Internal Revenue Service Refund Statute of Limitations 101

June 18, 2021

When taxpayers overpay on their federal tax obligations, they are entitled to a refund from the Internal Revenue Service. While the concept is quite simple, there are many procedural components that taxpayers must abide by to not compromise their ability to receive the funds to which they are entitled and the rules surrounding Internal Revenue Service claims are quite complex.

The main consideration taxpayers must account for is that refund claims must be timely filed to provide the Internal Revenue Service sufficient notice. As prescribed under Internal Revenue Code Section 6511, taxpayers in most instances are allowed the greater of the following: (1) three years from the due date of the tax return at issue, or (2) two years from the date of payment. Both rules are very important to consider as they are applicable in different situations. For instance, taxpayers who do not timely file their returns, but timely overpaid on their tax payment obligations, have until the due date of the return to file their tax returns that claim a refund owed. If taxpayers do not file their original tax returns by the due date, they lose their right to a refund despite timely paying their federal tax obligations.

Conversely, a taxpayer may utilize the two-year rule, when he or she makes a payment toward a tax year outside of the Internal Revenue Service’s timeframe, to assess and/or collect any delinquencies. In instances a taxpayer makes a payment to the Internal Revenue Service after the Assessment Statute Expiration Date (“ASED”) or Collection Statute Expiration Date (“CSED”), such payment is considered a refund overpayment that the taxpayer is entitled. In either circumstance, the taxpayer would have up to two years from the date of payment to claim a refund from the Internal Revenue Service. 

Furthermore, if a taxpayer untimely files a refund claim to the Internal Revenue Service during the coronavirus (COVID-19) pandemic, he or she should consider consulting a tax attorney to determine the applicability of any COVID-19 based postponements. Under Internal Revenue Code Section 7508A, the Internal Revenue Service may specify a period of up to one year, for taxpayers affected by a federally declared disaster, that may be disregarded in determining the timeliness of any credit or refund claim. While the Internal Revenue Service can prescribe a postponement up to one year, a qualified taxpayer is allowed a minimum of a mandatory 60-day extension. Although not envisioned as an example of a federally declared disaster under Section 7508A, the issue of whether COVID-19 qualifies as a federal declared disaster and whether taxpayers are entitled to a mandatory 60-day extension as governed by Internal Revenue Code Section 7508A, is currently being litigated before the United States Tax Court. In addition, guidance on how to apply the 60-day rule in the long-lasting COVID-19 pandemic is also anticipated to be released, in the event the United States Tax Court determines COVID-19 to be a federally declared disaster.

Moreover, there are other procedural requirements taxpayers must comply with to successfully claim their right to a refund. First, taxpayers must file the correct federal tax form for the specific type of tax refund claim. Second, taxpayers must mail or electronically file their refund claims to the correct Internal Revenue Service location. Failure to comply with these requirements, even in the event of mistake, would compromise one’s likelihood of successfully filing a claim for refund.

Last, the law requires that taxpayers provide sufficient notice to the Internal Revenue Service describing the grounds that entitle them to a refund. This requirement mandates that a taxpayer write a letter to the Internal Revenue Service, explaining all relevant facts and all relevant legal theories that entitle taxpayers to a refund. If a taxpayer fails to articulate all the relevant facts or legal theories, he or she may not be entitled to a refund despite complying with all the other requirements discussed above.

While this article explains some of the requirements in filing a refund claim with the Internal Revenue Service, there are many considerations that taxpayers should consider. Understanding some of the considerations affiliated with Internal Revenue Service refund claims, could prevent a taxpayer from being denied a credit to which he or she may be entitled.

If you seek to file a refund claim with the Internal Revenue Service contact The Law Offices of A. Lavar Taylor at 714-546-0445. Many of our attorneys have years of experience with the IRS and we can help you with basic or the most complex tax situations.