.
As a result, determining why the IRS added this code to your account can be difficult. Code 1361 usually appears on accounts that were flagged for an examination referral.
This reference code might show up on your account if your tax return is undergoing a delinquent return investigation.
The Meaning of IRS Code 1361
The language the IRS uses to explain Code 1361 can be incomprehensible to an average taxpayer. In most cases, this code indicates that your tax return is being audited due to an incorrectly claimed tax deduction.
However, it may also mean that the IRS intends to use a piece or the entire refund to settle a delinquent debt.
The IRS Code 1361’s description is the same as the descriptions of Code 1381 and Code 1401, which makes matters even more complex. Contacting the IRS is the easiest way to determine why Code 1361 was added to your account.
You won’t be required to take action if the refund amount is sufficient to offset the tax liability, but you may have to make additional payments to the IRS if your tax debt is greater than the refund amount.
Frequently Asked Questions
This reference code only suggests that the IRS intends to withhold the amount sufficient to settle a tax debt from your refund. You’ll receive the remaining funds if the refund amount exceeds the debt.
Taxpayers can claim medical and dental expense deductions on Form 1040 if the expense exceeds 7.5% of their adjusted gross income. Code 1361 might appear on your account if the medical and dental expenses you claimed are below this threshold.
Although it is a freeze code, Code 1361 usually suggests that a freeze was lifted from an account after a certain portion of a tax refund was withheld to settle a delinquent debt.
Code 1361 is a reference code the IRS utilizes to provide users of the Where’s My Refund tool with additional information about the status of their tax returns.
Tax account transcripts contain transaction codes that inform taxpayers about specific actions the IRS takes when processing a tax return.
Contact a CPA
Failing to meet the requirements for an itemized deduction claim or having delinquent tax debt are the most common reasons taxpayers see Code 1361 on their accounts.
Determining why the IRS added this reference code to your account is often tricky, as the information you’ll find on the IRS website or elsewhere on the Internet is scarce. Head to choicetaxrelief.com or call 866-8000-TAX to book a free meeting with CPA that can help you interpret this code correctly and understand its legal ramifications.
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Author:
Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.
