Misdirected refund costs filer $2,696

It is every taxpayer's nightmare. Your refund never arrives.

When that happens to a paper check, you can file Form 3911 the old-fashioned mailed-in way and the IRS will reissue your missing money.

But when the transaction is totally electronic, you're essentially out of luck.

Just ask Harry Rios of Des Moines, Iowa. His $2,969 tax refund check apparently was sent to someone else's bank account. (Hat tip to The Consumerist.)

Rios told the Des Moines Register that a tax preparer with H & R Block copied his bank account number incorrectly on his tax forms. Now Rios is trapped in a tax Twilight Zone where there's seemingly no way for him to get his rightful refund.

It seems the unintended refund recipient took Rios' money and ran. It's no longer in the account into which it was mistakenly deposited.

The police are involved. H&R Block is still in the loop. The bank is part of the investigation process. And, of course, there's the check issuer, good old Uncle Sam.

But Rios is still waiting for his money.

Happens every year: Rios' predicament is, unfortunately, not unusual.

In the not-so-olden tax days when the tax transactions were done on paper — forms filed that way, actual checks sent out to taxpayers — there was a system in place. It's still there, but more of us are going electronic.

The old way, however, still offers some safeguards. Sure, it takes longer to get a paper check. And sure, identity thieves, as well as just plain crooks who want only your IRS cash, still can pull the paper check from your curbside mailbox.

But when a paper check goes missing, the IRS has a replacement system in place. It typically just eats the missing money and issues the filer a new check.

Technology has changed that. Once the refund money leaves IRS possession electronically, it's pretty well done with it. Privacy laws at banks limit just what institutions can tell anyone, including Uncle Sam, about what's going on with another person's account. The IRS has privacy rules, too, that limit what it can share with the bank.

Convoluted system: The Taxpayer Advocate's office
in Washington, D.C., which monitors IRS' activities, says thousands of
such wrong account cases appear every year. It happened last year with some directly deposited rebate checks that ended up in the wrong accounts.

When that happens, if the wrong account
number is an active one, the money goes into it as a normal transaction. Then it's up to the person who incorrectly got the cash to
turn the money back, either to the bank or the IRS.

In some cases,
banks, upon realizing that the deposit was misdirected because of a
misplaced numeral, have worked with customers to get the funds to the
appropriate account. But any tracking of and redepositing of refunds
erroneously sent to wrong accounts is solely between the bank and its
customers.

If the account number is for a nonexistent account, the
bank usually sends the money back to Washington. But rather than being
reissued, that's where it stays. The problem: The errant refund goes to
Federal Financial Management Service, the main U.S. Treasury
depository, which is outside the IRS' jurisdiction.

The bottom line is that in most
of these cases, the taxpayer who should have received the money is out
of luck. The IRS will not reissue misdirected refunds in cases of
taxpayer account error.  Or, in Rios' case, tax preparer error. Remember, the onus is always on the taxpayer.

Check, check and recheck your check info: Taxpayer Advocate Nina E. Olson has
addressed this concern in prior annual reports to Congress.
She has proposed that direct deposit refunds be treated the same as
paper checks; that is, the missing or misdirected e-funds be replaced as if they were paper checks.

But until that happens, the accuracy burden
remains on taxpayers' shoulders. So in addition to scrutinizing your
tax calculations, when you enter any bank account deposit data on your return, check, check and check it again before sending the form to the IRS.

And if you're still waiting for your money from the IRS, regardless of how it's being sent to you, check on its status at Where's My Refund?