Chapter 47
Filing Refund Claims, and Amended Returns

File a refund claim on Form 1040X if you want to take advantage of a retroactive change in the law, if you have overpaid your tax because you failed to take allowable deductions or credits, or overstated your income. You may use Form 1040X to correct your return if you underreported your income or improperly claimed deductions.

File a refund claim on time. The time limits discussed in 47.2 must be strictly observed; otherwise, even if you file a valid refund claim, it will be denied because of late filing.

You do not have to file a refund claim if you have overpaid your tax due to excessive withholding of taxes on your wages or salary, or if you have overpaid your estimated tax. You get a refund on these overpayments by filing your tax return and requesting a refund for these amounts. You must file your return within three years from the time the tax was paid to get the refund (47.2).

For a refund of an overpayment of FICA taxes, see 26.8 for how to claim a refund on your tax return. If you are not required to file a tax return, you file a refund claim on Form 843.

If you are entitled to a refund due to the earned income credit for certain low-income working families, you must file your tax return to get your refund, even though your income and filing status would not otherwise require that a return be filed. See Chapter 25.

47.1 Filing An Amended Return

You should file Form 1040X (Amended U.S. Individual Income Tax Return) to revise a previously filed return, either to claim a refund (see below) or to report additional tax owed (47.8).

As a refund claim, Form 1040X can be filed if you overpaid your tax on your original return, such as where you failed to take allowable deductions or credits or overstated your income. You generally can use Form 1040X to change your filing status, such as where you were entitled to head of household status but filed as a single taxpayer. You can change your filing status from married filing separately to married filing jointly, but you cannot switch from a joint return to separate returns after the due date for the return.

If you are entitled to a refund, you will be sent a check. A refund on an amended return cannot be made by direct deposit to your bank account.

You do not have to file a refund claim if you have overpaid your tax due to excessive withholding of taxes on your wages or salary, or if you have overpaid your estimated tax. You will receive a refund on those overpayments by filing your tax return and requesting a refund at that time (46.4).

Claiming an unwarranted refund can be costly. There is a 20% penalty for an excessive claim for refund or credit (47.9).

Married or divorced taxpayers. If a joint return was filed for a year in which a refund is due, both spouses are entitled to recover jointly and both must file a joint refund claim. Where separate returns were filed, each spouse is a separate taxpayer and may not file a claim to recover a refund based on the other spouse’s return, except if that spouse becomes the fiduciary when one spouse becomes incompetent or dies. If you are divorced and incur a net operating loss or credit that may be carried back to a year in which you were married, you may file a refund claim based on the carryback (see 40.18) with your signature alone and the refund check will be made out only to you.

47.2 When To File a Refund Claim

You may file a refund claim on Form 1040X within three years from the time your original return was filed, or within two years from the time you paid your tax, whichever is later. However, a refund claim on a late-filed return may be barred under a three-year “look back” rule; see below. A return filed before its due date is treated as having been filed on the due date. If you had a filing extension and filed before the extension deadline, your return is considered filed on the actual filing date. The filing deadlines are suspended if you are unable to manage your financial affairs; see the Planning Reminder on the next page.

A refund claim based on a bad debt or worthless securities may be made within seven years of the due date of the return for the year in which the debt or security became worthless.

The time for filing refund claims based on carrybacks of net operating losses or general business credits is within three years of the due date (including extensions) of the return for the year the loss or credit arose.

If you filed an agreement giving the IRS an extended period of time in which to assess a tax against you, you are allowed an additional period in which to file a claim for refund. The claim, up to certain amounts, may be filed through the extension period and for six months afterwards.

Look-back rule may limit refund claim for withholdings and estimated tax on late-filed original return. A refund for withheld income taxes or estimated tax installments can be lost if you delay filing your original return too long. The Supreme Court agrees with the IRS that the withholdings and estimated tax are considered to be paid on the original due date of the return. To obtain a refund of these taxes, you must file the return within three years of the due date, or within three years plus any extension period if a filing extension was obtained for the year the taxes were withheld or paid. If the return is filed after the end of this three-year (plus extension) “look-back” period, the withholdings and estimated taxes cannot be refunded.

For example, if taxes were withheld from your 2014 wages and you are due a refund but have not yet filed your 2014 return, you must do so by April 17, 2018, to obtain a refund of the withholdings. If you had obtained an extension until October 15, 2015, to file your 2014 return, and still have not filed, the deadline for doing so and claiming the refund for the 2014 taxes will be October 15, 2018. What if you claim the refund for the withheld 2014 taxes on an original 2014 return mailed and postmarked on or slightly before the last day of the “three years plus extension” period, namely, April 17, 2018, or October 15, 2018, if you had an extension for the 2014 return? Even if the mailing is not received until after the April 17 or October 15 deadline, the timely mailing/timely filing rule applies, and the IRS treats the claim as filed on the date of mailing for purposes of applying the “three years plus extension” look-back rule.

Armed Forces service members and veterans. In determining the time limits within which a refund claim may be filed, you disregard intervening periods of service in a combat zone or in a contingency operation, plus periods of continuous hospitalization outside the United States as a result of combat zone injury, and the next 180 days thereafter (35.5).

Claiming refund for deceased taxpayer. If you are a surviving spouse filing an amended joint return to claim a refund for you and your deceased spouse, you only need to file Form 1040X. A court-appointed personal representative must attach Form 1310 to Form 1040X to claim the refund.

47.3 Stating the Reasons for Refund Claim

After entering changes to your original return on Form 1040X, in Part III of the form you explain the changes and tell the IRS why you are claiming a refund. Where appropriate, you should attach a statement explaining:

• All the facts that support the claim. Attach all supporting documents and tax forms supporting your claim.
• All the grounds for the claim. If you are uncertain about the exact legal grounds, alternate and even inconsistent grounds may be given. For example: “The loss was incurred from an embezzlement; if not, from a bad debt.” To protect against understating the amount of the claim, you might preface the claim with this phrase: “The following or such greater amounts as may be legally refunded.”

If your refund claim is denied by the IRS, it may become the basis of a court suit. If you have not stated all the grounds on Form 1040X, you may not be allowed to argue them in court.

47.4 Quick Refund Claims

Form 1045 may be used for filing refunds due to carrybacks from net operating losses, the general business credit, and net Section 1256 contract losses. Form 1045 also may be used for a quick refund based on a repayment exceeding $3,000 of income reported in an earlier year. Form 1045 generally must be filed within 12 months after the end of the year in which the loss, credit, or repayment claim arose; see the Form 1045 instructions. The IRS will generally process your claim within 90 days, or if later, 90 days after the end of the month in which your return is due. Payment of quick refund claims is not a final settlement of your return; the IRS may still audit and then disallow the refund claim. Note that the filing of a quick refund, if rejected, may not be the basis of a suit for refund; a regular refund claim must be filed.

47.5 Interest Paid on Refund Claims

If a refund claim is filed within the time limits in 47.2 and the IRS pays the refund within 45 days, interest is paid from the date of overpayment to the date the claim was filed. If the refund is not made within the 45-day period, interest is paid from the date of overpayment to a date set by the IRS that is not more than 30 days before the date of the refund check.

The IRS does not have to pay interest on overpayments resulting from net operating loss carrybacks or business credit carrybacks if a refund is paid within 45 days of the filing of the refund claim. If a refund claim based on a loss or credit carryback is filed and subsequently a quick refund claim is filed on Form 1045 for the same refund, the 45-day period starts to run on the date Form 1045 is filed.

Interest rates applied to overpayments are as follows:

47.6 Refunds Withheld To Cover Debts

The IRS may withhold all or part of your refund if you owe federal taxes. Under the Treasury Offset Program (TOP), the IRS may withhold all or part of your refund if you owe child or spousal support or federal non-tax debts, such as student loans or state income taxes. If you file a joint return with a spouse who owes child support or federal debts, you may be able to obtain your share of a refund due on the joint return by filing Form 8379 (46.4).

47.7 Amended Returns Showing Additional Tax

If, after filing your 2017 return, you find that you did not report some income or claimed excessive deductions, you should file an amended return on Form 1040X to limit interest charges and possible tax penalties.

If you filed early and then file an amended return by the filing due date (including any extensions) that shows additional tax due, you will not be charged interest or penalties based on the original return; the amended return is considered a substitute for the original.

You must pay the additional tax due as shown on Form 1040X. Even if you expect a refund on your original return, the IRS will not reduce the refund check to cover the additional tax. You must pay it and you will receive the original refund separately.

47.8 Penalty for Filing Excessive Refund Claim

A 20% penalty can apply to an excessive claim for refund or credit that you claim on an original return (46.4) or amended (47.1) return. The penalty is 20% of the “excessive” amount, the excess of the refund or credit claimed over the amount allowed. For example, assume that you mailed your 2016 Form 1040 to the IRS on April 11, 2017, and included a $400 check to cover the tax due. On June 12, 2018, you file an amended return and claim a $2,000 refund based on an increase in itemized deductions. The IRS reduces the refund to $1,000. If you cannot show that you had a reasonable basis for making the additional $1,000 claim, the IRS will assess a penalty of $200 (20% of the $1,000 excess).

There are exceptions. The penalty does not apply if the claim has a reasonable basis. It does not apply to claims relating to the earned income credit (25.6) or to any portion of the excess that is subject to the accuracy-related penalties (including the penalty for understatements due to reportable or listed transactions), or the fraud penalty, discussed at 48.6.