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ILLMAS

Overpayment carry forward (being refunded)

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TP has really had no taxable income for the  past years, but makes an estimated tax payment just in case he has any capital gains from his brokerage, the over payment  is carry forward into the following year on the tax return, but the IRS and the state has been issuing a check.   Anybody know why they return the money?

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I guess carrying forward assumes that a taxpayer is trying to avoid penalties next year. Since his tax liability was 0 this year, they expect that the penalty next year will be 0*110%.

I would also agree with the IRS if they think  that they will ONLY hold money that will belong to the IRS next year. In this case it is very unlikely.

My last thought would be that if I wanted to hide money from my vendors or a lawsuit, the IRS will be the best "bank" to have my money.

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2 hours ago, ILLMAS said:

Anybody know why they return the money?

Never had this happen, but maybe it's a recent change? Are you 100% sure that the return showed the refund to be applied?

Seems like the government would enjoy the interest free loan.

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I've had a couple of clients (over the years, not this year) receive a refund when the return was clearly marked to apply to next year. The first time it happened, I even called Profx to see if something showed on the transmission that was different from what I see on my screen. I remember them both as being on extension and filing in the fall. And, the refunds came slowly. One client swore to me he didn't get a refund, but I pulled his transcript after he got a letter saying he'd underpaid the following year, and the transcript did show funds going back to him the next spring. The other received her refund after we'd already filed the next year. (She called me.) So, both took some time for us to figure out what they really owed and what I needed to carry forward in my software to have the year after the year after accurate.

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I've had multiple clients where this has happened on the state return. In fact it has happened to me. No clue why and never received an explanation why.

This year on my local state I've had two clients call me up and tell me they received checks from the state with no information, no explanation. Two weeks later the state mailed them each a letter demanding the money back and it was sent in error.

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It happened to me last year on the state.  However, there was an issue with an unapplied estimate made in Jan for the previous year.  So in the process of correcting that, which they did, and the return ultimately processing later, they refunded the original overpayment which was indicated to be applied to the following year.  I don't know if the transaction mentioned was the cause of the refund. 

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