Some taxpayers take the position that it is best to file the request for refund near the
Question:
Some taxpayers take the position that it is best to file the request for refund near the expiration of the statute of limitations on assessment to reduce the likelihood that the refund request will result in an audit that might trigger an additional assessment. Let's look at this in the following scenario:
Alice discovers that she overstated her gross income on her 2018 Form 1040, which she filed on April 15, 2018. She is aware that there are some potentially questionable adjustments to gross income and itemized deductions that she took on the same return in a sum greater than the amount of her gross income overstatement. In other words, if the IRS catches and corrects all these other errors, she'll not only lose the potential refund, but end up owing more tax. Nevertheless, she wants to pursue the refund.
If Alice files her claim for refund on July 1, 2019, the IRS has lots of time to look at her 2018 return, see the errors, and issue her a 90-day letter on or before April 15, 2022. However, if she waits to file her refund request until April 1, 2022, then that will not be the case because the statute of limitations on assessment will expire. The worst that could happen to her if they find the unallowable items, then, is that the IRS will offset the refund to those items and she'll get paid nothing.
What would you think of advising Alice if she were your client? Are there any Circular 230 considerations to be making here?
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill