Amended returns generally have to be filed to recoup overpayments of tax. What counts as a refund claim is open to interpretation, as the courts have allowed a myriad of written documents to qualify. But what about the IRS report itself? If it includes a taxpayer favorable adjustment, is the report itself an informal refund claim? The IRS recently addressed this in CCA 201921013.
About Refund Claims
Our system of tax administration for income taxes is based on self reporting. Taxpayers file returns and the IRS decides whether to process them and then, in some cases, it makes changes to the returns.
Taxpayers also have the ability to make changes to a return that is filed. This is typically done when a change would result in a refund for the taxpayer.
The IRS has published several tax forms that are used for requesting refunds. While it is advisable to use these forms, the forms are not always required. This brings us to informal claims for refund.
Informal Claims for Refund
The courts have long recognized that a written document that apprises the IRS of the basis and amount of a refund, can count as a refund. The courts have allowed everything from written letters to incorrect tax forms to count.
These cases generally say that the claim has to be in writing and it has to have enough detail to apprise the IRS of the grounds for the refund.
But what about information presented to the IRS verbally that the IRS accepts and reports back to the IRS in its Revenue Agent Report?
The IRS memo that is the subject of this post addresses the Form 4549. The Form 4549 is considered to be a part of the IRS’s Revenue Agent Report. It is the IRS report that an auditor uses to show the calculations for adjustments. It usually provided to the taxpayer at the end of the IRS audit process.
The IRS memo concludes that the Form 4549 is sufficient to be an informal claim. This can have wide ranging consequences for taxpayers who are audited by the IRS.
Why is it Important?
The law requires taxpayers to file a refund claim within three years of the original tax return (technically, or the later of the time the tax is paid). Given that a Form 4549 is an informal refund claim as to any favorable item included therein, it would satisfy the refund claim rules. Absent a timely refund claim, the IRS generally cannot issue a refund.
So the Form 4549 preserves the taxpayer’s right to bring suit to recoup the refund, if the IRS does not issue a refund to the taxpayer timely. The taxpayer just has to wait six months past the date the refund claim was submitted. While this may help some taxpayers, it may harm others.
Suit generally has to be brought within two years of the date the refund claim is submitted. The time starts running from the date the refund claim is submitted. Unsuspecting taxpayers may not realize that the Form 4549 is a refund claim and they miss the filing deadline for bringing suit. This might happen in instances where the taxpayer believes that the tax is unpaid for other unfavorable adjustments, so they can file a refund claim at a later point.
This presents a number of timing questions. One of which is whether multiple Forms 4549 constitute separate refund claims? It is not uncommon for the IRS to send multiple Forms 4549 throughout the course of the IRS audit. If the initial form is issued and then the audit continues for several years, what date do you count as the date the refund claim was submitted? Is it the earliest report or the last report?