"Irs has a legal period in which to charge and collect additional tax on your Form 1040."

[Cathy]

Client received a letter from IRS after filing a 1040X in August of 2007 that increased the income tax liability for the year of 2002.

The IRS letter states: "The IRS has a legal period in which to charge and collect additional tax on your Form 1040. This legal period has expired for the tax period shown above." The client had paid the additional tax due with the 1040X. The letter goes on to say that the taxpayer "must file a claim within two years from the date you paid the tax" in order to claim a refund for these taxes.

I'm completely baffled as I have never seen this before! I know IRS can only make rules and regulations to enforce the IRS Code. It appears to me that possibly a recent "rule" change has been made.

Am I going crazy? What say you?

[BulldogTom]

Client received a letter from IRS after filing a 1040X in August of 2007 that increased the income tax liability for the year of 2002.

The IRS letter states: "The IRS has a legal period in which to charge and collect additional tax on your Form 1040. This legal period has expired for the tax period shown above." The client had paid the additional tax due with the 1040X. The letter goes on to say that the taxpayer "must file a claim within two years from the date you paid the tax" in order to claim a refund for these taxes.

I'm completely baffled as I have never seen this before! I know IRS can only make rules and regulations to enforce the IRS Code. It appears to me that possibly a recent "rule" change has been made.

Am I going crazy? What say you?

It sounds correct to me. 2002 was a closed year when the 1040X was filed in 2007. The IRS is barred by statute from assessing new taxes. The taxpayer's statute is two years to file a claim for refund from the date the "tax" was paid to the IRS. They are inviting the taxpayer to claim the "overpaid tax" on the 2002 that they don't owe.

Tom

Lodi, CA

[Cathy]

Thanks for your reply Tom. We also filed a 1040X for 2003 in August of 2007. We haven't heard anything on that one yet. It also included a payment of taxes. We might also receive a letter on the 2003 return or am I not correct in thinking that IRS is following the same 3 year statue as applying to refunds? :blink:

[BulldogTom]

Thanks for your reply Tom. We also filed a 1040X for 2003 in August of 2007. We haven't heard anything on that one yet. It also included a payment of taxes. We might also receive a letter on the 2003 return or am I not correct in thinking that IRS is following the same 3 year statue as applying to refunds?

Assuming the 2003 return was timely filed (april 15th or whatever the date was in 2004), taxes were paid, and there was no fraud or gross understatement of income, the statute would have run on April 15, 2007. You should see the same result as the 2002 1040X.

But then, this is the IRS we are talking about, and they just might go tilt on this one. ;0)

BTW, this is why I don't normally go beyond 3 years back with a new client. I know it is not right, but I ask very vauge questions about anything prior to 3 years old. I don't want to get sucked into a multiyear mess.

Tom

Lodi, CA

[Cathy]

Thank so much Tom. I completely understand the tilt. The situation involved an ex and property settlement payments. Taxpayers genuinely didn't realize they were receiving interest each year on the property settlement payments until recently settling the whole issue and receiving a compromise settlement. I verified with legal docs and taxpayer's attorney that indeed, part of the payments each year was interest. The ex recently (as in 2007) issued 1099 INT's for 2002, 2003, 2004, 2005 and 2006. We were covered for 2006 as we knew of the interest portion when the 2006 was prepared. I filed 1040X's for 2002, 2003, 2004, and 2005. The 2003, by the way, was originally timely filed. The 1040X's were sent in different envelopes, so possibly a different processor for the 2003 would see things differently. This is the 1st time seeing something like this in over 30 years, so possibly it will help someone else!

Again, thanks so much Tom....I might not dog you so much this year when LSU plays the Bulldogs...haven't seen the schedule yet but assume we are still playing them.

[Cathy]

P.S. Sorry about the "dogging" you pun! ;)

[MAMalody]

Hmmm. I had a similiar situation and the IRS simply sent back the money indicating that the statute was closed. I had advised him that would probably be the result, however, he wanted to make sure that the record was straight.

Mike

[BulldogTom]

P.S. Sorry about the "dogging" you pun!

Not playing the "KittyKats" again. That was a once in a lifetime thing. No way LSU travels to the DogHouse. However, we do get Kansas State at home this year. Playing on the road at Texas A&M and Oregon.

It is only 3 days till kickoff. Hope springs eternal in Bulldog Land.

Good luck to your Tigers.

Tom

Lodi, CA

[Cathy]

Thanks for the confirmation, Mike!

[Cathy]

Not playing the "KittyKats" again. That was a once in a lifetime thing. No way LSU travels to the DogHouse. However, we do get Kansas State at home this year. Playing on the road at Texas A&M and Oregon.

It is only 3 days till kickoff. Hope springs eternal in Bulldog Land.

Good luck to your Tigers.

Tom

Lodi, CA

Thanks again, Tom and also good luck to the Bulldogs! We kickoff tomorrow night....we're holding our breath for the season....don't like going into it rated so high...only one way down! :o

[BulldogTom]

Thanks again, Tom and also good luck to the Bulldogs! We kickoff tomorrow night....we're holding our breath for the season....don't like going into it rated so high...only one way down!

I am looking forward to that game tonight. Sorry, I am rooting for the upset. I want to see if LSU is really that good. They lost a lot of talent. I never bet on a highly ranked team with a new starting quarterback.

Enjoy the game.

Tom

Lodi, CA