Ask The EDD Lawyer – How To Protect Your IRS Tax Refund By Knowing When To Make A Claim

By Robert S. Schriebman

February 3, 2017

INTRODUCTION

If you believe you’re entitled to an IRS tax refund, it is very important for you to pay very close attention to the laws relating to when you must file a claim. You cannot get a tax refund without filing a claim. A claim can be in several forms. If you file an income tax return stating you are entitled to a refund, that return is a claim. There are separate forms for filing a claim for refund such as IRS Form 843. If you are entitled to Innocent Spouse Relief, your Petition for relief constitutes a claim (IRC § 6015(g)).

The basic IRS time rules for filing a claim state the claim must be filed within three years of the claim year, or two years from the time taxes were paid by you or applied by the IRS, which ever time period is later. About the only law on the books for giving you more time is if you can prove you had a mental or physical illness that prevented you from filing a claim timely. There is no “sympathy” extension. (See IRC §6511.)

Different taxing agencies have different claim statutes. Unfortunately too many professionals believe that the above IRS rules also apply to the FTB, SBE and EDD. They do not. Each agency has its own unique claim-time rules.

The recent Tax Court case of Yvonne A. Williams v. Commissioner shows what can happen when your claim is only a few days late – you lose. (U.S. Tax Court, Dkt. No. 8683-15, TC Memo. 2017-10, January 10, 2017)

The Sad Case of Yvonne A. Williams

Yvonne and her then husband filed their 2002 return late on November 1, 2004. They owed a lot of money and the IRS assessed late penalties. Fast forward to the tax year 2011, Yvonne and her husband divorced. She filed her own return on March 12, 2012. She was entitled to an Earned Income Credit of $3,439. On that day, the IRS notified her that they applied the credit to the old 2002 deficiency. On March 21, 2014 (slightly more than 2 years from March 12, 2012), Yvonne filed a Petition for Innocent Spouse Relief for the old 2002 deficiency. On March 4, 2015 Innocent Spouse Relief was granted.

Yvonne wrote the IRS and requested a refund of the $3,439 that was applied to the old 2002 joint debt. The IRS responded that her claim was too late by nine days. Yvonne took the IRS to the Tax Court to fight for her refund.

The Tax Court ruled that the filing of Yvonne’s Petition for Innocent Spouse Relief constituted a claim for refund under IRC § 6015(g). However, the general refund rules stated in IRC § 6511 apply to the claim – the claim must be filed timely. In other words the claim must be filed within 3 years of the tax year in issue or 2 years from the date of payment or IRS application, whichever time is later. Obviously the tax year 2002 was more than three years from the claim filed in 2014, so we have to look at the date of payment or application. The IRS applied the credit on March 12, 2012 and so notified Yvonne. Her Petition for Innocent Spouse Relief was filed March 21, 2014 – nine days over the two-year limit!

Yvonne argued in Court that she had a difficult and messy divorce and that the Court should allow her claim based on sympathy. Judge Colvin, an experienced judge, told her point-blank that periods of limitation are not subject to extension based on sympathy for personal circumstances. Yvonne lost.

Conclusion

While Yvonne’s case was complicated to read and understand, it was clear that statutes of limitations of all types are strictly observed. There are very few, if any, exceptions. Yvonne was careless in two ways: first, she did not pay attention to the deadline; second, never wait to the last minute to comply with any statute deadline. Give yourself at least a 30-day window just in case something goes wrong and you have to redo your claim.

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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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