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The Tax Practice of IIT Chicago-Kent College of Law
The Tax Practice of IIT Chicago-Kent College of Law

312-906-5041

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What Can I Do If I Overpaid My Taxes?

Posted on in Tax Controversy

overpaid, overpayment of taxes, Chicago Tax AttorneysOn our website and blog, we’ve discussed extensively the various scenarios for underpayment of taxes, tax audits, tax court litigation, etc. But what happens when you pay too much in taxes? This happens a lot more than most people recognize, and consequently, many taxpayers do not realize their overpayment until it’s too late.

Won’t the IRS Just Refund My Overpaid Taxes?

Like most dealings with the IRS, the answer to this question is…it depends. The key is if the IRS is aware of the overpayment. For example, if you file a tax return that shows you owing $1000 and you accidentally mail in a check for $1500, the IRS will probably (though there is no guarantee) catch the mistake and refund you the $500 overage. The far more common scenario, however, is an overpayment that the IRS is not aware of. Common examples that fall into this category include failure to claim a credit or deduction you are entitled to (such as the Earned Income Tax Credit or home mortgage deduction) or in the case of a business filer who was entitled to carry a net operating loss from a prior year. There are also cases in which a taxpayer overpays as a result of an audit examination.

Filing a Claim for Refund

In the vast majority of cases, there are two ways to file a refund claim when you overpay your taxes.  In many instances, you may be able to file an amended return for the tax year in question to correct the error and claim your overpayment. The other method is to file Form 843 Claim for Refund and Request for Abatement. When filing this form, it is important to clearly state the specific reason(s) for the refund claim. In certain limited circumstances, you may also choose to file an "informal" Claim for Refund – this is just a letter to the IRS claiming an overpayment of a particular amount for a specific reason. This method is seldom used, and you should only choose this option with the assistance of a skilled tax attorney. Whatever method you select to claim your refund for overpaid taxes, it is best to take action sooner rather than later; unless there are extenuating circumstances, the statute of limitations for filing a refund claim is within three years of the date of filing the return or two years of the date the overpayment was made, whichever is later.  Its actually a bit more complicated than just that, though, because you can only claim an overpayment of monies that were paid within the prior two years.  One more thing to be careful of is filing a claim for an excessive or unjustified amount. Because of the high number of frivolous claims, Congress has given the IRS the authority to levy a penalty equal to 20% of the amount of the claim.

What if the IRS Denies my Claim for Refund?

If you file a claim to recover the funds you overpaid the IRS and are denied, you have the right to file an appeal to the IRS Appeals Office. If your appeal is denied (or you are denied and don’t file an appeal), you will receive a "statutory notice of claim disallowance" from the IRS. At this point, you have two years from the date of this notice to file suit against the IRS in district court. If you believe you are owed money because of an overpayment to the IRS, the wise thing to do is speak with a tax professional to thoroughly review the matter before proceeding further. At Chicago-Kent Tax Clinic, we provide free, no obligation consultations and affordable representation for taxpayers with IRS controversies. To speak with one of our experienced Chicago tax lawyers, contact our office today at 312-906-5041.

Source:

https://www.irs.gov/pub/irs-pdf/f843.pdf

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