IRS Lengthens Refund Lookback Period for Returns with Covid-Postponed Due Dates

(Parker Tax Publishing March 2023)

The IRS stated in a notice that it is lengthening the lookback period for refund claims for returns with due dates that were postponed by Notice 2021-21 or Notice 2020-23, both of which postponed certain return filing dates due to Covid-19 but did not lengthen the lookback period for refund claims for such returns under Code Sec. 6511(b)(2)(A). According to the notice, the IRS will disregard the periods from April 15, 2020 to July 15, 2020, and from April 15, 2021 to May 17, 2021, in determining the beginning of the lookback period to align the lookback periods with the postponed return filing due dates. Notice 2023-21.

Background

Code Sec. 7508A gives the IRS the authority to postpone the time for performing certain acts under the internal revenue laws for a taxpayer affected by a federally declared disaster as defined in Code Sec. 165(i)(5)(A). Under Code Sec. 7508A(a), a period of up to one year may be disregarded in determining under the internal revenue laws, in respect of any tax liability of such taxpayer, whether the performance of certain acts is timely; the amount of any interest, penalty, additional amount, or addition to the tax for periods after such date; and the amount of any credit or refund. Under Reg. Sec. 301.7508A-1(b)(4), a postponement of time under Code Sec. 7508A to perform an act is not an extension of the due date for the act.

Code Sec. 6511(a) requires a taxpayer to file a claim for credit or refund within three years from the time the taxpayer's return was filed or two years from the time the tax was paid, whichever period expires later. Under Code Sec. 6511(b)(2), the amount of a credit or refund is limited to the amount of tax paid within a specified period immediately preceding the filing of the claim for credit or refund (lookback period). When a taxpayer files a claim within three years of filing the taxpayer's return, the lookback period is equal to three years plus the period of any extension of time for filing the return. Otherwise, the lookback period is two years. For a calendar-year taxpayer, withheld and estimated income taxes are deemed paid on the due date of the tax return, generally April 15 of each year.

Notice 2020-23 postponed certain federal tax return filing and payment obligations that were due to be performed on or after April 1, 2020, and before July 15, 2020, to July 15, 2020. Similarly, Notice 2021-21 postponed the due date for both filing federal income tax returns in the Form 1040 series with an original due date of April 15, 2021, and making federal income tax payments in connection with one of these forms, to May 17, 2021. Under Code Sec. 6511, taxpayers who timely filed their tax returns by the postponed due dates provided by Notice 2020-23 and Notice 2021-21 have three years from the date of filing their return for each year to timely file a claim for credit or refund for that year.

Although Notice 2020-23 and Notice 2021-21 postponed certain return filing due dates, those notices did not extend the time for filing the returns because a postponement is not an extension. As a result, the postponements did not lengthen the lookback periods under Code Sec. 6511(b)(2)(A).

The dates on which withheld taxes are deemed paid under Code Sec. 6513(b)(1) or (2) were not affected by Notice 2020-23 or Notice 2021-21. Accordingly, absent relief, although some calendar-year taxpayers may have until July 15, 2023, or May 17, 2024, to timely file a claim for credit or refund for their tax years postponed by Notice 2020-23 and Notice 2021-21, in order for the applicable lookback period to include all available amounts, taxpayers who did not receive an extension of time for filing a return must file a claim for credit or refund within three years of the due date of the return (generally April 15, 2020 or April 15, 2021, respectively).

Notice 2023-21

On February 27, the IRS issued Notice 2023-21 to provide relief by permitting taxpayers who had a return filing due date postponed by Notice 2020-23 or Notice 2021-21, who did not receive an extension of time for filing such return, and who file timely claims for credit or refund to be credited or refunded amounts deemed paid on April 15 of each year.

The IRS has determined that any person with a federal tax return filing or payment obligation that was postponed by Notice 2020-23 to July 15, 2020, is affected by the COVID-19 emergency (i.e., an Affected Taxpayer). The IRS has also determined that any person with a filing or payment obligation with respect to a federal income tax return in the Form 1040 series that was postponed by Notice 2021-21 to May 17, 2021, is an Affected Taxpayer.

Under the relief granted in Notice 2023-21, for an Affected Taxpayer with a due date postponed by Notice 2020-23, the period beginning on April 15, 2020, and ending on July 15, 2020, will be disregarded in determining the beginning of the lookback period for the purpose of determining the amount of a credit or refund under Code Sec. 6511(b)(2)(A) relating to the tax for which the return filing or payment due date was postponed. In addition, for an Affected Taxpayer with a due date postponed by Notice 2021-21, the period beginning on April 15, 2021, and ending on May 17, 2021, will be disregarded in determining the beginning of the lookback period for the purpose of determining the amount of a credit or refund under Code Sec. 6511(b)(2)(A) relating to the tax for which the return filing or payment due date was postponed.

Example: Tom is a calendar-year filer with a 2019 federal income tax return due date of April 15, 2020. Tom's employer withheld income taxes from his wages throughout 2019 and remitted the withheld income taxes to the IRS. These withheld income taxes are deemed paid on April 15, 2020. The due date for Tom's 2019 federal income tax return was postponed by Notice 2020-23 to July 15, 2020. Pursuant to the postponed due date, Tom timely filed his return on June 22, 2020. Under Code Sec. 6511(a), Tom may timely file a claim for credit or refund until three years from the return filing date, or June 22, 2023. But if Tom files a claim for credit or refund on June 22, 2023, absent the relief granted in Notice 2023-21, the amount of Tom's credit or refund would be limited to tax paid during the period beginning three years before the filing of the claim, or June 22, 2020. As a result, a credit or refund of Tom's withheld income taxes would be barred because they were deemed paid on April 15, 2020, outside of the lookback period in Code Sec. 6511(b)(2)(A). Notice 2023-21 provides relief by disregarding the period beginning on April 15, 2020, and ending on July 15, 2020, in determining the beginning of the lookback period. Accordingly, if Tom files a claim for credit or refund on or before June 22, 2023, the lookback period extends three years back from the date of the claim, disregarding the period beginning on April 15, 2020, and ending on July 15, 2020. As a result, the limit to the amount of the credit or refund would include Tom's withheld income taxes deemed paid on April 15, 2020.

For a discussion of the lookback period for refund claims under Code Sec. 6511(b)(2), see Parker Tax ¶261,180.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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