ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – HOW TO EXTEND THE IRS REFUND CLAIM STATUTE OF LIMITATIONS – THE SIM’S CASE – PART 1
By Robert S. Schriebman
This is Part 1 of a two-part series.
If you are late in filing a claim for refund for IRS income taxes, you put yourself in a no-win situation. Not only do you lose your refund permanently, but the IRS keeps your money and does not give you any type of credit for overpaid taxes.
Every taxing agency, whether the IRS, EDD or FTB has a statutory framework for filing refund claims. These statutes are divided into two parts: the time periods for filing a claim for refund, and the time periods for pursuing administrative and judicial redress if your claim is not honored. On rare occasions, the basic timeframe for filing a refund claim may be extended usually under very narrow circumstances.
In Part 1, I will discuss the IRS refund claim statute of limitations, a little-known rule about getting more time, and the administrative procedures required to take advantage of this limited extension. In Part 2, I will discuss the George Sim’s Case, a rare example of how the refund statute may be extended and the care that must be taken by the taxpayer in order to take advantage of increased time limits.
The Basic IRS Refund Claim Statute of Limitations
IRS refund claims are usually made in two ways – filing Form 843, Claim for Refund and Request for Abatement or filing an income tax return showing an overpayment. In order to successfully file an IRS claim for refund, you must do so within the limits set forth by law.
The time limits are contained in Internal Revenue Code (IRC) § 6511. First, there is a generally applicable period of limitation on filing a claim. With respect to all taxes where a return is filed, a claim must be filed within three (3) years from the time the return was filed or within two (2) years from the time the tax was paid, whichever period expires later. If no return is filed, the claim must be filed within 2 years from the time the tax was paid.
Not All Refund Statutes Are the Same
Most tax practitioners know about the IRS basic rules for refund claims stated above. What many do not know is that every other taxing agency has its own unique refund claim rules. They are not the same as the IRS version. As a result of this ignorance, some tax professionals wait too long to file an EDD or FTB refund claim because they assume those agencies adopted the IRS rules – not true.
The Narrow Extension-Exception Set Forth in IRC §6511(h)
Very few people know about this statute. This section allows for the tolling of limitations in instances where the taxpayer is unable to manage his/her financial affairs by reason of a medically determinable physical or mental impairment which can be expected to result in death, or which has lasted or can be expected to last for a continuous period of not less than 12 months. Further, the provision provides that an individual shall not be considered to have an impairment unless proof is provided in the form and manner set forth by the Secretary of the Treasury.
This obscure statute allows for more time to file a claim for refund if the taxpayer is mentally or physically impaired. But there is a lot more to this exception.
Enter Revenue Procedure (Rev. Proc.) 99-21
It seems that every time Congress passes a law granting an exception to a time statute, Congress will demand that the taxpayer jump through administrative hoops before relief is allowed. IRC § 6511(h) is no exception. For example, if one spouse is impaired within the exception statute, but the other spouse is not impaired, the IRS may deny an extended time to file a valid refund claim. In order to prove that one is impaired, one must comply with Rev. Proc. 99-21. This administrative procedure requires that a written statement by a physician must accompany the late refund claim. There is quite a laundry list that the physician must adhere to including a certification signed by the physician that states, “I hereby certify, to the best of my knowledge and belief, the above representations are true, correct and, complete.”
The Rev. Proc. also demands that the taxpayer submitting the statement declaring that no person, including the taxpayer’s spouse, was authorized to act on behalf of the impaired taxpayer. This statement also applies to someone who is not a spouse such as a financial advisor, attorney, or an accountant.
In Part 2 I will discuss these rules as they were applied in the George Sims Case decided on September 27, 2022. You will learn what can happen if a taxpayer submits a ton of information and documentation but does not follow the specific procedures set forth in Rev. Proc. 99-21. The extension will not be allowed.
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD, and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
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