Do you want to know something unfair? If you don’t file your back taxes the IRS has forever to assess your taxes. (Note: The 3 year or 6 year rule does not apply you never file). 

However, if the IRS owes you money, you only have 3 years from the original due date of the return or 2 years from the date of payment to claim a refund. How is that for unfair?

Here’s a few examples to illustrate these complicate rules:

1. For 20 years, Larry, a dry cleaner, never filed a tax return. He became semi-retired in 1990. Can the IRS assess him taxes for 1970-1990?

Yes! The three or six year rules on assessment only apply if taxes have been filed. This of a case where the IRS can assess taxes forever.

2. Larry then worked at his son’s dry cleaning business afterwords and was a part-time W-2 employee until 2010. He never filed a return. But if he had, we would have received refunds for for all of those years. Assume it is now April 16, 2013. Can Larry claim a refund? 

In this case the three-year look back rule is applicable. Three years prior to April 16, 2013 is April 16, 2010. The return that was due on April 15, 2010 was for tax year 2009. So one would think that Larry could not claim a refund for 2009. Well maybe so, maybe not. If Larry filed an extension in in 2010, his tax return would then become due October 15, 2010. Meaning that he could claim a refund for 2009. In either case, for 2010, Larry would not have a problem claiming a refund for 2010. However, for all other tax refunds prior to 2009, Larry has surrendered all of that money to the IRS. It would take an act of Congress to get that money back.

  3.  Suppose same facts above, but that in 2011,  the IRS assessed Larry for 40 years of taxes in the amount of $1,000,000.00 through the ‘Substitute for Return’ mechanism. And on April 16, 2013, the IRS levied and wiped out all of Larry’s joint retirement account he had with his wife. In truth, if Larry actually filed all his returns, he wouldn’t owe any money? Can Larry file a claim for refund?

Yes. Fortunately, the IRS has a ‘two year’ rule. If a tax was paid in the last two years, you may file a claim for refund. In this case, Larry was just levied, so he would have two years from the date of the levy to file a claim for refund. So Larry would have until April 16, 2015 to file a claim for refund. (Obviously with a missing million dollars and a likely furious wife, Larry would be foolish to wait a day to leanr how to file a claim for refund with the IRS. 

Obviously there are a lot of trick to learn how to file an claim for refund with the IRS. And getting it wrong by a few days could make huge differences. That’s why for taxpayers who are leery about filing a claim for refund themselves, this is a service that the tax attorneys, CPA’s and ex-IRS agents at IRSMedic offer. Please feel free to call for a free consultation at 888-477-4258. We are located in Connecticut but we serve US taxpayers worldwide.

Success story:

Diane Wilson, a self-employed certified financial planner, was in a jam. An investment property she owned had been on the market for awhile. She finally received a favorable offer, but the deal was in jeopardy because of some outstanding tax liens for $450,000. Although Diane believed she only owed a fraction of the amount, she paid in full so the property could close on time.

Diane came to IRS Medic, hoping our attorneys might be able to recoup some of the IRS payment. We determined that she hadn’t documented her capital gains properly over several years. Our staff filed amended returns, and Diane received $375,000 back from the IRS. For more IRS Medic success stories, click here.

Identities and certain facts have been changed to protect the identities of clients. These stories aren’t intended to be a promise of how your case will turn out. All facts are different, and, outside of tax or federal court, approval of the final resolution is up to the IRS.