Claims for Refund

Once you have paid your tax, you have the right to file a claim for a credit or refund if you believe the tax is too much. You can claim a credit or refund by filing Form 1040X, Amended U.S. Individual Income Tax Return.

File your claim by mailing it to the Internal Revenue service center where you filed your original return. File a separate form for each year or period involved. Include an explanation of each item of income, deduction, or credit on which you are basing your claim.

Corporations should file Form 1120X, Amended U.S. Corporation Income Tax Return, or other form appropriate to the type of credit or refund claimed.

Requesting a copy of your tax return. You can obtain a copy of an earlier year tax return from the IRS. Use Form 4506, Request for Copy or Transcript of Tax Form, from your local IRS district office, or call toll-free 1-800-829-3676 (1-800-TAX-FORM). You will be charged a fee, which you must pay when you submit Form 4506.

Requesting a copy of your tax account. You can also obtain a free copy of the tax account (a transcript) for your individual income tax return. To get your transcript, call or write to your local Internal Revenue Service office. You cannot get this information by calling the toll-free number given above. The transcript will give you the following information:

• Type of return filed,
• Marital status,
• Tax shown on return,
• Adjusted gross income,
• Taxable income,
• Self-employment tax, and
• Number of exemptions.

Time for Filing a Claim for Refund

You must file a claim for a credit or refund within 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later. If you do not file a claim within this period, you may no longer be entitled to a credit or a refund.

If the due date to file a return or a claim for a credit or refund is a Saturday, Sunday, or legal holiday, it is filed on time if it is filed on the next business day. Returns you filed before the due date are considered filed on the due date. This is true even when the due date is a Saturday, Sunday, or legal holiday.

Late returns are not filed until received by the Internal Revenue Service.

Nonfilers can get refund of overpayments paid within 3-year period. The Tax Court can consider taxes paid during the 3-year period preceding the date of a notice of deficiency for determining any refund due to a nonfiler. This means that if you do not file your return, and you receive a notice of deficiency in the third year after the due date (with extensions) of your return and file suit with the Tax Court to contest the notice of deficiency, you may be able to receive a refund of excessive amounts paid within the 3-year period preceding the date of the notice of deficiency.

Claim for refund by estates electing the installment method of payment. Effective July 23, 1998, the executor no longer needs to wait until all the installment payments have been made before filing a suit for refund with a Federal District Court or the U.S. Court of Federal Claims, for an estate:

• That consists largely of an interest in a closely-held business, and
• That elected to make tax payments through the installment method.

However, all the following must be true before a suit can be filed.

• All installment payments due on or before the date the suit is filed have been made.
• No accelerated installment payments have been made.
• No Tax Court case is pending with respect to any estate tax liability.
• The time for petitioning the Tax Court has passed if a notice of deficiency was issued to the estate regarding its liability for estate tax.
• No proceeding is pending for a declaratory judgment by the Tax Court on whether the estate is eligible to pay tax in installments.

In addition, the executor must:

• Not include any previously litigated issues in the current suit for refund, and
• Not discontinue making installment payments, timely, while the court considers the suit for refund.

If in its final decision on the suit for refund the court redetermines the estate's tax liability, the IRS must refund any part of the estate tax amount that is disallowed. This includes any part of the disallowed amount previously collected by the IRS.

Before July 23, 1998, federal district courts and the U.S. Court of Federal Claims could only consider suits for refund when full payment of the assessed tax liability had been made.

Limit on Amount of Refund

If you file your claim within 3 years after filing your return, the credit or refund cannot be more than the part of the tax paid within the 3 years (plus any extension of time for filing your return) before you filed the claim.

Example 1. You made estimated tax payments of $1,000 and got an automatic extension of time to August 15, 1998, to file your 1997 income tax return. When you filed your return on that date, you paid an additional $200 tax. Three years later, on August 15, 2001, you file an amended return and claim a refund of $700. Because you filed within the 3 years plus the 4-month extension period, you could get a refund of $700.

Example 2. The situation is the same as in Example 1, except that you filed your return on October 31, 1998, 2 1/2 months after the extension period ended. You paid an additional $200 on that date. Three years later, on October 25, 2001, you file an amended return and claim a refund of $700. Although you filed your claim within 3 years from the date you filed your original return, the refund is limited to $200. The estimated tax of $1,000 was paid before the 3 years plus the 4-month extension period.

Claim filed after the 3-year period. If you file a claim after the 3-year period, but within 2 years from the time you paid the tax, the credit or refund cannot be more than the tax you paid within the 2 years immediately before you filed the claim.

Example. You filed your 1997 tax return on April 15, 1998. You paid $500 in tax. On November 3, 1999, after an examination of your 1997 return, you had to pay $200 in additional tax. On May 2, 2000, you file a claim for a refund of $300. Your refund will be limited to the $200 you paid during the 2 years immediately before you filed your claim.

Exceptions

The limits on your claim for refund can be affected by the type of item that forms the basis of your claim.

Special refunds. If you file a claim for refund based on one of the items listed below, the limits discussed earlier under Time for Filing a Claim for Refund may not apply. These special items are:

• A bad debt,
• A worthless security,
• A payment or accrual of foreign tax,
• A net operating loss carryback, and
• A carryback of certain tax credits.

The limits discussed earlier also may not apply if you have signed an agreement to extend the period of assessment of tax.

Periods of financial disability. The period of limitations on credits and refunds (3 years from the time you file your return or 2 years from the time you paid your tax) can be suspended during periods when you, an individual taxpayer, cannot manage your financial affairs because of physical or mental impairment that is medically determinable and either:

• Has lasted or can be expected to last continuously for at least 12 months, or
• Can be expected to result in death.

The period for filing a claim for refund will not be suspended for any time that someone else, such as your spouse or guardian, was authorized to act for you in financial matters.

To claim that you were financially disabled, the following statements are to be submitted with the claim for credit or refund of tax:

1. A written statement signed by a physician, qualified to make the determination, that sets forth:
   1. The name and a brief description of your physical or mental impairment,
   2. The physician's medical opinion that your physical or mental impairment prevented you from managing your financial affairs,
   3. The physician's medical opinion that your physical or mental impairment resulted in or can be expected to result in death, or that it has lasted (or can be expected to last) for a continuous period of not less than 12 months, and
   4. To the best of the physician's knowledge, the specific time period during which you were prevented by such physical or mental impairment from managing your financial affairs, and
2. A written statement by you or the person signing the claim for credit or refund that no person, including your spouse, was authorized to act on your behalf in financial matters during the period described in paragraph (1)(d) of this section. Alternatively, if a person was authorized to act on your behalf in financial matters during any part of the period described in paragraph (1)(d), the beginning and ending dates of the period of time the person was so authorized.

The period of limitations will not be suspended on any claim for refund that (without regard to this provision) was barred as of July 22, 1998.

Processing Claims for Refund

Claims are usually processed shortly after they are filed. Your claim may be accepted as filed or it may be examined. If a claim is examined, the procedures are the same as in the examination of a tax return.

However, if you are filing a claim for credit or refund based only on contested income tax or on estate tax or gift tax issues considered in previously examined returns and you do not want to appeal within the IRS, you should request in writing that the claim be immediately rejected. A notice of claim disallowance will then be promptly sent to you. You have 2 years from the date of mailing of the notice of disallowance to file a refund suit in the United States District Court or in the United States Court of Federal Claims.

Explanation of Any Claim for Refund Disallowance

The IRS must explain to you the specific reasons why your claim for refund is disallowed or partially disallowed. Claims for refund are disallowed based on a preliminary review or on further examination by a revenue agent. This means that either:

1. You receive a form explaining that your claim is disallowed because it:
   1. Was filed late,
   2. Was based solely on the unconstitutionality of the revenue acts,
   3. Was waived as part of a settlement,
   4. Covered a tax year or issues which were part of a closing agreement or an offer in compromise, or
   5. Related to a return closed by a final court order, or
2. You receive a revenue agent's report explaining the reasons that your claim is disallowed.

Reduced Refund

Your refund may be reduced by an additional tax liability.

Also, your refund may be reduced by amounts you owe for past-due child support or by debts you owe to another federal agency. You will be notified if this happens. For those reductions, you cannot use the appeal and refund procedures discussed in this publication, but you may be able to take action against the other agency.

Offset of past-due state income tax obligations against overpayments. After December 31, 1999, federal tax overpayments can be used to offset past-due, legally enforceable state income tax obligations. For the offset procedure to apply, your federal income tax return must show an address in the state that requests the offset. In addition, the state must first:

• Notify you by certified mail with return receipt that the state plans to ask for an offset against your federal income tax overpayment,
• Give you at least 60 days to show that some or all of the state income tax is not past due or not legally enforceable,
• Consider any evidence from you in determining that income tax is past due and legally enforceable,
• Satisfy any other IRS requirements to ensure that there is a valid past-due, legally enforceable state income tax obligation, and
• Show that all reasonable efforts to obtain payment have been made before requesting the offset.

Past-due, legally enforceable state income tax obligation. This is an obligation (debt):

1. Established by a court decision or administrative hearing and no longer subject to judicial review, or
2. That is assessed, uncollected, and less than 10 years overdue.

Offset priorities. The IRS must offset amounts owed by you against your overpayments in the following order.

1. Federal income tax owed.
2. Past-due child support.
3. Past-due, legally enforceable debt owed to a federal agency.
4. Past-due, legally enforceable state income tax debt.
5. Future federal income tax liability.

Note. If more than one state agency requests an offset for separate debts, the offsets apply against your overpayment in the order in which the debts accrued. In addition, state income tax includes any local income tax administered by the chief tax administration agency of a state.

Note. The Tax Court cannot decide the validity or merits of the credits or offsets (for example, collection of delinquent child support or student loan payments) made by the IRS that reduce or eliminate a refund to which you were otherwise entitled.

Injured spouse exception. When a joint return is filed and only one spouse owes past-due child and spousal support or a federal debt, the other spouse can be considered an injured spouse. An injured spouse can get a refund for his or her share of the overpayment that would otherwise be used to pay the past-due amount.

To be considered an injured spouse, you must have:

1. Filed a joint return,
2. Received income (such as wages, interest, etc.),
3. Made tax payments (such as federal income tax withheld from wages or estimated tax payments), and
4. Reported the income and tax payments on the joint return.

If you are an injured spouse, you can obtain your portion of the joint refund by completing Form 8379, Injured Spouse Claim and Allocation. Follow the instructions on the form.

Relief from joint and several liability on a joint return. Generally, joint and several liability applies to all joint returns. This means that both you and your spouse (or former spouse) are liable for any tax shown on a joint return plus any understatement of tax that may become due later. This is true even if a divorce decree states that a former spouse will be responsible for any amounts due on previousely filed joint returns.

In some cases, a spouse will be relieved of the tax, interest, and penalties on a joint tax return. Three types of relief are available.

• Innocent spouse relief.
• Separation of liability.
• Equitable relief.

Form 8857. Each kind of relief is different and has different requirements. You must file Form 8857 to request relief. See the instructions for Form 8857 and Publication 971 for more information on these kinds of relief and who may qualify for them.