If the IRS sends me a refund which the bank then puts into the wrong account, then who's liable?

Question

Neither my spouse nor I received COVID refunds for a total of $6,400.  After the usual BS, the IRS said they didn't actually send $.  Instead, they sent contact info & bank account numbers to the Bureau of Financial Services.  Then the BFS sent E-dollars to bank accounts (or checks to snail mail addresses).   
 
In our case, the money was deposited by the bank into the wrong account.  That person kept the cash then closed that account.  The IRS says it's the bank's problem, the bank says it's the IRS's problem - they just deposit $ to whatever number the IRS gave them. 
 
One of three things must have happened: 
 
1) The IRS sent the wrong # to the BFS. 
2) The IRS sent the right # to the BFS, but then the BFS sent the wrong # to the bank. 
3) The BFS sent the right # to the bank then the bank goofed. 
 
But which?  I've requested a trace thru the BFS and might get one before the sun explodes. Is the bank ALWAYS responsible to put money into the right #?  I have a paper trail.

James L. Arrasmith · Answer

This is a complex situation involving multiple parties. I'll break down the key aspects and provide some general guidance, but please note that you may need to consult with a lawyer specializing in banking and consumer law for definitive advice. 
 
1. Liability: 
The liability for this error depends on where exactly the mistake occurred in the chain of communication between the IRS, Bureau of Fiscal Services (BFS), and your bank.  
 
2. Bank's Responsibility: 
Generally, banks are responsible for depositing funds into the correct account based on the information they receive. If the bank received the correct account information but deposited the money into the wrong account, they would likely be liable. 
 
3. IRS and BFS Responsibility: 
If the error originated with the IRS or BFS providing incorrect account information, they could potentially be held responsible. However, government agencies often have certain immunities that can make it challenging to hold them liable. 
 
4. Your Rights: 
As the intended recipient of the funds, you have the right to pursue this matter and seek your refund. Your paper trail will be crucial in this process. 
 
5. Steps to Take: 
   a. Continue with the trace request through the BFS. 
   b. File a formal complaint with your bank if you haven't already. 
   c. File a complaint with the Consumer Financial Protection Bureau (CFPB). 
   d. Consider consulting with a consumer protection attorney or tax attorney. 
 
6. Regulation E: 
Under the Electronic Fund Transfer Act (implemented by Regulation E), there are protections for consumers regarding electronic fund transfers. However, this situation is complex because it involves government payments. 
 
7. Potential Legal Action: 
If the issue isn't resolved through administrative channels, you might need to consider legal action. This could involve suing the bank, or possibly filing a claim against the government under the Federal Tort Claims Act. 
 
8. Documentation: 
Keep meticulous records of all communications with the IRS, BFS, and your bank. This will be crucial if legal action becomes necessary. 
 
Given the complexity of your situation and the amount of money involved, it would be wise to consult with a lawyer who specializes in banking law or tax law. They can provide more specific advice based on the details of your case and help you navigate the best course of action. 
 
Remember, while banks generally have a responsibility to deposit funds correctly, determining liability in this case will depend on identifying exactly where the error occurred in the process. Your continued efforts to trace the transaction through the BFS are important, as this may help pinpoint where the mistake happened.

Q: If the IRS sends me a refund which the bank then puts into the wrong account, then who's liable?