Section 6511 Time Limits on Refunds and Credits
by Kasondra Kay Humphreys, CPA
If you’re reading this article, you may have recently filed an Amended U.S. Federal Income Tax Return or a formal Claim for Refund, and you’re wondering why you haven’t heard back from the IRS. First off, the IRS takes 6 months on average to respond. Second and most important, they may have disregarded your claim under Section 6511; the Statute of Limitations for claiming a refund or credit.
Section 6511(a) and Treas. Reg. 301.6511(a)-1(a) provide three years from the date of filing the tax return to claim a credit or refund, or two years from the date the tax was paid, whichever is later. For purposes of the limitation, a return filed or tax paid before the last day prescribed for its filing or payment (without regard to extensions) is considered filed or paid on that last day (Section 6513(a)).
If no return is filed, Treas. Reg. 301.6511(a)-1(a)(2) provides the taxpayer must file the claim for credit or refund of an overpayment within two years from the time the tax was paid. For example, when a taxpayer has a temporary job and does not earn enough income to have a tax return filing requirement but has had income taxes withheld, if the taxpayer elects not to file a tax return for that year, he or she must file a claim for a refund within two years of the date the return would have been due (the date the tax is deemed to have been surrender by the non-filing and effectively “paid”).
In addition to this time limitation, Section 6511(b)(2) and Treas. Reg. 301.6511(b)-1(b) limit the amount of the credit or refund that a taxpayer can claim. If a taxpayer files a return and makes a claim for refund or credit within the three-year time limit, the refund or credit amount is limited to the tax paid within three years, plus the period of any extension of time for filing the return, immediately preceding the time the claim was filed. If a taxpayer filed a return and makes a claim for refund or credit after the three-year time limitation, the refund or credit amount is limited to the tax paid within the two years immediately preceding the filing of the claim.
To illustrate, if a taxpayer filed his or her return on April 15, 2016, the due date for the return that year, paid $100 with the return, and then determined the amount of tax was overpaid, he or she has until April 15, 2019, to claim a refund. Thus, if the taxpayer made a refund claim on June 1, 2019, both the time limitation and the secondary limitation as to the amount that can be refunded would preclude the taxpayer from obtaining a refund.
If the taxpayer paid his or her tax with an extension and did not file a return until Oct. 17, 2016, he or she would have until Oct. 17, 2019, to file the claim for refund because the extension period is added to the three-year time limitation. However, if the taxpayer filed an extension on the return and then filed the original return on July 1, 2016, instead of waiting until October to file, the three-year period for claiming a refund would end on July 1, 2019, three years from the date the taxpayer filed the return.
There are exceptions to the three- or two-year statute of limitation. The statute may be suspended during periods in which individual taxpayers are unable to manage their financial affairs due to physical or mental impairments. This is known as being financially disabled. Under Section 6511(h)(2), the impairment must be due to an 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." An individual will not be treated as financially disabled during a period in which the individual's spouse or any other person is authorized to act in financial matters on his or her behalf.
To qualify for financial disability, the taxpayer has to provide proof of the impairment in the form and manner prescribed by Rev. Proc. 99-21 and other applicable guidance. Pursuant to Rev. Proc. 99-21, a claim of financial disability must include a written statement from a physician qualified to make the determination containing specified information and opinions. The claim of financial disability must also include a statement from the person signing the claim for refund or credit that no other person was authorized to act on his or her behalf in financial matters during the period in question.
Another exception to the three- or two-year statute of limitation on refunds and credits is the seven-year period applicable under Section 6511(d)(1), to the extent the claim relates to an overpayment on account of a deduction for a bad debt or a loss from a worthless security, or the effect that the deductibility of such debt or loss has on the application to the taxpayer of a carryover.
A claim for a tax credit or refund from a previously filed return is generally made on an amended return. If the taxpayer filed the original return by its due date, the taxpayer has until three years after the original due date of the return to file an amended return to claim a refund or credit. However, if no return was filed (but taxes were paid), the claim would be made by filing a late return. In this case, the taxpayer would only have up to two years from the date the tax was paid to file the late return.
If no refund claim is timely filed, the IRS considers the money "excess collection," which cannot be sent back to the taxpayer and will not be applied to another tax year as an estimated payment. Surely, this is an incentive for preparers to make sure clients timely file a claim for any credit or refund that is legitimately due them.
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About the Author
Kasondra Kay Humphreys, CPA, is the Director of Compliance at Castro & Co.
Bluebook Citation: Kasondra Kay Humphreys, Section 6511 Time Limits on Refunds and Credits, Int’l Tax Online Law Journal (Feb. 5, 2020) url.