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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22335
Experience:  Taxes, Immigration, Labor Relations
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I filed an extension for my 2008 tax return in Aug 2012. We

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I filed an extension for my 2008 tax return in Aug 2012. We had many personal issues that caused me to be late filing. The IRS gave me until Sept 2012 to complete the return (3 years from due date plus extensions). Oklahoma's tax booklet (instructions for filing) said they followed IRS rules but they are not on this situation. I am self-employed and paid in $13k extra in '07 & '08, in good faith, which would have paid my OK taxes at least through 2012. They are saying the refund (or roll-over) is barred. They never sent me any notices but expected me to know thousands of pages of tax law. I will have to pay this tax all over again plus I will now owe penalties and interest that I would not have owed. Is there any law or case law in favor of the small business person? Is there any argument in my favor or anyone who can win this appeal for me?
Submitted: 5 months ago.
Category: Tax
Expert:  Lev replied 5 months ago.

 

Lev :

Hi and welcome to our site!
Unfortunately there is a deadline to request an extension.
The deadline to file an extension for your 2008 tax return is Apr 15, 2009. Any filing after that date would not have any effect...
However - you still need to file your 2008 tax return as soon as possible.

Please be aware that an extension of time to file your return does not grant you any extension of time to pay your tax liability.

Another issue with claiming a refund....

If the claim for credit or refund is not filed within the three-year period for filing a claim, the amount is limited to the portion of tax paid (the payment of tax could be for tax, penalty, or interest) within the two year period prior to the filing of the claim.

 

1.
The period of limitations for claiming a credit or refund may be extended by agreement only by the execution of a consent to extend the period of limitations on assessment (e.g., the Service and the taxpayer sign a Form 872, Consent to Extend the Time to Assess Tax) on or before the ASED.

2.
The period for claiming a credit or refund is extended until 6 months after the expiration of the consent. The limitation on the amount that may be claimed (the lookback rule) is applied by allowing the recovery of any amount paid after the execution of the consent (and before the filing of the claim or the making of the credit or refund), as well as the amount that could be claimed, looking back two years or three years as stated above, from the date of the execution of the consent.

 

3.
The Service may execute the consent even though it has completed its examination and has no plans to make an assessment. The requirements for executing the consent are in IRM 25.6.22, Statute of Limitations - Extension of Assessment Statute of Limitations by Consent. The consent does not, however, shorten any special period of limitations on refund.

 

4.
Restricted consents. If the consent is restricted to certain items, the claim is similarly restricted for credit or refund. See IRM 25.6.22.8.12, Basic Restrictive Statement (08-26-2011) at (2), which states that the basic restrictive statement should include the following: "The provisions of Section 6511(c) of the Internal Revenue Code are limited to any refund or credit resulting from an adjustment for which the period for assessment is extended under this agreement."

 

In additional ... IRC Section 6511(h) provides that the general period of limitations on claims for credit or refund is suspended during the period that an individual is "financially disabled " .

Note: A period for filing a claim for credit or refund extended by any consent to extend the period of limitations on assessment will also be suspended if the individual is financially disabled.

Financially Disabled. Financially disabled means being unable to manage financial affairs.

A. Cause of Disability. The inability must be due to a medically determinable mental or physical impairment.

B. Required Effect of Disability. The impairment must be expected to either result in death, have already lasted for a continuous period of not less than 12 months, or must be expected to last for a continuous period of not less than 12 months.

 

Lev41593.6312802662
Customer:

Actually, they told me the deadline was April 15, 2012 because I did file a timely extension. I have filed the 2008 return which is the source of my question. Please read my question again as your reply did not answer my question. Thank you.

Lev :

The deadline to file an extension for filing an extension for your 2008 tax return was Apr 15, 2009.
However the deadline to claim a refund was Apr 15, 2012 - (three years after the filing deadline which was Apr 15, 2009)

Lev :

If the claim for credit or refund is not filed within the three-year period for filing a claim, the amount is limited to the portion of tax paid (the payment of tax could be for tax, penalty, or interest) within the two year period prior to the filing of the claim.


However - there are some circumstances the IRS allows to extend that period.

Lev :

In particular - IRC Section 6511(h) provides that the general period of limitations on claims for credit or refund is suspended during the period that an individual is "financially disabled " .
Financially disabled means being unable to manage financial affairs.


A.Cause of Disability. The inability must be due to a medically determinable mental or physical impairment.


B.Required Effect of Disability. The impairment must be expected to either result in death, have already lasted for a continuous period of not less than 12 months, or must be expected to last for a continuous period of not less than 12 months.

Customer:

I don't fully understand your second paragraph. The claim was not filed within the 3 year period since they do not count the extension time. When you state the "amount limited to the portion of tax paid", does that mean the estimated tax payments I made? The 13K?

Customer:

Also, I don't fully understand the last part of that sentence - "within a 2 year period prior to the filing of the claim.

Customer:

Two years prior would be 2012 and the over payments were done in 2008, 2007 and before.

Customer:

Oops - two years prior from the filing would be 2010.

Lev :

I don't fully understand your second paragraph. The claim was not filed within the 3 year period since they do not count the extension time. When you state the "amount limited to the portion of tax paid", does that mean the estimated tax payments I made?
Your understanding is correct - an extension of time to file the tax return has no effect on the statute of limitation to claim a refund.

Lev :

Also, I don't fully understand the last part of that sentence - "within a 2 year period prior to the filing of the claim.
A two year period is counted starting the dale on which the payment is made.

Lev :

If a claim is not filed within the three year period, then only the tax paid within the two years preceding the filing of the claim can be refunded. (IRC 6511(b)(2)(B))

Customer:

When you say "tax paid", does that mean when I actually made the estimated tax payments or does that mean what the tax return says I should get back or be able to roll-over?

Customer:

This is simple to you but for a commoner it is somewhat difficult to understand. Thank you for your patience.

Customer:

In reading your answer again, you are saying that I can get back what I paid from 2010 forward but I can't get back what I paid in 2007 (roll this over to 2008) and what I paid in 2008? This is confusing because the tax I paid after 2008 only applies to 2009 forward.

Lev :

When you say "tax paid", does that mean when I actually made the estimated tax payments or does that mean what the tax return says I should get back or be able to roll-over?
The actual date on which the money were paid. There is NO rollover provision.
Here is the actual statute - http://www.law.cornell.edu/uscode/text/26/6511
(a)Period of limitation on filing claim


Claim for credit or refund of an overpayment of any tax imposed by this title in respect of which tax the taxpayer is required to file a return shall be filed by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within 2 years from the time the tax was paid.
Customer:

So there is no argument to have the $13k applied to the next years?

Customer:

No case law or any specific cases that Ok Tax Commission has ever rule in favor of the small business person?

Lev :

So there is no argument to have the $13k applied to the next years?
In order to apply the amount to following years - you need to have rights to receive this amount.
If that amount should be refunded - you may decide how to use that amount.
But if that amount is not refunded - it is legally is not yours - and you may not decide how to use that amount. Unfortunately.
No case law or any specific cases that Ok Tax Commission has ever rule in favor of the small business person?
See following statute - (1)Filing of claim within prescribed period


No credit or refund shall be allowed or made after the expiration of the period of limitation prescribed in subsection (a) for the filing of a claim for credit or refund, unless a claim for credit or refund is filed by the taxpayer within such period.
Court cases may only based on the statute - and do not override statutes.
As I mentioned above - there are some circumstances the IRS allows to extend that period.
In particular - IRC Section 6511(h) provides that the general period of limitations on claims for credit or refund is suspended during the period that an individual is "financially disabled " .
Financially disabled means being unable to manage financial affairs.
Lev :

These exemptions are based on the statute.
All other situations to extend the statute of limitation are provided in this publication http://www.irs.gov/irm/part25/irm_25-006-001r-cont03.html
I might suggest to have a local CPA representing you with tax authorities and evaluate all possible options if any may be used in your situation.
However I must to note that such possibilities to extend the statute of limitation are very limited.

Customer:

Well, it sounds hopeless...unfortunately. Oklahoma is not following what the IRS is doing so what the IRS says and what their publications say is irrelevant here. Government seems to make the rules where they can do anything but the individual gets punished.

Lev :

Each state has own tax law - but you are correct - while in most situations - states follow federal rules - there are many situations when state laws are different.

Lev :

Specifically for Oklahoma - see here - page 26 - http://www.tax.ok.gov/rules/rule5007.pdf
710:50-9-2. When a refund is barred by statute of limitations
When an original return has not been filed, the Commission will not issue a refund on an original Individual Income Tax Return filed 3 years after the original due date of the return. A refund that is "barred by statute" cannot be used as payment on any delinquent account or applied to estimated tax. Exceptions to the statute of limitations set out in 710:50-5-13 also apply to certain refund situations. [See: 68 O.S. §2373]

Customer:

Exceptions to the statute of limitations set out in 710:50-5-13 also apply to certain refund situations. [See: 68 O.S. §2373]

Customer:

Do you have a link to these exceptions?

Customer:

Oh, is that page 26 that you referred to above?

Lev :

Do you have a link to these exceptions?
In the same document I referenced above - page 25

Lev :

Here is an example when the refund was denied even the taxpayer erroneously paid that amount - http://www.tax.ok.gov/orders/2006-03-23-07.pdf

Lev :

see here - page 25 - http://www.tax.ok.gov/rules/rule5007.pdf
710:50-5-13. Exceptions to statute of limitations
(a) When the Internal Revenue Service and the Taxpayer have consented in writing to an extension prior to the time allowed in 68 O.S. §223, the Tax Commission may assess or refund income tax, as imposed under Title 68, any time prior to the expiration of time agreed upon.
(b) The Oklahoma Tax Commission may make assessment or refund after the expiration of time allowed in 68 O.S. §223 if corrections or changes are made by the Internal Revenue Service. The taxpayer shall notify the Oklahoma Tax Commission within one (1) year after such change or correction is made by the Internal Revenue Service and the Oklahoma Tax Commission shall, within two (2) years from the date of notification by the taxpayer, make such assessment or refund, unless a waiver between the taxpayer and the Oklahoma Tax Commission has been agreed to and signed. Failure to notify the Oklahoma Tax Commission of such changes shall cause the statute of limitations to be tolled.
(c) The Commission shall have the authority to audit each and every item of taxable income, expense, credit or any other matter related to the return where such items are matters of allocation and/or apportionment between Oklahoma and some other state even if such items were not affected by revisions made by the Internal Revenue Service. Where items are not matters of allocation and/or apportionment between Oklahoma and some other state, the Commission shall be bound by the consequences of the assessment of income tax or refund of income tax made by the Internal Revenue Service after the amount of such net income has been finally ascertained.
(d) Certain claims of military personnel, under conditions described in 68 O.S. §2358(D)(5) may not be barred by the 3-year limitation.


(e) There is no statute of limitation for paying an established liability or for a liability on an unfiled return.

Customer:

I've seen this rule and if I understand it correctly, it does not apply to me because the IRS did not make a change to my return. The only change would be that the IRS accepted my return after the April 15 2012 date.

Lev :

Unfortunately - you are correct. I also do not see that you may use any of listed exemptions.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22335
Experience: Taxes, Immigration, Labor Relations
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