Tax payer not requesting a refund for 2004

[Pacun]

Can someone comment on this? If you have the tax code, it will be better.

Client has not filed 2004, 2005, 2006, 2007, 2008, 2009 and 2010 (not a real case).

Yesterday (Dec 6, 2011), we filed for all those years he WILL NOT request a refund for any of those years, except for 2010. I know we cannot request a refund for years prior to 2008 and we are not requesting ANY refund for those years.

Please ignore interest and penalties for a moment and let me know if this works or if it is prohibited by code.

For 2004, IRS owes him $2000 which he applied to his 2005 taxes.

He did this by answering these questions: (I am using form 1040 for 2011 but they are the same in this area)

If line 72 is more than line 61, subtract line 61 from line 72. This is the amount you over paid (which is $2000).

Then we answered: Amount of line 73 you want applied to your 2012 estimated tax: (we entered $2000).

We answered $0 on "Amount of line 73 you want refunded to you.

For 2005, the IRS owed $1000 to taxpayer, plus the $2000 from previous year, we applied $3000 to 2006.

For 2006, taxpayer owed the IRS $2,500 and he applied the remaining $500 to 2007.

For 2007, taxpayer owed the IRS $300 but since he had $500 from previous year, he applied $200 to 2008.

For 2008, IRS owed $1,500 so the taxpayer applied $1,700 to 2009.

For 2009, the tax payer owed the IRS $1,700 so there was no overpayment or amount due.

For 2010, the IRS owed the taxpayer $3,000 and he requested a refund.

What do you think?

[mcb39]

Page 10; Pub 17: If you were due a refund but you did not file a return, you generally must file within 3 years from the date the return was due (including extensions) to get that refund

This also applies to refunds that were owed but not collected. You cannot apply those early refunds to the following year. They are lost.

[JohnH]

It won't work.

Refund is lost for all years for which the SOL has run.

It can't be refunded in cash or applied to the following year.

Although I guess there's no harm in trying...

[Jack from Ohio]

No harm in trying, but don't hold your breath. Also, file the oldest first, wait a couple of weeks then send the next, etc. Seems to work better that way.

[Pacun]

I haven't done it but it seems that it might work.

This will work for sure. Let's say that a tax payer comes to your office on March 31, 2012 and he says... I need to file 2008, 2009, 2010 and 2011.

For 2008, the IRS owes $3,000.

For 2009, the IRS owes $2,000.

For 2010, taxpayer owes$4,500

For 2011, taxpayer owes $500.

If you request a refund for each year, taxpayer will owe about $2,000 in interest and penalties. Penalties for not filing and penalties for not paying for 2010. If I apply each refund for the next year, the taxpayer will owe 0.

Comprende compadre?

[Jack from Ohio]

The IRS will make each year stand on its own, due to filing them late. Therefore, one year will not flow to the next.

No harm in trying, but don't hold your breath. Also, file the oldest first, wait a couple of weeks then send the next, etc. Seems to work better that way.

[elfling]

I used to agree with file one at a time, a few weeks apart. But within the past 2 years we had 2 cases where we shipped several late returns with the client (had the person physically go there) to the regional office in Bethlehem PA. The IRS reps there logged them in all at once providing a 'received' stamped copy of 1040 page 1 for each year. Within about a month client had a single letter from IRS showing a composite of all back years, refunds & amounts owed, penalties & interest, a bottom line figure, form 9465 and instructions. I was impressed with how well that worked. Clients were glad to have IRS 'burden' (even though self-created) finally under control. Both remain our clients and staying on track so far.

[joanmcq]

Once I had the IRS goof up and apply a $25 refund from 2003 to a later year when 2003 was filed really late. Once. But I think you are SOL on the SOL. In your second circumstance, you can get the refunds from the still open years; however, failure to pay and file may still hit for 2010.

I often have late filers file in person at the local IRS office. It works very well, and the client has proof of filing.

[Pacun]

In your second circumstance, you can get the refunds from the still open years; however, failure to pay and file may still hit for 2010.

Failure to pay and file when you owe zero is 25%*2 of zero. The IRS had the money and used it.

[JohnH]

If you are saying that all these returns are being filed now, Here's how I think it's going to work out.

For 2004, the IRS owed $ 2000 to taxpayer. (LOST due to SOL)

For 2005, the IRS owed $1000 to taxpayer. (LOST due to SOL)

For 2006, taxpayer owed the IRS $2,500 (taxpayer owes tax, 25% FTF penalty, plus FTP penalty and interest)

For 2007, taxpayer owed the IRS $300 (taxpayer owes tax, 25% FTF penalty, plus FTP penalty and interest

For 2008, IRS owed $1,500 (taxpayer eligible for refund if filed before Apr 15, 2012. This can be applied to 2009, but see exceptions in next note)

For 2009, the tax payer owed the IRS $1,700 (taxpayer owes tax, 25% FTF penalty, plus FTP penalty and interest on $20 if prior year refund was applied. However, if at the time of filing the earlier years amounts due have not been paid (tax, penalties, and interest), IRS will apply the refund to the prior year balances due - first to P&I and then to tax)

For 2010, the IRS owed the taxpayer $3,000 (if at the time of filing the prior years amounts due have not been paid (tax, penalties, and interest), IRS will apply the refund to the prior year balances due - first to P&I and then to tax. If there's anything left due to interim payments & applied refunds on proir tax liabilities, etc, then after all the dust settles the taxpayer will receive a refund)

[Pacun]

Johnh, I was talking about this one on my second comment: In this case I think the TP is even with the IRS.

"This will work for sure. Let's say that a tax payer comes to your office on March 31, 2012 and he says... I need to file 2008, 2009, 2010 and 2011.

For 2008, the IRS owes $3,000.

For 2009, the IRS owes $2,000.

For 2010, taxpayer owes$4,500

For 2011, taxpayer owes $500.

If you request a refund for each year, taxpayer will owe about $2,000 in interest and penalties. Penalties for not filing and penalties for not paying for 2010. If I apply each refund for the next year, the taxpayer will owe 0.

Comprende compadre? "

[JohnH]

Si, comprendo.

This will work PROVIDED he files the 2008 return by Apr 15, 2012. (or Oct 15, 2012 if there was an extension filed for the 2008 return)

If he files one day later, the $3,000 refund vanishes into thin air.

In your original example, you had refunds in closed years which you were hoping to apply to subsequent years and roll forward to offset balance due years. Unless IRS makes a processing error, it won't work (except for open years)

[bertrans]

The governing code section is 6511; throughout that section, the phrase used is 'refund or credit'; thus, as the other posters have properly observed, once the SOL has tolled, any resulting overpayment is barred both for refund AND offset (e.g., credit elect.).

[Pacun]

Thank you.

[jainen]

>>the SOL has tolled<<

You need a legal dictionary to understand this usage of "toll." It means to delay, suspend or hold off the effect of a statute. For example, the three year statute of limitations is tolled during periods of medical incapacity, so a person qualifying under that rule could have more than three years to claim a refund.

[bertrans]

>>the SOL has tolled<<

You need a legal dictionary to understand this usage of "toll." It means to delay, suspend or hold off the effect of a statute. For example, the three year statute of limitations is tolled during periods of medical incapacity, so a person qualifying under that rule could have more than three years to claim a refund.

Thank you for the correction; it cleared up a misconception I have had for quite some time. Thank you again.

[ljwalters]

No, this will not work. Refunds are lost. UNLESS, the taxpayer was mentally incapacitated, then the statute does not go into affect until recovered. (Head injury major depression etc. must be documented)

When I filed 11 years worth all at the same time, I put them all in separate envelopes and them all the envelopes into one large one with a letter listing returns filed, included a stamped self addressed envelope, and requested acknowledgement of date received.

Letter came back stamped with date received and he got some of his refund.

Linda