The IRS organizes certain especially important or frequently needed taxpayer information into a list of tax topics. One of these, tax topic 151, concerns your rights to appeal when the IRS withholds all or some of your tax refund. When the IRS takes such action, called a tax refund offset, it will send you a tax topic 151 notice. This notice may be a report, a letter, or both. It tells you why your tax refund is being reduced or withheld. It also lets you know that you can appeal the decision if it is based on incorrect information. You may talk to a tax professional for help with the appeals process.
Tax season is full of documents, numbers, and confusing jargon. It can get overwhelming fast, especially if your long-awaited tax return doesn’t show up. What if, instead, you get a letter explaining that your tax refund is being reduced? Or maybe you’re not receiving a refund at all. This letter is a tax topic 151 notice. The good news is, if the IRS’s action is based on incorrect information, it can be appealed.
A tax topic 151 notice tells you
- that you have a tax refund offset,
- that the IRS will be using your refund to pay off some debt you owe,
- what information this action is based on, and
- that you can appeal if that information is in error.
Losing some or all your refund is certainly bad news. But knowing you can appeal if there’s an error is good news. So, what do you need to know to respond properly to a tax topic 151 notice? How can you appeal if the IRS has erred? Keep reading to learn more about tax topic 151 and the appeals process.
What is tax topic 151?
A tax topic 151 notice is a document from the IRS stating that the Department of Treasury is withholding or reducing your tax refund, why it is doing so, and that you can appeal. So, instead of getting that direct deposit or tax refund check, you’re receiving notice of a tax refund offset. This means the IRS believes that you owe some debt that can legally be paid out of any tax refund you have coming. In addition to income taxes, federal law permits several types of financial obligation to be paid using your tax refund.
You will get a tax topic 151 notice in the mail, explaining why this step was taken. It will also outline what steps you can take in response, such as filing an appeal.
Reasons for receiving a tax refund offset
There are several reasons why you would receive a tax refund offset and have your refund taken or reduced. Here are a few of the most common:
- Default on federal student loans
- Unpaid child support
- Unpaid taxes
What is included in a tax topic 151 letter?
Up till now, this article has simplified the picture of a tax topic 151 notice or letter. One way it’s done so is to speak of just one such notice. In fact, you will normally receive a couple of them.
The first letter you receive will state that your tax return is being reviewed. This letter comes in lieu of a tax refund. If you submit your return electronically, you should get the IRS tax topic letter around 21 days after filing.
After getting the initial letter, wait for a second one. This second letter has more information and should come at least four weeks after the first.
Second tax topic 151 notice contents
The second letter will detail the following:
- Why you’ve received a tax topic 151 notice
- What actions the IRS is planning to take
- Actions, if any, the IRS has already taken
- What your appeal rights are
- How to file an appeal
- How to meet with an appeals or settlement officer
What are the next steps I should take?
You can respond to the tax refund offset in two ways.
Option 1: resolve the debt
If you know about and agree with the debts listed on the tax topic 151 letter, then work to get them resolved. If the debt is large or the situation complex, seeking professional advice and enlisting the help of a tax professional will be essential. In other cases, it may still be a good idea. A tax expert can help you determine the total amount you owe and make sure you don’t leave any debt unsettled to cause future problems.
Option 2: appeal
If you don’t agree with the tax refund offset, then you can choose to appeal. Once again, consider seeking expert assistance. Having a tax professional help you file your appeal will prevent you from making mistakes that could cost you. A pro can also give you sound advice on a range of tax topics, not just this appeal.
Tax topic 151 appeal options
You have a couple of routes you can follow when choosing to appeal. You can either file your appeal within the IRS or in the courts. The second letter sent to you will lay out the name of the office you should appeal to, as well as how soon you can appeal. While filing within the IRS is probably the simplest way to appeal the IRS action, we’ll give a brief rundown of the steps for both.
File appeal within the IRS
If you decide to file your appeal within the IRS, go to your local appeals office. The first step is to request an appeals conference through a small case request or a formal written protest.
Formal written protests
If you choose to submit a formal written protest, include the following information:
- Personal information, such as name, address, and contact information
- A statement clearly outlining
- that you are appealing the IRS findings and
- what, specifically, you don’t agree with
- A copy of the IRS letter with the statements you contest
- Evidence supporting your case
After providing this information, you will sign a document and send it to the appropriate office.
If you choose to submit a small case request, fill out Form 12203, and outline your disagreements. Keep in mind that small case requests can only be done if the total amount for the tax period is no more than $25,000.
File appeal to the courts
You will usually only file through the courts if (1) you don’t want to deal with an appeals conference or (2) you’ve completed an appeals conference but failed to come to an agreement. These cases go through your local U.S. District Court, the U.S. Court of Federal Claims, or the U.S. Tax Court.
Filing through the courts can be a costly decision. You may have to pay for an attorney and, if the court does not rule in your favor, you could face a financial penalty. As well, the likelihood that a court will assess the evidence differently than the IRS may not be high, since courts often defer to the judgment of agencies like the IRS, at least in the opinion of some. Because of this, you will probably only want to file an appeal through the courts as a last resort.
You should familiarize yourself with federal agencies
If you think of the U.S. government in terms of the classic “three branches of government” separation-of-powers idea, you might find it odd that an appeals conference with the IRS, the federal agency responsible for administering taxes, can substitute for court proceedings, at least initially. Should an executive agency under the U.S. Treasury be holding hearings that require interpreting tax law and applying it to the evidence of your tax topic 151 issue? Shouldn’t that be something only the judicial branch, meaning the courts, can do?
Whether you take this as good news or bad news, the truth is that the old “three branches” idea hasn’t accurately described how the U.S. government works for a long time. Federal administrative agencies, of which there are many:
- Make new rules and revise old ones, like the legislative branch;
- Hold hearings about how to interpret and apply those rules, like the judicial branch; and
- Enforce the rules, like the executive branch.
As a practical matter, and in the interest of your long-term financial wellbeing, you should familiarize yourself with this current form of the U.S. government. Unlike what you may have seen portrayed in educational cartoons during childhood, the federal government of today is dominated by agencies like the IRS. And there is no reason to believe that this will change anytime soon. Whether seeking to fund a child’s education, buy a new home, or fix errors on your taxes, it is these administrative agencies, not elected officials or (elected or appointed) judges, that you’ll deal with most of the time.
In the case of the IRS, the good news is you are entitled to an administrative appeal of most of this agency’s decisions, including the offsetting of a tax refund. You have the right to receive a written response regarding the Office of Appeals’ decision and can usually take your case to court.
Avoid the mistakes that invite IRS attention
While learning about administrative agencies is a must in today’s America, you’re also well advised to avoid drawing agency attention of the wrong kind to yourself. An example is the kind of attention you get from the IRS due to errors and omissions on your tax return. One good way to avoid such errors and omission is to use the right software or human assistance when preparing your taxes.
Is tax topic 151 good or bad?
Even when it involves only an innocuous error on your part, and even though a tax code 151 letter does not mean you’re “in trouble” with the IRS, getting one of these notices does mean you’ll get an adjusted refund or no refund at all. Unless you’re an especially sanguine individual who’s thankful for this as a learning experience, you’ll consider this bad news.
If you do consider it bad news, keep in mind that interactions with tax authorities can get much worse, such as in cases of tax fraud. While a lost or reduced tax refund is bad news, it is far from the worst news you could get from the IRS.
However you assess the goodness or badness of your tax topic 151 situation, consider talking to a tax professional. A tax pro can help you pay off any remaining debt — or, if you think the IRS is wrong, help you appeal the IRS’s decision.
Does tax topic 151 mean I’m getting my refund?
Tax topic 151 means you are getting a tax refund offset. This means you’re not getting your full refund, or you’re not getting a refund at all. Instead, that money is being used to pay off something you owe.
Should I worry about topic 151?
While it should be taken seriously, tax topic 151 is not something you necessarily need to worry about. Talk to a tax representative if you have specific questions about this tax topic.
What do tax topic 151 and reference 1242 mean?
Tax topic 151 means you have a tax refund offset. Reference 1242 means your refund is frozen and the IRS needs more information from you.
- Tax topic 151 informs taxpayers that they have tax refund offsets, and that their tax refunds will be used to pay off their debts. It also lets them know that they can appeal.
- You can appeal the IRS’s decision through the IRS or through the courts.
- Appealing through the courts is costly and should only be used as a last resort.
- A tax professional can help you understand tax topic 151 and help you appeal or pay off your debts.
Taking your tax-debt mountain (by strategy)
If you find yourself in tax debt, there are options and solutions available to you. Learn strategies for dealing with tax debt here.
View Article Sources
- A relevant article by the tax professionals at Community Tax
- Appeals Organizational Chart — IRS
- A–Z Index of U.S. Government Departments and Agencies — USA.gov
- Form 12203 — IRS
- Separation of powers — Legal Information Institute
- Tax Topics — IRS
- Topic No. 151 Your Appeal Rights — IRS
- Treasury Offset Program: How TOP Works — Bureau of the Fiscal Service
- Where’s My Refund? — IRS
- Who Will Regulate the Regulators? Administrative Agencies, the Separation of Powers, and Chevron Deference — The Heritage Foundation
- Best Tax Preparation Firms — SuperMoney
- Best Tax Relief Companies with Tax Attorneys On Staff — SuperMoney
- Can Debt Collectors Take Your Tax Refund? — SuperMoney
- How Does the IRS Detect a Tax Fraud? — SuperMoney
- Should You Use Your Tax Refund to Pay Off Debt? — SuperMoney
- The Best Tax Relief Companies — SuperMoney
Camilla has a background in journalism and business communications. She specializes in writing complex information in understandable ways. She has written on a variety of topics including money, science, personal finance, politics, and more. Her work has been published in the HuffPost, KSL.com, Deseret News, and more.