Generally, a refund suit is barred unless filed within 2 years after the date of mailing of the IRS’s Notice of Disallowance of the claim.1 Absent a Notice of Disallowance, there is no time limitation for filing a refund lawsuit.2 However, a taxpayer should not delay filing a lawsuit. Several courts have ruled that the 6-year limitation in 28 U.S.C. § 2401 applies as an outer limit.3 Be aware that the taxpayer may have signed a waiver of the Notice of Disallowance when the IRS originally denied the refund. Many low-income taxpayers do not know if they signed such a waiver or may forget to tell you. The 2-year period for a refund lawsuit begins running on the date the waiver is filed. If you are faced with a waiver, you should determine whether it is valid.4
I.R.C. § 7422(a) and § 6511(a) allow the filing of a refund lawsuit within 2 years of the payment of taxes. This opens up potential rights to a refund lawsuit that are more than 3 years after the original tax return was due. One common situation may arise with payments under an installment agreement. When a taxpayer pays the last payment on an installment agreement with the IRS, the right to sue for a refund accrues and the 2-year time clock begins running.5 For instance, a taxpayer who finally pays off a 2013 tax obligation in 2022 will now be able to sue for a refund of the 2013 overpayment.6
Another situation that may extend the time for filing a refund lawsuit occurs if a taxpayer has obtained an Earned Income Credit for a recent tax year. The IRS will offset that refund against taxes owed for prior years, sometimes 5 to 10 years earlier. If that offset extinguishes the prior year tax liability, the taxpayer then has the right to sue for a refund. Ordinarily, withholdings and credits are deemed to have been paid on the April 15th return deadline per I.R.C. § 6513. However, this statute does not apply when the refund claim arises from the application of an overpayment from one tax year to an outstanding tax liability for another tax year.7 In this situation, I.R.C. § 7422(d) applies and the date of offset is considered the date of payment.8 Therefore, the taxpayer will have the right to seek refund for the taxes paid within 2 years of the IRS offset.9
- 1I.R.C. § 6532(a).
- 2Consol. Edison Co. of N.Y. v. United States, 135 F. Supp. 881 (Ct. Cl. 1955); IRS CN Chief Counsel-2012-012, 2012 WL 2029785.
- 3Finkelstein v. United States, 943 F. Supp. 425 (D.N.J. 1997).
- 4See 26 C.F.R. § 301.6532-1(c)(1)–(4); IRS Nat’l Office Serv. Ctr. Advice, Assistant Chief Counsel Memorandum, No. 200202069 (Jan. 11, 2002), https://www.irs.gov/pub/irs-sca/0202069.pdf.
- 5I.R.C. §§ 7422(d), 6511(a).
- 6See, e.g., Dresser Indus. v. United States, 73 F. Supp. 2d 682 (N.D. Tex. 1999), aff’d, 238 F.3d 603 (5th Cir. 2001).
- 7Favret v. United States, No. 03-2322, 2003 WL 22888792 (E.D. La. Dec. 5, 2003).
- 8Id.
- 9Payment of taxes by IRS offset can be determined from the offset notice or a transcript of the taxpayer’s account.