More and more taxpayers
are coming forward to take care of their obligations for past years'
taxes not yet filed.
One of the big surprises that non-filer traders get is when their tax
preparer files their tax return, looking for a refund of estimated taxes
paid (form 1040-ES) or taxes paid with the filing of an old extension
request (form 4868), is that several months later the IRS writes to tell
them that their tax overpayment is being forfeited as a penalty for
being a non-filer.
IRS calls this their RSED plan for the normal "Refund Statute
Expiration Date" (see IRS
Restructuring and Reform Act of 1998
§3202 and Internal Revenue Manual (188.8.131.52
as examples) which takes delinquent filer tax overpayments and turns them over
to the Treasury. The legal Authority for this is
§6511(a), §6511(b) and
IRS Regs §301.6511(b).
Similarly the Assessment Statute Expiration Date (ASED)
and Collection Statute Expiration Date (CSED)
need to be considered.
Millions of dollars are forfeited each year by unknowing taxpayers who
waited too long to file their old tax returns. The basic rule is
that you mustn't file more than 2 years or in some cases 3 years late if
you want to protect your tax overpayment.
Basic Guide for Processing Cases with Statute of Limitations Issues.
Policy Statement 5-133 for six year limit on accepting delinquent
Court strengthens IRS ability to force a forfeiture of tax overpayments
in Wachovia Bank v. U.S. 7/13/06. In this case the taxpayer filed
a tax return and paid taxes when there was no requirement to file or pay
the taxes at all. In other words the taxpayer filed an unnecessary
tax return. No taxes were due. When the taxpayer got around
to filing for a tax refund several years later, the IRS refused citing
Deposit vrs. Payment
There is potential relief from this confiscatory penalty if you know a
little trick, which we will share with you here. Under IRS Rev
Proc 84-58 (as codified and superseded by
Rev Proc 2005-18) taxpayers should consider not making their prepayments of tax as
1) estimated tax payments or as 2) payments of tax accompanying their
extension request - but rather they may make deposits in the nature
of a cash bond.
A remittance made that is designated by the taxpayer in writing as a
deposit in the nature of a cash bond will be treated as such by the IRS.
Such a deposit is not subject to a claim for credit or refund as an
overpayment. The taxpayer may request the return of all or part of the
deposit at any time before the Service is entitled to assess the tax.
Generally, that amount will be returned to the taxpayer, without
interest, unless the Service determines that assessment or collection of
the tax determined to be due would be in jeopardy, or that the amount
should be applied against any other liability. In such a case, the
deposit will not be returned, but will be applied against a jeopardy or
termination assessment or against the other liability.
Congress amended the Code to provide that overpayment interest would be
payable on certain deposits made after October 22, 2004, and later
returned to the taxpayer (§6603(d), added by §842(a) of the American
Jobs Creation Act of 2004, P.L. 18-357)
To make a deposit which will qualify for payment of interest by the IRS,
a taxpayer should send a check or money order to the IRS office where he
is required to file his return or to the IRS office where his return is
under examination accompanied by a written statement designating the
remittance as a deposit. (Rev. Proc. 2005-18). The statement must include the
type of tax, the tax year, and a description and explanation of the
disputable tax. (To compute the disputable tax amount, taxpayers may use
any reasonable method. Rev. Proc. 2005-18, §7) Otherwise, the
remittance will be treated as a payment and applied against any
A qualifying deposit is not
subject to a claim for credit or refund until it is applied by the IRS
as payment of an assessed tax. A taxpayer can, however, obtain the
return of a deposit (and interest thereon) by delivering to the IRS a
written statement identifying the deposit and requesting its return.
(Rev. Proc. 2005-18, §6)
Susan C. HARRIGILL v. UNITED STATES of America - May 31, 2005
Click here for: more
information about penalties including reasonable cause (RCA)
& first-time abatement (FTA).
here if you have questions about how we can help.
Including help applying for and complying with the IRS Fresh State
here if you are ready to retain us
for your IRS audit representation.
Substitute For Return -
Service Filed Return (SFR)
As if the above RSED program
wasn't enough, the IRS also has a
SFR program to force
your tax returns to be filed, even without your assistance. You
wont be happy once you have a SFR!
Click here first to discover why you should retain
us to represent your interests before the Internal Revenue Service.
to see IRS site information for non-filers
to see more IRS site information for non-filers
to see newspaper story about non-filers
to see what happens to those who do not file proper tax returns
to see IRS seizures up for auction
A new attack against
delinquent filers somewhat limits their ability to negotiate the
amount of taxes
due for offer in compromise or bankruptcy proceedings.
The courts have said that only a tax return can be renegotiated.
To have filed a tax return a document filed with the IRS must
- purport to be a tax return
- be signed under penalty of
- contain enough information to
enable a taxpayer's tax liability to be calculated
- "evidence an honest and
reasonable endeavor to satisfy the law"
In Re Payne [431 F.3d 1055
December 2005] and In Re Colsen [No 05-2476 8th Cir, may 4, 2006]
have differing views regarding #4 above. #4 cannot be met if the
IRS has already filed a SFR (which is almost always the case for
delinquent filers) This is because an honest and reasonable
endeavor to satisfy the law would include filing timely. So even
in bankruptcy, Payne could not get a discharge for the taxes he owed!
Collection Due Process Hearing
What Is the Deadline for Requesting a Collection
Due Process (CDP) Hearing?
Your request for a CDP hearing about a
proposed levy must be postmarked within 30 days after the date of the
Notice of Intent to Levy and Notice of Your Right to a Hearing (levy
Your request for a CDP hearing about a Federal Tax Lien filing
must be postmarked by the date indicated in the Notice of Federal Tax
Lien Filing and Your Right to a Hearing under IRC 6320 (lien notice).
Your timely request for a CDP hearing will prohibit levy action in most
cases. A timely request for CDP hearing will also suspend the 10-year
period we have, by law, to collect your taxes. Both the prohibition on
levy and the suspension of the 10-year period will last until the
determination the IRS Office of Appeals makes about your disagreement is
final. The amount of time the suspension is in effect will be added to
the time remaining in the 10-year period. For example, if the 10-year
period is suspended for six months, the time left in the period we have
to collect taxes will increase by six months.
You can go to court to
appeal the CDP determination the IRS Office of Appeals makes about your
IRS Form 12153
Offer in Compromise
The IRS may accept an
offer in compromise based on three grounds:
- Doubt as to Collectability -
Doubt exists that the taxpayer could ever pay the full
amount of tax liability owed within the remainder of the
statutory period for collection.
Example: A taxpayer owes $20,000 for unpaid tax liabilities and agrees
that the tax she owes is correct. The taxpayer’s
monthly income does not meet her necessary living
expenses. She does not own any real property and does
not have the ability to fully pay the liability now or
through monthly installment payments.
- Doubt as to Liability - A
legitimate doubt exists that the assessed tax liability
is correct. Possible reasons to submit a doubt as to
liability offer include: (1) the examiner made a mistake
interpreting the law, (2) the examiner failed to
consider the taxpayer’s evidence or (3) the taxpayer has
Example: The taxpayer was vice president of a
corporation from 2004-2005. In 2006, the corporation
accrued unpaid payroll taxes and the taxpayer was
assessed a trust fund recovery penalty as a responsible
party of the corporation. The taxpayer was no longer a
corporate officer and had resigned from the corporation
on 12/31/2005. Since the taxpayer had resigned prior to
the payroll taxes accruing and was not contacted prior
to the assessment, there is legitimate doubt that the
assessed tax liability is correct.
- Effective Tax Administration
- There is no doubt that the tax is correct and there is
potential to collect the full amount of the tax owed,
but an exceptional circumstance exists that would allow
the IRS to consider an OIC. To be eligible for
compromise on this basis, a taxpayer must demonstrate
that the collection of the tax would create an economic
hardship or would be unfair and inequitable.
Example: Mr. & Mrs. Taxpayer have assets sufficient to
satisfy the tax liability and provide full time care and
assistance to a dependent child, who has a serious
long-term illness. It is expected that Mr. and Mrs.
Taxpayer will need to use the equity in assets to
provide for adequate basic living expenses and medical
care for the child. There is no doubt that the tax is
Policy Statement 5-100 goal is to achieve collection of what is potentially
collectible at the earliest possible time and at the least cost to the Government.
Taxpayers wishing to pay off a tax debt through an
installment agreement, and owe:
- $25,000 or less in combined tax, penalties, and
interest can use the
Online Payment Agreement (OPA) or call the number on
the bill or notice (have the bill or notice available,
along with the social security number). A fill-in
Request for Installment Agreement,
9465 (PDF), is available online that can be mailed
to the address on the bill.
Note: If you recently filed your income tax
return and owe but have NOT yet received a bill from the
IRS, you can use the Online Payment Agreement to
establish an installment agreement on current year
returns. To determine the information needed to
establish a pre-assessed installment agreement, refer to
What Information Do I Need to Use OPA?
- More than $25,000 in combined tax, penalties, and
interest may still qualify for an installment agreement,
Collection Information Statement, Form 433F (PDF)
may need to be completed. Call the number on the bill or
mail the Request for Installment Agreement,
9465 (PDF) and
433F (PDF) to the
address on the bill.
You will receive a written notification telling you whether
your terms for an installment agreement have been accepted or if they
need to be modified.
IRS Status 53 - Currently
Hardship situations, upon request, can result in the IRS avoiding
contact for 12 months at a time once a "Status code 53" is assigned to
the taxpayer's account.
Currently Not Collectible Policy and Procedure
- Policy Statement P-5-71 provides the authority for
reporting accounts currently not collectible (CNC). See
IRM 184.108.40.206.14 Policy Statements for Collecting Process
. Accounts can be removed from active inventory after
taking the necessary steps in the collection process.
- Accounts may be reported CNC for a variety of
reasons using transaction code (TC) 530. It is a
requirement that TC 530 be defined by the appropriate
closing code. The most commonly used closing codes are
displayed in the table below.
Currently Not Collectible Closing Codes Closing Code
03 inability to locate the taxpayer or assets
04 partial expiration of the assessment prior to issuance
05 complete expiration of the statutory period for collection or suit
initiated to reduce tax claim to judgment
06 for International casework, inability to collect a liability from
a taxpayer living in a foreign country
07 a corporation, exempt organization, or Limited Liability Company
(LLC) , where the LLC is identified as the liable taxpayer, liquidated
08 death of an individual with no collection potential from the
decedent estate or no collection potential for estate taxes
09 accounts below tolerance See IRM 220.127.116.11.5(1) and (2) Tolerance,
for additional information
10 corporations, certain limited liability partnerships, exempt
organizations, or LLCs, where the LLC is identified as the liable
taxpayer, which are inactive and defunct with no assets
12 inability to contact a taxpayer although the address is known and
there is no means to enforce collection
13 a corporation, exempt organization, limited partnership, or LLC,
where the LLC is identified as the liable taxpayer, remains in business
and is current but is unable to pay back taxes
14 when suspending collection of BMF balance due accounts when the
key individual is deployed to a combat zone; see IRM 18.104.22.168.1 ,Business
Masterfile (BMF) Accounts of Taxpayers Deployed to a Combat Zone, for
15 corporate income tax liabilities owed by a financial institution
certified as insolvent by the Office of the Controller of the Currency
or the Office of Thrift Supervision
24 - 32 collection of the liability would create a hardship for
taxpayers by leaving them unable to meet necessary living expenses
Reminder: Hardship closing codes can only be used for
individual or joint IMF assessments, sole proprietorships, general
partnerships, and LLCs, where an individual owner is identified as the
Mark-to-Market election gives you
ordinary loss treatment
"Retroactive" mark-to-market elections for non-filers are a definite
possibility. See us for the proper way to accomplish this.
Recently we have seen some free instructive advice on the internet that over-simplifies and misses the point on what has been
on this page
and other pages on the traderstatus.com website for several years.
Missing the whole point when using one of these over simplifications can result in a disallowance as a tax
We have the experience. These are not "new ideas" to us.
Actually, the IRS has consulted with us specifically about these type of
daytrader tax motivated shams (prepared elsewhere) discussing their
viability and substance (or lack thereof). We will opine on your
specific situation and which filing methodology is best for you. Good
planning, keeping a low-profile and having support for tax positions
taken is imperative. "Making it up as you learn" is the sure way
to an audit.
VDP - Voluntary Disclosure
A taxpayer’s timely, voluntary disclosure of a substantial
unreported tax liability has long been an important factor in deciding
whether the taxpayer’s case should ultimately be referred for criminal
prosecution. It is currently the practice of the IRS that a
voluntary disclosure will be considered along with all other factors
in the investigation in determining whether criminal prosecution will
State - Voluntary Disclosure
Entities with CA nexus
IRS Tax Seizure Auction website:
Why retain us to handle your
delinquent IRS (and State) tax returns.
issues, tax return audits and even routine IRS and State
inquiries are best handled by a professional CPA firm,
rather than going it alone and risking "putting your
foot in your mouth". Taxpayers signing a special IRS
limited Power of Attorney may
retain us to represent them
with many of these issues. Contact us before you contact
the IRS in response to an imposing inquiry.
Why use TraderStatus.com for your trader tax advisor?
TraderStatus.com is the Web Site presence of Colin M. Cody, CPA, CMA.
Colin advises Security Traders and CPAs across the country regarding
complex trader status issues. Colin has been advising Security
Traders on the Internet since 1991.
Colin M. Cody, CPA, CMA has been instrumental in the authorship of the
actual and forthcoming securities trader Tax Code by working with the
drafters of the IRS Code while interpreting the intent of the US
Congress when they pass the law.
Audits are handled for taxpayers in any of the U.S. States either by
communicating with the IRS examiners via telephone, fax and mail or by
transferring your case to Connecticut for face-to-face meetings with the
IRS examiners and appeals officers.
More often than not Colin finds errors in the preparation of the tax
returns under audit. The errors made on self-prepared tax filings
are responsible for initiating some audit inquiries. Errors we
find on professionally prepared returns are usually only found after a
thorough review of your paperwork back in our offices and sometimes
these have quite severe misinterpretations of the law.
It is not uncommon for us to find that taxpayers have overpaid their
taxes in prior years because regular tax rules were used rather than the
proper Trader Status allowances.
If errors favor the taxpayer and your taxes were overpaid, then we may
prepare proforma drafts of amended tax filings to present to the IRS
examiner during the audit. If the
errors favor the IRS and your taxes were underpaid, then then we
prepare for the possibility that the IRS examiner will also find those
here if you are ready to retain us
for your audit representation.
is signed by you and then submitted by us to the IRS, we can get
involved for a speedy resolution to these five common "IRS inquiries"
- IRS Account Problems Inquiry
- Complex IRS Refund Inquiry
- IRS Notice Inquiry
- IRS back taxes Installment
- Lost Payment Tracer Inquiry
During a Follow-up Inquiry we can
submit additional information on a previously submitted inquiry.
§6511(a) Period Of Limitation On
Claim for credit or refund of an overpayment of any tax imposed by this
title in respect of which tax the taxpayer is required to file a return
shall be filed by the taxpayer within 3 years from the time the
return was filed [e.g.
this is a case when a form 1040X showing an overpayment is filed no
later than 3 years after filing form 1040. But for a delinquently
filed form 1040 showing an overpayment - that is a claim itself so in
that case the claim IS the form 1040 and it is filed within the 3 year
period, because the form 1040 and the claim are one and the same and
they are both filed on the same day -
Reg. 301.6402-3(a)(1)] or 2 years from the time the tax was paid,
whichever of such periods expires the later, or if no return was filed
by the taxpayer, within 2 years from the time the tax was paid. Claim
for credit or refund of an overpayment of any tax imposed by this title
which is required to be paid by means of a stamp shall be filed by the
taxpayer within 3 years from the time the tax was paid.
§6511(b) Limitation On Allowance
Of Credits And Refunds
§6511(b)(1) Filing Of Claim Within Prescribed Period
No credit or refund shall be allowed or made after the expiration of
the period of limitation prescribed in subsection (a) for the filing
of a claim for credit or refund, unless a claim for credit or refund is
filed by the taxpayer within such period.
§6511(b)(2) Limit On Amount Of
Credit Or Refund
§6511(b)(2)(A) Limit Where Claim Filed Within 3-Year Period [e.g.
filing a delinquent form 1040 income tax return within three years of
its due date]
If the claim was filed by the taxpayer during the 3-year period
prescribed in subsection (a), [remember, a
delinquently filed form 1040 showing an overpayment - IS a claim itself
and therefore it is filed within the 3 year period, because the form
1040 and the claim are one and the same and they are both filed on the
same day] the amount of the credit or refund
shall not exceed the portion of the tax paid within the period,
immediately preceding the filing of the claim, equal to 3 years plus the
period of any extension of time for filing the return. If the tax
was required to be paid by means of a stamp, the amount of the credit or
refund shall not exceed the portion of the tax paid within the 3 years
immediately preceding the filing of the claim.
§6511(b)(2)(B) Limit Where Claim
Not Filed Within 3-Year Period [e.g. filing a form
amended tax return more than three years after filing the original form
If the claim was not filed within such 3-year period, the amount of the
credit or refund shall not exceed the portion of the tax paid during the
2 years immediately preceding the filing of the claim.
§6511(d) Special Rules Applicable
To Income Taxes
§6511(d)(1) Seven-Year Period Of Limitation With Respect To Bad Debts And
§6511(d)(2) Special Period Of
Limitation With Respect To Net Operating Loss Or Capital Loss Carrybacks
§6511(d)(2)(A) Period Of Limitation
If the claim for credit or refund relates to an overpayment attributable
to a net operating loss carryback or a capital loss carryback, in lieu
of the 3-year period of limitation prescribed in subsection (a), the
period shall be that period which ends 3 years after the time prescribed
by law for filing the return (including extensions thereof) for the
taxable year of the net operating loss or net capital loss which results
in such carryback, or the period prescribed in subsection (c) in respect
of such taxable year, whichever expires later. In the case of such a
claim, the amount of the credit or refund may exceed the portion of the
tax paid within the period provided in subsection (b)(2) or (c),
whichever is applicable to the extent of the amount of the overpayment
attributable to such carryback.
§6511(g) Special Rule For Claims
With Respect To Partnership Items
In the case of any tax imposed by subtitle A with respect to any person
which is attributable to any partnership item (as defined in section
6231(a)(3)), the provisions of section 6227 and subsections (c) and (d)
of section 6230 shall apply in lieu of the provisions of this
§6511(h) Running Of Periods Of
Limitation Suspended While Taxpayer Is Unable To Manage Financial
Affairs Due To Disability. --
§6511(h)(1) In General. --
In the case of an individual, the running of the periods specified in
subsections (a), (b), and (c) shall be suspended during any period of
such individual's life that such individual is financially disabled.
§6511(h)(2) Financially Disabled.
§6511(h)(2)(A) In General. --
For purposes of paragraph (1), an individual is financially disabled if
such individual is unable to manage his financial affairs by reason of a
medically determinable physical or mental impairment of the individual
which can be expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than 12 months. An
individual shall not be considered to have such an impairment unless
proof of the existence thereof is furnished in such form and manner as
the Secretary may require.
§6511(h)(2)(B) Exception Where
Individual Has Guardian, Etc. --
An individual shall not be treated as financially disabled during any
period that such individual's spouse or any other person is authorized
to act on behalf of such individual in financial matters.
Note: filing a refund claim or asking that an
overpayment be credited to another year is a "tax position" which, if barred
by IRC 6511, could lead to a penalty under IRC §6694. See Reg. §1.6694-1(c).
§1.6694-1(c) Understatement of liability. For purposes of this section, an
"understatement of liability" exists if, viewing the return or claim for
refund as a whole, there is an understatement of the net amount payable with
respect to any tax imposed by the Internal Revenue Code (Code), or an
overstatement of the net amount creditable or refundable with respect to any
tax imposed by the Code.
Argument against: The Statute of
Limitations is an affirmative defense.
The IRS has the burden of proving the statute of limitations
For example, in theory, if a taxpayer were to sue the IRS for a refund and
for some reason the IRS failed to answer the lawsuit in a timely manner, the
would be awarded a default judgment and the defense of statute of
limitations would be deemed to have been waived. IRC §6694 would
not apply since it is the IRS's burden to prove the affirmative defense,
albeit an easy burden to meet in this case, but nonetheless, their burden to
raise it. Collection lawyers file suit all the time when the statute
of limitations has expired on that hope that the defendant doesn't bother to
defend it. If they do, the Plaintiff invariably non-suits the case and moves
Rev. Proc. 99-21 allows suspension of the statute of limitations period
for filing for credit or refund for any period of an individual taxpayer's
life during which the taxpayer is unable to manage the taxpayer's financial
affairs because of a medically determinable mental or physical impairment.
Rul. 2003-41 Situation 2, form 1040 was on extension until August 15,
1998. Form 1040 was not filed until August 2001. If form 1040 was filed by
August 15, 2001 the refund request is timely, but if form 1040 was filed on
August 17, 2001 the refund is barred pursuant to
Comr v. Lundy
T.C. Summary Opinion 2004-15 Rabinovich v Comr.
Weisbart v. US Treasury July 2000 Weisbart received an
extension of 4 months from the IRS, until August 17, 1992. Thus, the
"look back" period prescribed by section 6511(b)(2)(A) is 3 years and 4
months. The IRS concedes that 3 years and 4 months from April 15, 1992
(the date Weisbart is deemed to have paid his taxes) is August 17, 1995.
The Service also admits that if Weisbart's refund claim is deemed to
have been filed on August 17, 1995, he would be entitled to his refund
under section 6511(b)(2)(A). The question thus distills to whether
Weisbart's refund claim-mailed on August 17, 1995, but not received by
the IRS until August 21, 1995 was nevertheless filed on August 17, 1995.
We hold that it was. The Tax Code has a mailbox rule, which provides that a submission is
deemed filed on the date it is postmarked, rather than the date it is
received by the IRS. See 26 U.S.C. §7502. Section 7502(a)(2)(A)
states, however, that the mailbox rule applies only if the postmark date
falls on or before the "prescribed date for the filing" of the
submission. The submission at issue here is Weisbart's claim for a
refund. As already noted, however, that claim was incorporated in
Weisbart's untimely 1991 tax return which Weisbart did not mail until
August 17, 1995, three years after the "prescribed date for [its]
filing." 26 U.S.C. §7502(a)(2)(A). The Service argues, and the
district court held, that the "prescribed" period applicable to Weisbart's tax return should also apply to the refund claim. Applying
this construction, Weisbart's refund claim would not enjoy the benefit
of the mailbox rule, and would therefore be barred
The IRS's argument is contradicted by its own regulations. Treasury
Regulation §301.6402-3(a)(5) provides that: For purposes of section
6511, [a refund] claim shall be considered as filed on the date on which
such return (or amended return) is considered as filed, except that if
the requirements of § 301.7502-1, relating to timely mailing treated as
timely filing are met, the claim shall be considered to be filed on the
date of the postmark stamped on the cover in which the return (or
amended return) was mailed.
(emphasis added). And the cross referenced Regulation § 301.7502-1
[A] return may constitute a claim for refund or credit. In such a
case, section 7502 is applicable to the claim for refund or credit if
the conditions of such section are met, irrespective of whether the
claim is also a return.
Taken together, these two Treasury Regulations provide that the
applicability of the mailbox rule to the refund claim should be analyzed
independently of the timeliness of the tax return itself, regardless of
whether they are in the same document. See Anderson v. United States,
746 F.Supp. 15, 18 (E.D.Wash.1990) (holding that although the "return
qua return" was untimely, "the return qua claim for refund" was timely), aff'd, 966 F.2d 487 (9th Cir.1992). As such, even though Weisbart's
tax return was untimely filed, his refund claim enjoys the benefit of
the mailbox rule, and is deemed filed on August 17, 1995. Because that
date is within 3 years of the date when Weisbart is deemed to have paid
his withheld employment taxes, he may recover any overpayment included
in those taxes under the look back provisions of section 6511(b)(2)(A).
Internal Revenue Manual 22.214.171.124 Statute of Limitations (§ 6511)
The Specialist must
always check claims to verify that they were timely
filed. Generally, a claim must be filed by the customer
within three years from the time the original return was
filed, or two years from the time the tax was paid (or
applied from another return), whichever period expires
later. See IRM 25.6.6.
If a claim for refund is
filed within three years
from the time the return
was filed, only the tax
paid within the three
years preceding the
filing of the claim,
plus the period of any
extension of time for
filing the return, can
be refunded. (IRC
If a claim is not filed
within the three year
period, then only the
tax paid within the two
years preceding the
filing of the claim can
be refunded. (IRC
If no claim is filed,
then only the tax paid
that would have been
allowable, under (a) or
(b) above, if the claim
was filed on the date
the credit or refund was
allowed can be refunded.
The fact that a
claim has been filed never extends the statute for
assessing an additional deficiency. Taxable amended
returns have the same statute of limitations as the
When a customer
files a claim timely, the statute remains open for the
IRS to examine it. If the IRS takes no action on the
claim within six months from the time it was filed, the
customer can file suit in court to recover the amount
claimed. The period for filing suit lasts until two
years after the date a certified notice of claim
disallowance is mailed to the taxpayer or the date the
taxpayer signed Form 2297, Waiver of Statutory
Notification of Claim Disallowance. On the other hand,
if the Service allows the claim (this could be done by
the Service Center prior to the case being sent to the
field for examination), any further action on that
year's return creates a barred statute situation if that
year is a closed year.
An executed consent
extends the time to file a claim. If a customer does not
file for a claim within the time limits prescribed by
IRC section 6511(a), the customer may still file a claim
if the statute of limitation for assessment has been
extended by agreement of the Service and the customer
(IRC 6511(c)). This filing period will last until six
months after the expiration of the extension period.
If, after the
execution of a consent and within six months after the
expiration of the extension period, a claim is filed, or
a credit or refund is allowed when no claim is filed,
the amount of credit or refund is limited. This limit is
the portion of the tax paid after the execution of the
consent and before the filing of the claim (or making of
the credit or refund), PLUS the portion of the tax paid
Exhibit B - RC Refund Claims Limitation Periods (Published 5/2008)
Limitation Period and Amount
Period of limitation on filing claim for refund.
Claim must be filed within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within 2 years from the time the tax was paid.
Limitation on allowance of credits and refunds – Filing of claim within prescribed period.
No credit or refund shall be allowed or made after the expiration of the period of limitation prescribed in section 6511(a) for the filing of a claim for refund, unless a claim is filed within such period.
Limitation on allowance of credit and refunds – Claim filed within 3 year period.
(A) The amount of the refund shall not exceed the portion of the tax paid within the period, immediately preceding the filing of the claim, equal to 3 years plus the period of any extension of time for filing the return.
Limitation on allowance of credit and refunds – Claim not filed within 3 year period.
(B) If the claim was not filed within such three-year period, the amount of the refund shall not exceed the portion of the tax paid during the 2 years immediately preceding the filing of the claim.
Extension of time by agreement–Time for filing claim.
The period for filing claim for refund shall not expire prior to 6 months after the expiration of the period within which an assessment may be made pursuant to the agreement or any extension thereof under section 6501(c)(4).
Special period of limitation with respect to net operating loss or capital loss carrybacks.
The period for filing a claim shall be that period which ends 3 years after the time prescribed by law for filing the return (including extensions) for the taxable year of the net operating loss or net capital loss which results in such carryback, or the period prescribed in section 6511(c) for extension of the period of assessment in respect of such taxable year, which ever expires later.
Special period of limitation with respect to certain credit carrybacks
The period for filing a claim shall be that period which ends 3 years after the time prescribed by law for filing the return (including extensions) for the taxable year of the unused credit which results in the carryback (or, with respect to any portion of a credit carryback from a taxable year attributable to a net operating loss carryback, capital loss carryback, or other credit carryback from a subsequent taxable year, the period shall be that period which ends 3 years after the time prescribed by law for filing the return, including extensions thereof, for such subsequent taxable year) or the period prescribed in section 6511(c) for extension of the period of assessment in respect of such taxable year, which ever expires later.
Finally the IRS has admitted the complexity of the RSED wording and at the
urging of the taxpayer community, their CP518 non-filer letters have been
partially rewritten in plain English as follows [referring to a non-filer's
2011 form 1040, which was due April 17, 2012]:
"If you are owed a refund, you must file a return by April 17, 2015, or 2
years from the date the tax was paid, whichever is later."
We feel that this is a step in the right direction, though we suggest that
the the following sentence be added for clarity: "After April 17, 2015 (or
2 years from the date the tax was paid, whichever is later) any
refund that would have been owed to you will instead be forfeited to the
U.S. Treasury as a non-filer penalty."