Two Questions

[Black Bart]

1. My client is just now filing tax year 2000. He was owed a refund ($4,000) but can't get the money because that year has expired. I also am filing 2004 for which he owes about that same amount. Even though he can't get the cash, can that refund amount be applied against the 2004 tax due?

2. Client married filing separately. He has enough to itemize (he paid everything), but she doesn't have enough and wants to take standard deduction. Who gets to make the choice of filing status? First one to file or what?

[Snaggletooth]

Two Answers

Bart, no regulation or code # but just some things I've been taught along the way.

For example, I've been "taught" that refunds beyond the statute of limitations are simply
Bye Bye. Exactly that. Cannot be claimed to offset existing liabilities.

I've read over and over again in definitions of "certain persons who MUST itemize" there are a few categories. One of the categories is exactly the situation you describe. If ONE of the MFS parties itemizes, the other party MUST itemize, even though their deductions may fall short of the standard deduction. It apparently doesn't matter which party itemizes first (although it's not supposed to matter for parents who claim their kids either and we both know better).

Somewhere in your software, there should be a special box to check for persons whose spouse itemizes. If the box is indicated, then the software should show the itemized deduction amounts, and not override with the standard deduction. I don't remember whether ATX did this or not, but they should.

[Richard]

Breaking the rules...?

2. Client married filing separately. He has enough to itemize (he paid everything), but she doesn't have enough and wants to take standard deduction. Who gets to make the choice of filing status? First one to file or what?

Are there children involved in this? I was just reading where in a very narrow situation the rule requiring both to itemize or not can be broken. I think it related to the situation where one taxpayer is filing HoH and the other MFS. If this is your case then I'll try to find that information. (It may be tomorrow night before I can locate it.)

[Black Bart]

No

MFJ. Thanks anyway.

[Black Bart]

Snag

Oh! It just sunk in. Now I get it. It doesn't matter who files first, last, or whatever as far as IRS is concerned. If somebody took standard and the itemizer filed later, then the first filer would be obligated to amend or get a bill (whichever comes first). So, using that tactic, IRS can't lose. Since the non-paying standardizer is probably going to come up short when forced to amend or gets billed, IRS will make money off the deal no matter what procedure is followed. Very crafty.

You know, though, over the years I'm pretty sure that some separated couples I know have filed differently for that and I've never yet seen or heard of anybody being billed or notified about it. You?

Also, I've never amended for anybody for that.

[Black Bart]

Richard

MFJ. Thanks anyway.

I meant MFS and no kids, parents, etc., so no HH.

[S T]

MFS part of the question

I did a little research and could find nothing about which filer dominates the itemized or standard deduction on a MFS return filing.

Simply states under the regulations that if one MFS party files itemized, then the other MFS party must also itemize and is not allowed the Standard Deduction.

Usually, as tax preparers we do not prepare both tax returns so we would have no way of knowing how one party filed vs the other party. I guess IRS thinks that MFS parties communicate with each other. Maybe isn't that the reason they are no longer a MFJ (joint).

Also on your other post on this thread, I also have not seen any notices about a correction if the one MFS party filed for standard deduction, when the other MFS party filed itemized.

If you are preparing both returns, then you would need to proceed accordingly, and file the one itemized and the other must itemize as well.

Sandy

PS I will look to see if I can find any insight on the 2000 return with refund filing late (beyond the claim to refund) to see if possible to apply to a current return. I don't think so, but there was a discussion about this before that now is deleted off the QF Board. I hope this Board doesn't delete our postings for a while, not sure how long they will remain, I know we are beyond 8 weeks, which is terrific!!!

[ED SMITH]

Amended too late

There is one exception to amending a return past the deadline. It applies to returns having a tax liability which can be reduced by amending. However, there is never a refund and if there has been an overpayment it can never be transferred to another year to offset a liability.

In the days before computers, this was probably too difficult to track, but NOW there's no reason why a taxpayer shouldn't get a refund, even if it is 6 years old. (That's how long it is tracked in their system).

Just another part of our fair and equitable tax system.

ED

[S T]

File Late and Refund

Bart, Found these for you on the 2000 return not filed and refund.

Any refund you would have been eligible for won't be refunded to you or credited against amounts you may owe more than three years after the date the return for that year was due.

link is http://www.lawyers.com/lawyers/A~100...RS+FILING.html

There is no penalty for failure to file a tax return if a refund is due. But by waiting too long to file, you can lose your refund. In order to receive a refund, the return must be filed within 3 years of the due date. If you file a return, and later realize you made an error on the return, the deadline for claiming any refund due is three years after the return was filed, or two years after the tax was paid, whichever expires later.

link is http://www.irs.gov/businesses/small/...108327,00.html

So it seems that the very late filing cost your taxpayer about $8,000 ($4,000 loss in refund plus the $4,000 that they owe on current return).

Sandy

[Black Bart]

Okay,

Thanks for the research, guys and gals.

Basically, looks like my guy's out of luck vis-a-vis the old refund being applied to the new tax.

On the other hand, as I now understand it, he can file itemized and whether or not she files in a mode that agrees, either now or later, is between her and IRS and my guy is not affected.

Hmmm, gosh, that seems unfair in a way. As Sandy said, most times we do only one of them and since they generally aren't speaking, the standard person won't know that the other has placed a burden on him/her to file the other way. I guess I never resolved this question in real life before because I was just doing one's tax and I don't think IRS ever wrote the other about the difference. If they had I'd surely have heard about it from my client if he/she was the injured party, as I have filed for both types (std & item)) in the past.