The IRS estimated that it had $1 billion in unclaimed tax refunds waiting for you or one of the other one million taxpayers who had not filed their 2008 federal income tax returns. How does the IRS come to this estimate? The IRS receives electronic images of W-2 and 1099 forms from various payors (employers, pension funds, banks, brokerages, etc.) who reported monies that were paid to taxpayers and the federal taxes that were withhold from those payments. The IRS’s computers use this information to compute whether the taxpayers owe the IRS or if the taxpayer is due a refund. If the IRS believes that the taxpayer owes it taxes, the IRS will send the taxpayer a deficiency notice before the statute of limitations expires. If the IRS believes that the taxpayer is due a refund, the IRS waits for the taxpayer to file its tax return and request the refund. The statute of limitations is usually three years from the due date (including extensions) of the return. Thus the statute expired on April 17, 2012 for those 2008 returns that were due April 15, 2009 and will expire on Oct. 15, 2012 for those taxpayers who had requested an automatic extension of time to file their 2008 returns. While taxpayers may have missed the statutory due date for their 2008 tax returns, there is still time to file their 2009, 2010 and 2011 tax returns.
Why would a taxpayer not file a tax return to claim a refund? Some taxpayers realized or were advised that they were not required to file a 2008 tax return and thus did not bother to file. If there is no tax due, there is no penalty for failure to file. However by not filing, these taxpayers may be losing the refund due them. For those taxpayers who had earned income or had federal income taxes withheld or made estimated tax payments in 2008 and did not file, they should consult with a tax advisor to see if they are eligible for a tax refund. The IRS estimates that more than half of the refunds are worth more than $600.
What happens if you file after April 17, 2012? Well, the statute of limitations expires and your refund becomes the property of the U.S. Treasury.
Even if you are due a refund, the IRS has a few conditions before it will release the money. For instance, your 2008 refund may not be released if you haven’t filed tax returns for 2009 and 2010. In addition, if you have state or federal debts (e.g., child support, student loans, prior years’ taxes), the 2008 refund will be applied to those debts. While taxpayers would rather have the cash in hand, having outstanding debts paid from monies that would be lost if a tax return was not timely filed is a benefit to the taxpayer that should not be ignored.
One other item you should know. If you owe the IRS taxes and do not file a tax return, then the statute of limitations never expires and the IRS has the right to collect the taxes due it.
