SOL on individuals' refund claims.

Taxpayers lose millions of dollars annually because they do not file returns timely. Generally, taxpayers must file a claim for a credit or refund within three years from the date they filed their original return or two years from the date they paid the tax, whichever is later. If taxpayers do not file a refund claim within this period, they will not he entitled to a refund. If taxpayers do not file a return, they must file a refund claim within two years from the time they paid the tax; see Sec. 6511 (a).

The Tax Court can consider taxes paid during the three-year period preceding a deficiency notice's date in determining any refund due to nonfilers. This means that if taxpayers do not file a return, receive a deficiency notice in the third year after the return's due date (including extensions) and file in Tax Court to contest the notice, they might be able to receive a refund of excess amounts paid within the three-year period preceding the notice's date; see Sec. 6512(b)(3).

Exceptions

There are exceptions to these rules. For example, if the President declares a location as a disaster area eligible for Federal assistance, the IRS may postpone, for up to one year, the refund claim filing deadline for taxpayers in that area. It may also delay deadlines for filing income and employment tax returns and for contributing to regular or Roth IRAs; see IRS Pub. 547, Casualties, Disasters, and Thefts, for details. The IRS will publicize deadline postponements and publish a news release, revenue ruling, revenue procedure, notice, announcement or other guidance in the Internal Revenue Bulletin.

The IRS may also postpone the filing deadline for a tax refund for up to one year for taxpayers affected by terrorist acts occurring after Sept. 10, 2001. (For further information, see IRS Pub. 3920, Tax Relief for Victims for Terrorist Attacks).

Examples

A refund may be limited for taxpayers who file a refund claim within three years after filing their return. The refund is limited to the tax paid within the three years (plus extensions) before taxpayers made the claim.

Example 1: Individual G made estimated tax payments of $1,000 and received an automatic extension to Aug. 16, 2004, to file her 2003 income tax return. When G filed her return on that date, she paid $200 additional tax due. On Aug. 15, 2007, she files an amended return and claims a $700 refund. Because G files the refund claim within three years of her return filing, plus the four-month extension period, she is entitled to a full refund; see Regs. Sec. 301.6511 (b)-1(b)(1)(i).

Example 2: The facts are the same as in Example 1, except that G filed her return on Nov. 1, 2004--2 1/2 months after her extension period ended--and paid $200 of additional tax on that date. On Oct. 29, 2007, G files an amended return and claims a $700 refund Although she files the refund claim within three years from the date she filed her original return, her refund is limited to $200. The $1,000 estimated tax was paid more than three years before, plus the four-month extension period.

According to Sec. 6513(b)(2),"[a]ny amount paid as estimated income tax for any taxable year shall be deemed to have been paid on the last day prescribed for filing the return under section 6012 for such taxable year (determined without regard to any extension of there for filing such return)."

If taxpayers file a claim after the three-year period but within two years from the time they paid the tax, a credit or refund cannot exceed the tax they paid within the two years immediately preceding the filing of the claim. However, there are exceptions to this rule, including the types of items that form the basis of a claim (e.g., carryback of a bad debt or net operating loss, or worthless securities). A timely refund claim based on one or more specific grounds cannot be amended in include other and different grounds after the stature of limitations (SOL) has expired; see Reg,. Sec. 301.6402-2(b).

Example 3: Individual V filed his 2003 return on April 15, 2004, and paid $500 tax. On Nov. 2, 2005, after an IRS examination of his return, V has to pay $200 in additional tax. On May 2, 2007, he files a claim for a $300 refund. V's refund is limited to the $200 paid during the two years immediately before he filed his claim; see Regs. Sec. 301.6511 (b)-l(b)(1)(ii).

Suspension of SOL

During financial disability, the time limits may be suspended under Sec. 6511(h). For individuals, the refund period can be suspended when they are unable to manage their financial affairs because of physical or mental impairment that is medically determinable and either (1) has lasted or can he expected to last continuously for at least 12 months or (2) can be expected to result in death. This suspension will not apply if someone is authorized to act for the taxpayer in financial matters (e.g., a spouse or guardian).

Timely Mailing Rule

The date a return is deemed filed and the tax paid depends on the method by which the return was sent to the IRS. Sec. 7502 and Regs. See. 301.7502-1 set forth the applicable rules. The Exhibit on p. 650 summarizes the deemed filing dates. Returns postmarked after the due date art deemed to be filed on the date the IRS receives the return.

Conclusion

Taxpayers who do not want to lose their IRS refund should file their returns timely according to the above rules--unless they want to give the IRS a charitable contribution.

Exhibit: "Timely mailing is timely
filing" under Regs. Sec. 301.7502-1

Return sent by                 Deemed filing date

U.S. mail                      Date of postal service postmark
Registered moil                Date of registration
Certified moil                 Date of postal receipt
Mail from foreign country      Date of foreign country postmark
Electronic return transmitter  Date of electronic postmark
Private delivery service       Date received by the delivery
                                service as recorded
                                by that service
Any other means                Date received by the IRS

FROM KENNETH M. PARKER., CPA, PARKER & ASSOCIATES, CPAs, PLLC, JACKSON, MS, AND TOM TURNER, CPA, DOOLEY AND VCARS CPAs LLP, RICHMOND, VA