By Paul N. Gada, CCH Business Owner's Toolkit Staff Writer
The Internal Revenue System is sitting on more than $2 billion in unclaimed refunds. The refunds are owed to approximately 1.7 million taxpayers who failed to file 2002 returns. The IRS estimates that about half of the individuals entitled to refunds would receive over $570.
In addition, some taxpayers may also be owed state tax refunds. Many states are posting the names of individuals who have unclaimed state tax refunds on their official web sites. Some states include information about federal tax refunds on their sites.
Ground Rules
The refund and credit claim period generally expires three years after the taxpayer's return was filed or two years after the tax was paid, whichever period expires later. In cases where no return was filed, most taxpayers have a three-year window of opportunity to claim a refund. For 2002, that means a return must be filed with the IRS no later than April 17, 2006. If no return is filed to claim the refund, it becomes the property of the U.S. government.
"We want people to get the refunds they're entitled to," said IRS Commissioner Mark W. Everson. "We urge taxpayers to double-check their records before the April 17th deadline. Taxpayers can't get a refund if they don't file a tax return."
No penalty is assessed by the IRS for filing a late return that qualifies for a refund.
There are some minor exceptions. For example, the existence or amount of an overpayment for a particular year may not be determinable until after the claim period for credit or refund has expired. Accordingly, there are special limitations periods for recovering overpayments for bad debts and worthless securities, net operating loss or capital loss carrybacks, foreign tax credits, business credit carrybacks, and some self-employment taxes.
Lost EITC Refund
By failing to file a return, individuals may lose more than a refund of taxes withheld or paid during 2002. Many low-income taxpayers may be eligible to claim the earned income tax credit (EITC).
Eligible taxpayers may get a refund when their EITC is more than their tax liability. However, those who file more than three years late will not receive a refund if their credit exceeds their tax liability.
For the 2002 tax year, individuals qualified for the EITC if earned less than $33,178 and had more than one qualifying child living with them, earned less than $29,201 with one qualifying child, or earned less than $11,060 and had no qualifying child. The maximum potential credit that could be lost by not filing a 2002 tax return for each of these situations is $4,140, $2,506, and $376 respectively.
Refund Payments
The IRS reminds taxpayers seeking a 2002 refund that their checks will be held if they have not filed returns for 2003 or 2004. Also, the refund, if claimed within the requisite three-year period, first will be applied against any outstanding tax liability. Refunds may also be used to satisfy unpaid child support or pay federal debts, such as delinquent student loans.
Students, retired individuals and part-time workers are likely the largest group of taxpayers with uncollected refunds. They may have had to file returns in the past, but because of school, retirement or part-time employment, they didn't have to file recently.
Talk with your tax advisor today about the options available to you.
For those that prefer to go it alone, current and prior year tax forms are available on the IRS website or may be obtained by calling 1-800-829-3676. Taxpayers in need of assistance can call the IRS help line at 1-800-829-1040.
The important thing to remember is that it shouldn’t take that long to double-check whether you filed a past tax return and are owed a refund. If you think paying taxes hurts now, imagine how bad you’ll feel if you find out too late that you lost money to the government simply because you were too lazy to recover it. Plus, it’s a sure thing that knowing this fact will haunt you much longer than the additional burden to this year’s tax preparation. Now go search those records!
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Added to the news on April 6, 2006.
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