Taxpayers often miss tax filing deadlines. This is even true when the IRS owes the taxpayer money back. Taxpayers have a limited time to request a refund of overpayments. The recent Harrison v. Commissioner, No. 3:19-cv-00194 (2nd Cir. 2020) case provides an opportunity to consider these rules–particularly the mailbox rule.
Facts & Procedural History
This case involves the 2012 tax year. It was for a Form 1040, Individual Income Tax Return. The tax return for this year was due on April 15, 2013.
The taxpayers had tax withholding from their wages in 2012 for the tax return due in 2013.
The taxpayers requested and obtained an extension to file the return until October 15, 2013. The taxpayers did not meet this deadline.
Instead, the taxpayers filed the tax return just prior to October 15, 2016 — nearly three years after the extended deadline. The return reflected an overpayment (due to the tax withholding from their wages), and requested a refund.
The IRS audited the tax return and denied the refund. The IRS noted that the refund was not timely filed. The trial court agreed. The taxpayers filed a motion for reconsideration, which was granted by the appeals court.
Tax Refund Filing Deadline
The tax rules say that one can only recoup amounts paid within three years from the date the refund request is filed. More specifically, the code limits refunds to payments made in the prior “3 years plus the period of any extension of time for filing the return.”
Here is the language from Section 6511:
(A)Limit where claim filed within 3-year period
If the claim was filed by the taxpayer during the 3-year period prescribed in subsection (a), the amount of the credit or refund shall not exceed the portion of the tax paid within the period, immediately preceding the filing of the claim, equal to 3 years plus the period of any extension of time for filing the return. If the tax was required to be paid by means of a stamp, the amount of the credit or refund shall not exceed the portion of the tax paid within the 3 years immediately preceding the filing of the claim.
(B)Limit where claim not filed within 3-year period
If the claim was not filed within such 3-year period, the amount of the credit or refund shall not exceed the portion of the tax paid during the 2 years immediately preceding the filing of the claim.
(C)Limit if no claim filed
If no claim was filed, the credit or refund shall not exceed the amount which would be allowable under subparagraph (A) or (B), as the case may be, if claim was filed on the date the credit or refund is allowed.
The IRS can still allow a refund claim after these periods, but absent a timely filed refund claim, the refund amount cannot be returned to the taxpayer. The amount goes into the government’s excess collections fund. This is an undenominated account with the government that isn’t tied to any one taxpayer’s social security number or employer identification number.
The Mailbox Rule
The mailbox rule comes into play here too. This rule generally says that a tax return is deemed filed on the date it is placed in the mail (assuming certain conditions are met, such as using the USPS, UPS, FedEx, etc.; proper postage; etc.).
The mailbox rule applies if a return is mailed before a due date–either an original tax return due date or the extended due date. If it applies, it trumps the normal rule that a tax return is filed on the date the IRS actually receives the tax return (note that the mailbox rule also applies in to filing tax court petitions).
Here is the language in Section 7502 for the mailbox rule:
If any return, claim, statement, or other document required to be filed, or any payment required to be made, within a prescribed period or on or before a prescribed date under authority of any provision of the internal revenue laws is, after such period or such date, delivered by United States mail to the agency, officer, or office with which such return, claim, statement, or other document is required to be filed, or to which such payment is required to be made, the date of the United States postmark stamped on the cover in which such return, claim, statement, or other document, or payment, is mailed shall be deemed to be the date of delivery or the date of payment, as the case may be.
There is also a common law mailbox rule, but we don’t need to consider that rule for this case (here is an article on the difference between the two mailbox rules).
The Timing in This Case
To understand this case, one has to understand that taxes withheld from employee wages are deemed paid by the employee on the due date of the return. So the payments in this case were made on April 15, 2013.
The question was whether the taxpayer could recoup payments made in 2012, even though the refund claim was not filed until October of 2016.
As applied in this case, the taxpayer had until October 15, 2016 to file a refund claim to recoup monies withheld from his wages in 2012 for the 2013 tax year. This October 15, 2016 date factors in the six month extension the taxpayer filed for 2013.
The IRS may not have received the tax return until after the October 2016 deadline, but it was mailed to the IRS before the deadline. This is where the mailbox rule comes in. By applying the mailbox rule, the taxpayer’s refund claim was timely filed.
The takeaway from this case is that taxpayers should not be discouraged when the IRS gets it wrong. If the taxpayer filed a timely refund claim and the refund claim is disallowed by the IRS, the taxpayer should pursue their administrative remedies. If that is not successful, they should not shy away from tax litigation.