Refund offset of prior year balance due

[robgold78]

Client did not file tax returns from 2005-2016. Owed money for 2005 & 2006, but was due refunds (all tax withholding, no refundable credits) in all other years. Client realizes the 3 year statute of limitations on receiving refund, but feels her federal withholding should cover balance due/interest & penalties for '05 & '06. Any thoughts ??

[Roland Slugg]

Well, has the IRS inquired about 2005 and 2006, or any of the other distant years? Why is this coming up now?

If IRS has not asked about the old years, it's unlikely it ever will. The SOL, of course, doesn't start to run until a return is filed, so your client COULD still be nailed for those two old years.

Your client can not get refunds for any years prior to 2013, as you acknowledged, but under the mitigation rules, she might be eligible to have the overpayments from the closed years applied against the balances due for 2005 and 2006. See Code §1311, §1312 and §1313. I have not recently reviewed those rules, but you may wish to.

[robgold78]

Thanks for your response. Returns have been filed for all years (2005-2015). Client has received refunds for 2013-2015 & recently got letter for balance due + interest/penalties for 2005 & 2006. She was due refunds for 2007 thru 2012 which client won't receive due to SOL, but feels (as do I) that because refunds were entirely her own withholding & not due to any refundable tax credits that 2005/2006 balances s/b zeroed out.

Thanks for your help

[FEDUKE404]

Wishin' & hopin'

Thanks for your response. Returns have been filed for all years (2005-2015). Client has received refunds for 2013-2015 & recently got letter for balance due + interest/penalties for 2005 & 2006. She was due refunds for 2007 thru 2012 which client won't receive due to SOL, but feels (as do I) that because refunds were entirely her own withholding & not due to any refundable tax credits that 2005/2006 balances s/b zeroed out.

Thanks for your help

Sadly, I don't think the IRS will see things quite the same way as you and your client might wish.

Why in the world would someone NOT file tax returns for well over a decade? ? ? ?

FE

[Roland Slugg]

... but feels (as do I) ...

Her "feelings" (as well as your own) are irrelevant. The availability of the 2007 et seq overpayments to be used as offsets against prior balances due depends on the mitigation provisions in the tax law, to which you were referred already.

Btw, I see you are new to this board ... welcome. It is helpful if you give all relevant facts in an initial post. In your first post you wrote:

Client did not file tax returns from 2005-2016.

... leading readers, well, as least this reader, to think you were seeking advice regarding the advisability of preparing and filing all those old returns.

... but in your next post, you wrote just the opposite:

Returns have been filed for all years (2005-2015).

Now that your facts have been clarified, my advice would be that you or the client write a carefully drafted letter to the IRS. That letter should set forth all the facts, including a year-by-year list of the overpayments from 2007 through 2012, and request that IRS apply the mitigation provisions of Code Sections 1311/1312/1313 to the situation.

[New York Enrolled Agent]

Her "feelings" (as well as your own) are irrelevant.

and request that IRS apply the mitigation provisions of Code Sections 1311/1312/1313 to the situation.

Roland - you're spot-on in your observation. The taxpayer's feelings are irrelevant. She should be reminded of her responsibility to file a tax return as required. As Judge McLaughlin wrote in Weisbart 222 F.3d 93 "the Tax Code was obviously not set up to indulge the dilatory"

I don't think the mitigation sections will be applicable here. Those sections are designed to correct specific errors for closed years as listed in §1312. IMO, filing a tax return late is not an error that falls under the mitigation umbrella.

[TAXNJ]

Agree- was trying to understand why that code section was referenced when the Original Poster did not indicate it was "error" based. Also, agree with Her "feelings" (as well as your own) are irrelevant. ; many clients "feelings" are hurt as it relates to paying taxes.

[robgold78]

Thank you everyone for your input. The reason I "feel" taxpayer should get credit for tax withheld as a credit to the prior years balance due is the IRS had this money in a somewhat timely fashion & earned interest on it, irregardless of whether or not actual return was filed for 2005/2006. I'm shocked this has never been challenged in tax court (or has it ??). To charge interest on money the government already had seems ridiculous.

[TAXNJ]

Thank you everyone for your input. The reason I "feel" taxpayer should get credit for tax withheld as a credit to the prior years balance due is the IRS had this money in a somewhat timely fashion & earned interest on it, irregardless of whether or not actual return was filed for 2005/2006. I'm shocked this has never been challenged in tax court (or has it ??). To charge interest on money the government already had seems ridiculous.

You do have that option to challenge it and ask the tax court for relief. Again what is the reason for not filing returns for ten years? Is it a good defense?

[New York Enrolled Agent]

You do have that option to challenge it and ask the tax court for relief.

Actually, you need a "ticket" to get into Tax Court. The ticket is most frequently a notice of deficiency.

Based on the original post, there is no ticket right now. The taxpayer failed to timely file and now suffers the consequences.

[David1980]

To charge interest on money the government already had seems ridiculous.

One point of confusion for me at least - the "money the government already had" is referring to 2007-on right? You are not saying that the taxes were already paid for 2005 and 2006 specifically but rather that over the 2005-2016 period the missed refunds would have covered 2005/2006?

The way you're talking about "already had" makes me wonder if you're saying the 2005/2006 was already paid by 2005 and 2006 tax withholding?

[TaxGuyBill]

Section 31 says that withholding is "a credit for the taxable year beginning in such calendar year".

In other words, it belongs to the specific year. Unless you can find a specific provision that overrides that to allow it to be credited to previous taxes owed (which I doubt exists), I think you are stuck.

https://www.law.cornell.edu/uscode/text/26/31

[TAXNJ]

Actually, you need a "ticket" to get into Tax Court. The ticket is most frequently a notice of deficiency.

Based on the original post, there is no ticket right now. The taxpayer failed to timely file and now suffers the consequences.

Thought A notice of deficiency, or A notice of determination was received based on the Original Posters second reply post.

If not or misunderstood, then if one or the other is received then Original Poster knows how the process can start.