Tom Talks Taxes - January 23, 2023

What is the deadline to claim 2019 Form 1040 refunds?

Editor’s Note: On March 17, 2023, the IRS issued Notice 2023-21 to address the issues outlined in this edition. Please see this edition for an update.

The §6511 refund statute of limitations is one of the most complicated provisions in the tax law applicable to individual taxpayers. The rule of thumb that the refund statute end date (RSED) is “three years from the return due date” is an oversimplification that can result in missed refund opportunities for taxpayers.

The 2019 Form 1040 RSED determination is even more complicated because the IRS postponed the return deadline to July 15, 2020, under §7508A, due to the COVID-19 nationwide disaster declaration. It was not extended — an essential distinction to our analysis.

Before getting to the 2019 Form 1040 refund statute issue, it’s essential to provide a high-level overview of how both §6511 and §7508A operate.

Refund statute of limitations. Two questions must be asked each time a taxpayer requests a refund of tax paid:

1. Is the claim timely filed?

2. How much is eligible to be refunded?

For the first question, §6511(a) states a taxpayer must file a refund claim by the later of three years from the return filing date or two years from the tax payment date.

According to §6511(b), the answer to the second question depends on which period the taxpayer uses to claim a refund. If the claim is filed within three years of the filing date, the allowed refund is limited to the amount paid in the immediately preceding three years, plus any extension of time to file the return. If the claim is filed within two years of the tax payment date, the allowed refund is limited to the amount paid in the immediately preceding two years.

There are additional complexities and possible tolling events, but the above analysis applies to most Form 1040 refund determinations.

The filing date is when the IRS receives the return; however, under §6513(a), individual returns filed before April 15th are deemed filed on April 15th.

The payment date is when the IRS receives the payment; however, two special rules are important. Under §6513(b), both withholding tax and estimated tax payments are deemed paid on April 15th of the following tax year for individual taxpayers.

Postponements. The IRS, under §7508A, can postpone tax-related deadlines for a taxpayer affected by a federally declared disaster, a significant fire, or a terroristic or military action for up to one year. In Notice 2020-23, the IRS postponed the 2019 Form 1040 deadline to July 15, 2020, along with hundreds of other time-sensitive tax actions.

While the postponement period can run concurrently with an extension of time to file, it does not extend the due date for the act, and the postponement does not change the due date of the return for any other statutes that rely on the return due date to be filed. See Treas. Reg. §301.7508A-1(b)(3), (4).

2019 Form 1040 RSED. The IRS explains the issue for 2019 individual tax returns in Chief Counsel Advice 202053013:

1. Withheld tax and estimated tax payments are deemed paid on April 15, 2020.

2. An individual taxpayer filed their 2019 Form 1040 return on July 15, 2020, under Notice 2020-23, and did not file an extension.

3. Under the three-year prong of the refund statute of limitations, the taxpayer has until July 17, 2023 to file a timely refund claim. Since July 15, 2023 falls on a Saturday, the taxpayer has until Monday, July 17, 2023, under §7503.

4. If the taxpayer files a refund claim on July 17, 2023, the limit on the refundable amount is the tax paid in the preceding three-year period.

5. Since the postponement is not an extension for purposes of the refund statute of limitations, April 15, 2020 is outside the three-year lookback period for refundable payments, and no refund of withholding or estimated tax payments is permitted.

Here is the result: to get a refund of withholding or estimated tax payments, the taxpayer must file the refund claim by Tuesday, April 18, 2023, if there was no extension of time filed. Since April 15, 2023 falls on a Saturday, and D.C. Emancipation Day falls on Monday, April 17, 2023, the taxpayer has until Tuesday, April 18, 2023, under §7503.

This same analysis applies to taxpayers who have yet to file a 2019 Form 1040 return. To get a refund of any withholding or estimated tax payments, the original return must be filed by April 18, 2023.

Let’s run through a few scenarios. In each one, assume the taxpayer has $8,000 in Form W-2 federal tax withholding and files a 2019 Form 1040X showing a $750 refund.

1. Assume the taxpayer filed an extension with no payment and then filed their original 2019 Form 1040 on July 15, 2020, showing a $250 refund that was paid. The taxpayer has until July 17, 2023 to file the 2019 Form 1040X. They will receive the entire $750 refund because the extension period is added to the three-year lookback period for refundable payments. The $750 refund is paid from the tax withholding.

2. Assume the taxpayer did not file an extension and filed their 2019 Form 1040 on July 15, 2020 with a $400 balance due payment. If the taxpayer files the 2019 Form 1040X on June 1, 2023, the only refundable payment within the three-year lookback period is the $400 balance due payment. The taxpayer will receive a $400 refund from the claim; the remaining $350 is disallowed as the tax withholding is outside the three-year lookback period.

3. Assume the taxpayer filed an extension with a $500 payment on July 15, 2020, and then filed their original 2019 Form 1040 on October 1, 2020, showing a $100 refund that was paid. The taxpayer has until October 2, 2023 to file the 2019 Form 1040X. They will receive the entire $750 refund because the extension period is added to the three-year lookback period for refundable payments. The $750 refund can be paid from the tax withholding and extension payment. Since October 1, 2023 falls on a Sunday, the taxpayer has until Monday, October 2, 2023, under §7503.

If a taxpayer does not file a refund claim within three years of the return filing date, a taxpayer can still get payments refunded that are made within the immediately preceding two-year period. The two-year period is often overlooked; the only way to know if a taxpayer has refundable payments on an older tax year is to review an IRS account transcript.

The IRS can easily misapply complex refund statute of limitations issues and deny refunds that are permitted. I recommend adding a statement to the Form 1040X explanation to tell the IRS how the refund statute applies in the instant case. Here is an example of a reason I wrote for a 2013 Form 1040X refund claim submitted in May 2020:

The IRS disallowed the American Opportunity Tax Credit and this amended return is submitted as audit reconsideration. Attached is documentation for $3,217 of paid expenses and proof that the TP was at least half-time for both 2013 semesters. TP requests abatement of the balance due and refund of the $621 payment credited on 4-15-18 as it was paid within the 2-year period, which was postponed to 7-15-20 by Notice 2020-23 (COVID-19).

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