Disaster relief creates a problem.
In response to the Covid-19 pandemic, the IRS used its disaster relief authority to postpone certain return filing due dates for tax years 2019 and 2020. See IRS extends more tax deadlines to cover individuals, trusts, estates, corporations (04/10/2020) and IRS extends additional tax deadlines for individuals to May 17 (03/30/2021).
However, when postponing these due dates, the IRS failed to extend the lookback period for refunds claimed on returns filed after April 15. Generally, a taxpayer’s claim for refund must be filed by the later of three years from the date the taxpayer filed the return to which the claim relates or two years from the date the tax to which the claim relates was paid. This is referred to as the “lookback rule.” A taxpayer can only get a refund of amounts paid within the lookback period.
Since the IRS didn’t extend the lookback period some taxpayer payments, including estimated and withheld taxes deemed paid on April 15, fell outside the lookback period for taxpayers who didn’t file by April 15. This meant that taxpayers who filed a timely refund claim could not be refunded those payments.
This problem was identified early on by the National Taxpayer Advocate (NTA). The NTA noted that both Notice 2020 -23 and Notice 2021-21 only postpone the deadline for filing returns, they did not extend the time for filing for purposes of the lookback rule. So, taxpayers would normally only have until April 18, 2023, to receive a refund of taxes withheld on wages for 2019, which is less than three years from the date they filed their return if they took advantage of the postponement for filing their return.
Similarly, if a taxpayer filed a 2020 return on May 17, 2021, pursuant to Notice 2021-21, the taxpayer could file a timely claim for refund by May 17, 2024, but if they did so, they would not get a refund of the withholding deemed paid on April 15, 2021, as the withholding would be outside the look-back period. See NTA warns about refund claim trap for 2019 and 2020 returns filed after April 15 (05/26/2021).
Fixing the problem.
The IRS has now fixed this problem by issuing new guidance. This new guidance, found in Notice 2023-21, disregards the periods from April 15, 2020, to July 15, 2020 (for 2019 returns), and from April 15, 2021, to May 17, 2021 (for 2020 returns), when determining the beginning of the lookback period. Now both lookback periods align with the postponed return filing due dates for those years.
For more information about refund claims and the “lookback rule,” see Checkpoint’s Federal Tax Coordinator ¶T-5600.
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