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Why Did the IRS Keep My Refund?


The IRS will typically keep or delay your refund if you have unpaid liability for other years, if you have unfiled tax returns, if you are in bankruptcy or if you are under audit. There is also a statute of limitation on refunds where the IRS is barred by law from sending a refund on an older tax return to you. Most people do not realize that the law can bar the IRS from sending a refund to you if you do not act within the time period for doing so. If your tax return was due greater than three years ago, the IRS may be prohibited from issuing a refund for that year. However, if the tax was actually paid within the last two years, the IRS may be able to issue that refund to you. There are also some very limited exceptions to the refund statute of limitation if you were sick or otherwise disabled.

Case study: Taxpayer’s Bank Account is Levied After Tax AuditIn this case study, our taxpayers had prior substantial unpaid liability due to the IRS stemming from an audit. The taxpayers retained Patrick T. Sheehan & Associates who were successful in getting the IRS to abate the prior audit liabilities. Because IRS kept the taxpayers’ refunds for many years and because the IRS levied on the taxpayers’ wages and bank accounts for many years, the abatement of the prior audit liabilities created substantial credits on the taxpayers’ account that we felt should be refunded to the taxpayers. Because the years with prior audit liabilities were greater than three years ago, the IRS initially took the position that our taxpayer was not entitled to any refunds. Patrick T. Sheehan & Associates demanded that the IRS consider the day on which we filed our taxpayers’ claim as the date the claim for refund was made. Under this theory, we argued that our taxpayers were entitled to a substantial refund. After much negotiation, the IRS agreed with the position taken by Patrick T. Sheehan & Associates and our taxpayers subsequently received a substantial refund for years technically outside of the refund statute of limitation.

Case study: Substitute for Return Filed On Behalf of Terminally Ill TaxpayerIn this case study, our taxpayer was stricken with terminal cancer. Because she was suffering from this terrible illness, she neglected to file her tax returns with the IRS. The IRS attempted to contact our taxpayer to ask her to file the unfiled tax returns. Unfortunately our taxpayer did not respond to the IRS because she was too ill. As a result, the IRS filed tax returns for her called Substitutes for Return which grotesquely exaggerated the amount of tax that was really due. The IRS then levied on her retirement accounts to pay the incorrect tax liability which resulted in another unpaid tax liability. Patrick T. Sheehan and Associates assisted the taxpayer with filing tax returns that listed the correct amount of the tax liability, a number far less than the amount calculated by the IRS and subsequently collected by them via levy. Unfortunately, all of the payments that were made to the IRS were paid outside of the refund statute of limitation. As such, the IRS took the position that they could not refund the money to the taxpayer that was incorrectly taken by the IRS. Under a little known provision in the law, Patrick T. Sheehan & Associates persuaded the IRS that the limited exception to the refund statute of limitation applied in this case. The IRS subsequently agreed and issued a refund to our taxpayer in excess of $200,000.00.

Patrick T. Sheehan & Associates, Attorneys at Law, P.C., has successfully obtained refunds for many of its clients since its inception in 1991. If you believe that the IRS has improperly seized or delayed your refund, call us. We can help. Call Us Before the IRS Calls You!®

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