Untimely Claim for Refund Denied

Posted on July 26, 2018

In a recent court case, the taxpayers, part-owners of a family business, timely filed their federal Form 1040 tax returns for 2002 and 2003 listing income from this “S” corporation. As a result of this choice of corporate form, the income or loss of an “S” corporation flows through to the owners who must report this information on their personal tax returns, even if that income was never paid to the shareholder. Unfortunately, the “S” corporation in this case became insolvent and could not pay the money that was “income” to the taxpayers, even though they paid tax on the funds they never received. The taxpayers then filed amended tax returns in November of 2007, claiming refunds for the taxes that they paid on the income they never received. Their claim for refund was denied by the IRS and the taxpayers sued for their refund. Generally, in order to obtain a refund, a taxpayer must make a timely claim for refund within three years from the date that the tax return was filed or two years from the date the tax was paid, whichever is later. Unfortunately, because the taxpayers did not make their claim for refund until 2007, the refund statute of limitation had expired. In this case, the Court held for the IRS because the taxpayers did not timely make their claim for refund as required by law. Do you think that you are entitled to a refund from the IRS? Call us, we can help.