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William Ellis, CPA
William Ellis, CPA, CPA
Category: Tax
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Experience:  Over 15 years of experience in public accounting
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A client overpaid 2008 federal income tax by $2000...

Resolved Question:

A client overpaid 2008 federal income tax by $2000, and applied the full overpayment to 2009 tax year. After the overpayment from 2008 was applied - there is no tax due for 2009. Tax returns for 2008 and 2009 were prepared in 2011.

1. My understanding is that $2000 refund is constructively received in 2011 when the tax return is filed. Please confirm.
2. When $2000 were constructively paid - in 2008, 2009, or in 2011? Is that possible that $2000 were constructively paid before they were constructively received?
3. Should there be any late payment penalties for 2009 based on that amount $2000?
4. Seems as if following instructions - there are no penalties for 2009 - do you have any reference to IRS regulations why there is no penalties if $2000 were constructively paid in 2011?
Submitted: 2 years ago.
Category: Tax
Expert:  Robin D. replied 2 years ago.

Robin D :

Hello and thank you for using Just Answer.
Penalties and interest are calculated from the due date of the return. The Balance due would have been paid in 2011 when the refunde was applied but interest and penalties started in 2010 April 15th, when the 2009 return was due.
Failure to File, IRC 6651(a)(1)

Robin D :

Failure to Pay Penalty, IRC 6651(a)(2) and IRC 6651(a)(3)

Customer:

Thanks for the information. Are you able to answer the full question?

Robin D :

The late payment of the tax would apply since the return was not filed on time. Having the payment due covered by the application of the refund would ensure that no penalty would be added. You would have to look to the IRS codes I advise don to see that the penalty would not apply. Penalty and interest could only be calculated on a the balance due and since there would be no balance due there would be no penalty to calculate.

Customer:

I understand about the penalty. When $2000 were constructively paid - in 2008, 2009, or in 2011? Is that possible that $2000 were constructively paid before they were constructively received?

Robin D :

Yes, because the return that was filed had the amount applied. The amount paid was when the return was filed. So if the 2009 return was filed on time there would be no penalty or interest. If the 2009 return was filed late, the dtae of actual filing is the payment date.

Customer:

Thanks for the reply. I am still interested in information that has nothing to do with the penalty... A client overpaid 2008 federal income tax by $2000, and applied the full overpayment to 2009 tax year. After the overpayment from 2008 was applied - there is no tax due for 2009. Tax returns for 2008 and 2009 were prepared in 2011.

Customer:

1. Was the $2000 refund constructively received in 2011, when the tax return was filed?

Customer:

2. When were the $2000 constructively paid - in 2008, 2009, or in 2011? Is that possible that $2000 were constructively paid before they were constructively received?

Customer:

Thanks again for your help... :-)

Robin D :

The answer the balance due for 2009 was paid when the 2008 return was received/filed. So the 2009 return is dependent on the 2008 filing date as the refund was applied to the 2009 from the 2008.

Customer:

In summary, would you agree that Q1=2011 and Q2=2011? (You can disregard Q3 and Q4).

Customer:

Sorry - Rewording the original question to read: "A client overpaid 2008 STATE income tax by $2000, and applied the full overpayment to 2009 tax year. Tax returns for 2008 and 2009 were prepared in 2011."

Customer:

With that, would you agree that Q1=2011 and Q2=2011?

Expert:  William Ellis, CPA replied 2 years ago.
Contrary to what Robin wrote, if there was never a balance due--even when the return is filed late--there can be no penalties. All penalties and interest are calculated as a percentage of the balance due.

The due date for claiming a refund for 2008 was April 15, 2011. Since you had the refund applied to 2009, you have effectively dealt with this. You can still claim the refund for 2009 until April 15, 2012. If there had been any balance due for 2009 after the refund was applied, all of the penalties and interest would have been applied going back to April 15, 2010 or October 15, 2010 if an extension was filed. Failure to file penalties do not apply as long as you are expecting a refund. The issue of constructive receipt and payment really do not apply since both actually occurred during or prior to tax year 2008. Let me know if you have any additional questions, Bill.
William Ellis, CPA, CPA
Category: Tax
Satisfied Customers: 296
Experience: Over 15 years of experience in public accounting
William Ellis, CPA and 2 other Tax Specialists are ready to help you
Customer: replied 2 years ago.
For William Ellis, please... circling back to the original question:

The main question is how to treat 2008 state overpayment applied to 2009 state tax - for federal deduction purposes - should it be deducted on the schedule A for 2009 (the tax year to which it applies) or 2011 (the year the tax return was filed)? Seems I can't find any IRS authority.

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