February 27, 2023
The IRS today announced (Notice 2023-21) a partial fix for a little-known deadline issue that threatened to foot-fault taxpayers out of tax refunds for COVID years.
The IRS extended the deadlines for returns due in April 2020 and April 2021 as a result of the COVID pandemic. The IRS moved the filing deadline for 2019 returns due in April 2020 to July 15, 2020; the 2020 return deadline was moved from April 15, 2021 to May 17.
Taxpayers normally have three years from the due date to claim refunds for returns with withholding that were filed without extension. For withheld taxes and estimated tax payments, however, the three-year deadline was set to expire on April 15 of the third year after filing, despite the original deadline postponements.
Today's announcement extends the period for refund claims for withheld and estimated tax payments taxes to three years after the date the unextended returns were actually filed - though not to the date three years after the original modified due date. An example in the IRS notice shows how this works (emphasis added):
The due date for Taxpayer’s 2019 Federal income tax return was postponed by Notice 2020-23 to July 15, 2020. Pursuant to the postponed due date, Taxpayer timely filed their return on June 22, 2020. Under § 6511(a), Taxpayer may timely file a claim for credit or refund until three years from the return filing date, or June 22, 2023. But if Taxpayer files a claim for credit or refund on June 22, 2023, absent the relief granted in this notice, the amount of Taxpayer’s credit or refund would be limited to tax paid during the period beginning three years before the filing of the claim, or June 22, 2020. As a result, a credit or refund of Taxpayer’s withheld income taxes would be barred because they were deemed paid on April 15, 2020... Accordingly, under the relief provided by this notice, if Taxpayer files a claim for credit or refund on or before June 22, 2023, the lookback period extends three years back from the date of the claim, disregarding the period beginning on April 15, 2020, and ending on July 15, 2020.
While the new guidance is helpful, it still makes refund claims for 2020 tricky. If you file the refund claim after April 18, 2023 (the deadline because of weekends and holidays) you need to file it within three years of the original filing. That means you need to know exactly when the e-filing was submitted - or the date of mailing, for paper filings.
Extended returns are not affected by the notice. The due date for refund claims for those returns remains three years after the original filing.
Taxpayers considering filing refund claims for COVID-postponed years should examine whether they extended their 2020 and 2021 returns and document their actual filing dates. Any refund claims should be e-filed if possible, or filed via certified mail, to document timely filing.
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