Way past due returns

[drdino]

My past due return W2 client now informs me that in addition to his 2005, 2006 and 2007 return, his 2003 and 2004 were not filed either. He had them prepared, but never paid the preparer or bothered to pick them up, so they were never filed. I have a few questions on this:

1) There is a refund due for 2003 and 2004, but the statute of limitations has passed. If filed, is this refund forfeited?

2) Could the past refund be used against later year balance due?

3) Why has he not been contacted by the IRS before a month ago, and with only a CP 501?

Thanks all.

[veritas]

2003 and 2004

are lost and can not be applied to anything.

Hope you are getting money up front.

[drdino]

yes

I have a retainer already. Thats what I thought. Thank you.

[joanmcq]

probably had refunds in the early years even with the most disadvantageous filing status so no letter was sent.

[taxea]

Way past due returns

1) There is a refund due for 2003 and 2004, but the statute of limitations has passed. If filed, is this refund forfeited?
2) Could the past refund be used against later year balance due?
3) Why has he not been contacted by the IRS before a month ago, and with only a CP 501?


1. yep, refunds are lost which means 2. they cannot be used as credits for newer returns.
3. It takes time for the IRS to determine that taxes are due...minimum 18 months.

If the returns were never filed the first thing the IRS will do is require the returns to be filed. Normally they can go back 6 years but with something like this they will go back 10.
Hope the retainer was enough!taxea

[drdino]

I cant believe!

He was due a refund of over $7500 for 2004 for federal and NYS! Is there really nothing that can be done? I was hoping someone would have a small unknown exception to this rule. I cannot believe someone could be so lazy as to forfeit $7500 by not filing. I'm amazed.

[Jiggers]

Seen it before

I cannot believe someone could be so lazy as to forfeit $7500 by not filing. I'm amazed.

I have seen it before. I have also seen where a client owed lots of big bucks and mega-bucks for penalties and interest because he didn't want to hire someone to do his bookkeeping!

What he paid in penalties and interest would have paid someone to do it! And that would have been deductible, but not the penalties and interest!

[JohnH]

He was due a refund of over $7500 for 2004 for federal and NYS! Is there really nothing that can be done? I was hoping someone would have a small unknown exception to this rule. I cannot believe someone could be so lazy as to forfeit $7500 by not filing. I'm amazed.

There's usually a reason why someone foregoes a large refund, and they won't always tell you. It could be a simple matter of a health or personal crisis of some sort, but more often it's a matter of their having something they want to hide either in the refund year or a prior year.

In any event, there is something that can be done.
All he needs to do is file by April 15, 2008. (OOPS!)

[taxea]

Way past due returns

He would have to have an extremely good reason for not timely filing for the IRS to even consider waiving the penalties and interest; such as, documents destroyed in a fire or other catastrophy, injury or illness that rendered him unable to deal with preparing/filing his returns, etc. Whatever the reason he would have to be able to document his statement and this would still not guarantee they will let him use the old refunds.

Believe it or not, some people are so opposed to paying taxes that they just don't until the IRS catches up with them, and even then, many still ignore the IRS letters until the IRS levys their accounts. taxea

[bertrans]

He was due a refund of over $7500 for 2004 for federal and NYS! Is there really nothing that can be done? I was hoping someone would have a small unknown exception to this rule. I cannot believe someone could be so lazy as to forfeit $7500 by not filing. I'm amazed.

There is a(very) small exception in the IRS Restructuring and Reform Act of 1998, the 'financially disabled' provision; however, that does not apply if a return was not filed.

If the 2004 return was overpaid, the only penalty should be the Estimated Tax Penalty (if that).

[taxea]

Way past due returns

Bertran I'm pretty sure the IRS does not impose the penalty of there is a refund due on the return. taxea

[JohnH]

There would be no estimated tax penalty if there is a refund due and all tax credits are due to W-2 withholding. However, a return with a refund due can stil incur an estimated tax penalty if any of the credits are due to estimated tax payments which were not timely paid.

[ED SMITH]

Some states

allow 4 years for refunds, such as CA. Don't know if NY does.

[les grans]

There's a seven-year statute of limitations for claims arising from bad debts and worthless securities, I think, but it's mighty unlikely that it would apply here, eh?

[fliszt]

drdino - you're

not from the Twin Cities are you? Turned one down similar to this earlier this year.