ASK THE EDD LAWYER – HOW TO AVOID REFUND CLAIM PITFALLS
By Robert S. Schriebman
Tax refunds are a very important part of any governmental tax law system. We all look forward to getting our annual IRS refund check. For most of us that’s all we know or all we need to know about the tax refund process. However, there is a whole body and structure of laws that go way beyond filing our return by April 15th and getting our refund check in time for summer. In this article we will discuss different types of refunds and how to go about making a successful claim for refund. We will also take a look at the sad case of Baley and Brenda Allred and how proper steps were missed resulting in a loss of a substantial amount of money.
The Sad Case of Baley and Brenda Allred
Allred v. US, 2016-1 U.S.T.C. 50,185 Feb. 9, 2016 (U.S. District Court, E.D. Tennessee)
Baley and Brenda resided in Tennessee. They were entitled to an IRS refund and filed an amended tax return seeking that refund. The process was handled by their attorney, with the assistance of two paralegals, who gathered up the information and assisted in the preparation of the tax return seeking the refund. The attorney in charge reviewed all the data and approved the final return. The job of one of the paralegals was to handle the office mailing. She properly addressed the envelope to the IRS and timely put it in the building general mail slot. The refund claim – return never made it to the IRS and was presumed to have been lost in the mail. The IRS denied the refund claim as being late. The Allreds lost the battle in court.
There is a lot to be learned from the Allred’s case. We will discuss how refund claims are made as well as what goes into a refund claim. We will then discuss the proper way of filing a refund claim so that if and when the post office loses it, it will still be deemed proof of timely mailing.
Lesson Number 1: No Refund Can Be Made Without First Making A Written Claim
Every claim for refund, regardless of whether we are talking about the IRS, EDD, FTB, or BOE, must be in writing. There is no such thing as an oral legal refund claim. Having said this, there is no universal refund claim form. If you are dealing with the IRS, a claim for refund must be in writing and must either be made on an initially filed tax return or an amended tax return. Most of us are familiar with and understand that we get our refund after we file a form 1040 return showing more allowable deductions and/or credits than the income we report. Refund claims with the IRS can also be made on IRS Form 843. This form is also to be used when seeking the abatement of penalties. This is the way things are done with the IRS.
When it comes to the State of California, and specifically refund claims with the FTB and the EDD, there are no specific forms available on either website. There are guidelines and statutes that tell us that a refund claim, in order to be valid, must contain only a few elements as follows:
· The taxpayer’s name, address, and contact information
· The taxpayer’s Social Security Number or FTB or EDD account number
· The amount of the claim for refund
· The date the amount involved was paid by the taxpayer or taken by the government in an offset.
· The reason or reasons for the claim
· The taxpayer must sign and date the claim.
Overall, the most important consideration is the ability of the taxing agency to identify the taxpayer, the amount involved, and exactly why the refund is owed.
Lesson Number 2: There Is No One and Only Time Limit for Making a Claim for Refund.
Many professionals including attorneys and accountants make a big mistake here because they believe that the rules governing the timing of an IRS refund are the same for the FTB, EDD and BOE. This is a fatal mistake!
The time limits for making an IRS claim for refund are set forth in IRC § 6511. First, there is a generally applicable period of limitations on filing a claim. Where a tax return is filed the refund claim must be filed within 3 years from the time the tax return was filed or within 2 years from the time the tax was paid, whichever time period expires later. If no tax return is filed, the refund claim must be filed within 2 years from the time the tax was paid. This is the basic IRS rule. But it is not the same rule that governs refund claims for the FTB, EDD or BOE. Time does not permit a discussion of time limits for each of these agencies. By way of example, the EDD can have a short fuse of only 60 days from the date of payment.
Needless to say, the refund claim process can be a real thorn bush. A smart professional will never assume that he or she knows these rules of the top of the head and never trust your memory – never!
Lesson Number 3: Never Deposit Your Refund Claim in The Mail and Trust It Will Get There.
Thanks to computers we now have ways of tracking the delivery of packages and letters. The basic rule for filing tax returns and refund claims is that a deposit in the US Mail by itself is not good enough. One must have proof of mailing. My favorite way, that has proven successful over these many years, is to have the post office “round-stamp” my certified mail receipt. Certified mail, by itself, is still not sufficient proof of mailing. The green card, Form 3881, can get lost. They can often get mutilated (the last one I received had the imprint of a truck tire.) It is very important, therefore, that you have the small white form 3800, “round-stamped” to show proof that it was received by the post office. If it gets lost in the mail you have proof that it was mailed…and that’s all you need for proof that your claim for refund was delivered to the Post Office. Under the law, this is sufficient proof of mailing. If the IRS does not get the refund claim in a timely fashion, you can still prevail.
Many people are now using Federal Express, DHL or UPS as they have been given the same official weight as using the post office. You can go online and print out proof of delivery. Do not use any other common carrier.
The refund process is very complicated. There is no such thing as a valid oral refund claim. Know that each governmental agency has its own laws for when a refund claim is timely filed. The rules relating to IRS claims only are important to the IRS. They mean absolutely nothing to the EDD, FTB or BOE. Always send your refund claim in a way that you can prove that it was timely sent. Never drop it in the Post Office box and walk away.
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 40 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments.
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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