It is hard to imagine someone missing out on claiming a refund that is owed to them. After all, that is money that could be used to offset bills, pay for education, or save for retirement. However, from time to time, taxpayers fail to file a tax return for one reason or another. For the most part, the taxpayer can still get the refund so long as they file a return within three years. But, what happens if you don’t? Unfortunately, for most taxpayers the refund is barred after three years. But for a few, there may still be some hope. In this article, we will explore the meaning of “Financial Disability” and how taxpayers may still be able to get a refund that falls beyond the three year mark.
How To Claim A Refund Or Tax Credit
Most taxpayers probably don’t realize that by filing a tax return you are making a claim for a refund or credit. After all, a tax return is simply the taxpayer reporting to the IRS or state how much income they made against how much they paid in taxes or tax credits they should receive. On the return, if it shows that the taxpayer overpaid taxes during the year, a refund is issued.
You can also claim a refund or tax credit by filing an amended tax return. Amending a return is used when the taxpayer finds information that should have been included on a tax return after the return has been filed. In certain cases the amending of a tax return can result in a refund being due.
Finally, you can submit a claim for refund that is not income tax related by using IRS form 843 Claim For Refund and Request For Abatement.
Time Frame For Submitting A Claim For Refund Or Credit
Submitting a claim for refund can not only be used for having a refund issued to you but also for reducing the amount of tax you may owe. For instance, if a taxpayer who owes for a certain tax year later finds information that shows they should have owed less tax or not owed at all, they can file a claim for refund by one of the above mentioned processes. In this scenario the “refund” that is being claimed is really just being applied to the current tax liability.
However, it is important to know that there is a time limit on how long a taxpayer can wait before a claim for refund or credit will not be considered. Under Internal Revenue Code (“IRC”) § 6511(a) a taxpayer must file a claim for credit or refund of tax within three years after the date of filing a tax return or within two years after the date of payment of the tax, whichever period expires later. Generally, this means that a taxpayer has three years to submit a claim for refund or credit from the date the tax return was due or if they have an amount due, they have two years from the date the amount due was paid to submit a claim for refund.
Example 1:
Taxpayer A files their 2018 tax return by the April 15th, 2019 deadline with a balance due of $200. Should Taxpayer A find information showing they were eligible to claim a tax credit on their return that would have lowered their total tax owed by $1,000, effectively making them eligible for an $800 refund ($1000 – $200), they would need to file an amended return before April 15th, 2022 in order to receive the refund.
Example 2:
Taxpayer B files their 2018 return by April 15th, 2019 with a balance due of $1,000. They do not pay the balance due with their tax return. By April 15th, 2022 they still have not paid the balance due or submitted a claim for refund. Finally, on April 15th, 2024 they pay the balance due. If Taxpayer B finds information that shows they should not have actually owed the $1,000, they are able to submit a claim for refund by April 15th , 2026.
There are multiple ways in which a tax is considered to have been paid besides the taxpayer willfully paying the tax.
- The IRS levies on funds of the taxpayer.
- Taxes paid through garnishments on wages and assets are considered paid on the various dates the garnishments were applied to the taxes.
- Withheld income tax and estimated tax payments are considered to be paid on the date the tax return is due.
- Seized property is not considered payment until it is sold.
- Payments made through the application of the refund for another year is considered paid when the offset was made.
What If A Tax Return Is Filed Late?
It’s a common misconception that if a taxpayer never files a return where they would be due a refund, they will be able to file one at any time to receive this refund. This is incorrect. A taxpayer who does not file a tax return where a refund would be due generally has three years from the original filing deadline to file the return and receive the refund.
Financial Disability Can Extend The Time Frame For Claims
Financial Disability is a term used when it can be proven that a taxpayer was mentally or physically unable to handle their financial affairs. Now, the impairment must have lasted, can be expected to last not less than 12 months, or can be expected to result in the death of the taxpayer. However, if the taxpayer during the time of financial disability has a spouse or someone authorized to act on their behalf concerning financial matters, the taxpayer would not be considered financially disabled.
Information that is needed in order to prove financial disability:
- A written statement from a physician that is qualified to make the determination that the taxpayer was mentally or physically unable to attend to their financial matters.
- Within this letter should be a description of the impairment, the physician’s medical opinion that the taxpayer was unable to attend to their financial matters, that the impairment will result in death or last no less than 12 months, the time period for which the taxpayer was impaired, and used the following certification, “I hereby certify that, to the best of my knowledge and belief, the above representations are true, correct, and complete.”
- A written statement by the person signing the claim for refund or credit. If not the taxpayer then the taxpayer’s spouse or authorized representative.
This information is then sent in along with the tax return, amended tax return, or form 843, whichever is applicable. For the Franchise Tax Board, the taxpayer would submit the above information along with FTB form 1564. If granted, the time to claim a credit or refund would be extended by the amount of time the taxpayer was deemed to be financially disabled.
Conclusion
This biggest takeaway here is to always file tax returns on time whenever possible. If a taxpayer is unable to file their return, they still have time to claim the refund or credit but, time is limited and waiting too long may mean never receiving the refund or credit. However, if a taxpayer is mentally or physically impaired they may be able to have the time limit for claiming a refund or credit extended.
