My first Direct Deposit Problem

[erchess]

Established client gave me direct deposit info for savings account which has been closed. I am thinking this should be no major problem right? I realize there are no guarantees and we're looking at the mother of all headaches if the money goes in someone else's account because the IRS will not make getting the money back a priority and will not give money to the taxpayer until it is recovered from wrong recipient. I am thinking it is more likely than not the money will bounce from the bank and the client will end up getting a paper check most likely a week after she would have gotten it had that option been originally selected. Main question I have is whether there is anything that can be done now to make things better. One good thing is that the taxpayer has admitted the problem is her fault.

[Lion]

I think your "one week" is overly optimistic, but am glad your client admits his fault.

[Roland Slugg]

... if the money goes in someone else's account.

I am thinking it is more likely than not the money will bounce from the bank and the client will end up getting a paper check.

Bank's never re-use account numbers of closed accounts, so if the account number was correct, the refund should not end up in anyone else's hands. The DD will probably bounce back to the IRS who will then issue a paper check, as you said. It's possible, however, that the bank might accept the DD and reopen the old, closed account. In fact you may wish to suggest to your client that she call the bank and see if the account can be reactivated before the DD arrives.

[Bonnie]

The deposit bounces back and forth between bank and IRS multiple times until the IRS then issues a paper check. I cannot say how many times, but I do think it will take more than a week. Quite a few years ago I had a client who set refund up for direct deposit and then went and closed the account before the refund came. This turned into worst case scenerio. He never got the deposit. Tried to track it down and bank said they sent it back to IRS and the IRS said no the bank had the money. After months of this he gave up. A couple years later I was at the bank and talking to the bank manager and brought this up. She said to have him come talk to her and the end result was he did get the money, but what had happened was it was stuck in limbo somewhere and both the bank and IRS did not have it. I can't explain any better than this, so don't know where the in limbo was. Just praying this doesn't happen to anyone else. It was very bizare. He has gotten a paper check every year since, but did set the refund up for direct deposit this year. We shall see