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jschoomer
Level 3

EIP3: Claiming Recovery Rebate credit while payment trace is in progress

My mom got Form 6475 early this year but never received the actual check. She didn't realize it until now because she's filing her 2021 taxes (federal and state) ahead of October 17th deadline. I have asked her to contact IRS and start a payment trace but it takes six weeks.

Question is: If the trace is NOT complete by October 17th and she has to absolutely file by then, should she say she received $0 in EIP3 and thus get TurboTax to claim the EIP3 amount as Recovery Rebate credit? What is the consequence, and / or are there better options to handle this?

Thanks,

JS

1 Best answer

Accepted Solutions
rjs
Level 15
Level 15

EIP3: Claiming Recovery Rebate credit while payment trace is in progress

I had not seen that IRS FAQ. The answer to Question F8 does not change my advice to your mother, but according to that answer I was wrong about how the IRS will make the payment if the trace confirms that she never received it.


The IRS answer gives you two options for what to do if you are filing your tax return and do not yet know the results of the payment trace. Either option will work. I am telling you to use option 1 because option 2 delays the processing of the tax return, as the IRS answer says.


What the IRS answer says is that, if she uses option 1 and files her tax return without the Recovery Rebate Credit, and the trace confirms that she did not receive the payment, the IRS will automatically adjust her tax return to give her the Recovery Rebate Credit, and then send her an additional refund for the credit. In any case, she will not have to amend her tax return or take any other action. The IRS will adjust her tax return for her, and send the payment without any further action on her part.


At this point your mother is not likely to get the results of the trace before October 17, so there is no point in waiting to file her tax return. She should file now to avoid any possible last-minute problems.

 

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6 Replies
rjs
Level 15
Level 15

EIP3: Claiming Recovery Rebate credit while payment trace is in progress

Your mother should say that she received the amount that the Letter 6475 says was paid to her.


If she says she did not receive it (received $0) the IRS will flag it as an error, because they did send the payment. The processing of her tax return will be delayed. The IRS will remove the Recovery Rebate credit from her tax return.


The trace will find out what happened to the payment that was sent. She cannot recover the lost payment by claiming it as a credit on her tax return.

 

jschoomer
Level 3

EIP3: Claiming Recovery Rebate credit while payment trace is in progress

Thanks for your reply. So she will list the amount on Letter 6475 while filing her taxes but if the trace concludes (after she has filed) that the check was never sent or cashed, how would she get the EIP3 amount? Would she have to amend her 2021 tax filing to claim the credit?

rjs
Level 15
Level 15

EIP3: Claiming Recovery Rebate credit while payment trace is in progress

If the IRS determines that the original payment was lost, I believe they would send a replacement check. It would not be handled as a tax credit, and your mother would not amend her tax return. When she gets the results of the trace, it will tell her how to proceed.


Please note that the amount of the payment from Letter 6475 will not appear on her tax return. She must enter that amount in TurboTax, but the result on her tax return is that Form 1040 line 30 will be blank (or zero).

 

jschoomer
Level 3

EIP3: Claiming Recovery Rebate credit while payment trace is in progress

Thanks for your prompt reply. I am still confused by what IRS is saying here: https://www.irs.gov/newsroom/2021-recovery-rebate-credit-topic-f-receiving-the-credit-on-a-2021-tax-...

 

See answer to Question F8. I am not able to understand it. Can you please advise?

rjs
Level 15
Level 15

EIP3: Claiming Recovery Rebate credit while payment trace is in progress

I had not seen that IRS FAQ. The answer to Question F8 does not change my advice to your mother, but according to that answer I was wrong about how the IRS will make the payment if the trace confirms that she never received it.


The IRS answer gives you two options for what to do if you are filing your tax return and do not yet know the results of the payment trace. Either option will work. I am telling you to use option 1 because option 2 delays the processing of the tax return, as the IRS answer says.


What the IRS answer says is that, if she uses option 1 and files her tax return without the Recovery Rebate Credit, and the trace confirms that she did not receive the payment, the IRS will automatically adjust her tax return to give her the Recovery Rebate Credit, and then send her an additional refund for the credit. In any case, she will not have to amend her tax return or take any other action. The IRS will adjust her tax return for her, and send the payment without any further action on her part.


At this point your mother is not likely to get the results of the trace before October 17, so there is no point in waiting to file her tax return. She should file now to avoid any possible last-minute problems.

 

jschoomer
Level 3

EIP3: Claiming Recovery Rebate credit while payment trace is in progress

Thank you so very much for the clear advice and clarification.

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