Statute of limitations of tax refunds in the United States

The tax laws in the United States are enforced by the IRS, while all citizens of the United States from age 17 and up are required to report on their income, whether they reside in the United States or not. The requirement of reporting on income is enforced on foreign citizens who conduct business practices of any kind in the United States as well.

In this regard, it is important to know that as is customary in the state of Israel, in the United States as well there is no statute of limitations on the requirement to report to income tax and the payment of the tax assessment as needed. Unfortunately, though, there is a statute of limitations on tax refunds in the United States in cases of over – charging of taxes.

 

Tax refunds in the United States – the benefit you don’t want to miss

One of the rights given by the United States government to its’ tax paying citizens, it the option to receive tax refunds for over – taxing. Up until here the situation is similar to what we know of Israel.

The difference is that the United States, in certain situations, allows its’ citizens to receive refunds in cash even without them required to pay taxes at all. This is why tax refunds in the United States can end up being exceptionally high sums from a yearly perspective.

In the American tax law, it is stated that every American citizen is required to submit tax returns in the United States on a yearly basis, and accordingly – is also allowed to demand tax refunds in credits, even if there was no taxable income at all.

Of the types of refunds available in this situation in the United States there are: tax refunds for salaried employee in the United States, tax refunds for students in the United States, as well as tax refunds for children in the United States.

But, like all good things, tax refunds in the United States aren’t available forever, and that why, so you don’t miss the opportunity to enjoy these benefits, it is important that you be aware of the existence of the statute of limitations on tax refunds in the United States.

 

When does a limitation period begin on a request for tax refunds in the United States?

The submission of requests for tax refunds in the United States is possible in a period of time of up to 3 years from the date of the original tax return submission, and / or within 2 years of the date when the tax was actually paid, for which the tax – payer is requesting a refund.

Accordingly, in the case of yearly returns that were submitted after the 15th of April of the following tax year, it would be possible to submit a request for a tax refund only for the 3 years prior to the submission date. This is unlike the law in Israel, that allows the submission of retroactive tax refund requests for a period of 6 years back.

 

The situations that could lead to the statute of limitations running out on tax refunds in the United States and the loss of significant funds

As we’ve said, the submission of requests for tax refunds in the United States is possible for the later between the 2 periods of up to 3 years from the date of the original tax return submission, or within 2 years of the date when the tax was actually paid.

This means that the submission of a tax return after the 15th of April 2022, for example, will not allow the tax – payer to receive tax refunds for the year 2019, but rather only the years 2020, 2021, and 2022.

Unfortunately, from the moment the statute of limitations is up on tax refund, there is no way to receive the refunds past the relevant period, even when using the services of an American accountant. This is because, in the eyes of the IRS, the refunds have expired and are no longer available for demand.

This works the same as when an amended tax return is submitted. In the case that more than 3 years of the last date for handing in a tax return have passed, an amended tax return will not lead to receiving tax refunds.

With that, if an extension for the yearly tax return was requested, the statute of limitations in extended accordingly as well.

As an aside, we will say that there are exceptions to the statute of limitation rule in the United States. In the case that an amendment was approved to demand refunds for a missing or satisfied debt.

In this scenario, the statute of limitations would be 7 years instead of 3, while there are certain facilitations in place for tax – payers who, following an illness or a handicap, were delayed in filling their yearly tax returns and were thus forced to submit their request to receive tax refunds after the recognized 3 years limit was already up.

 

What is the statute of limitation on tax audits in the United States and tax refunds in the United States?

The IRS is allowed to preform audits for tax returns that were submitted in the United States, during the 3 years after the date of the submission of the return. A tax – payer who submitted their return before the official last date of submission will have their 3 – year statute of limitations period counted starting at the official last date for submission of that tax return.

For example, if you’ve handed in your tax return for a given year on February when the official date for submission is on the 15th of April of that year, the statute of limitations for a tax audit will be up only 3 years after the 15th of April and not February. Only at the end of this 3 – year statute of limitations period the right for the IRS to charge you tax payment for that tax return.

 

The exceptions to the matter of the statute of limitations on tax refunds in the United States and tax audits in the United States

Despite what was stated, there are some exceptions when it comes to the statute of limitations on tax audits:

  • The statute of limitations on tax audits will not be up if the following forms were not submitted: form 8938, form 5471, or form 3520.
  • The statute of limitations on tax audits will not be up if the tax returns submitted were found to be presenting false information or lies.
  • In the cases where reports on income over 25 percent of the total amount reported on in the tax return that was submitted to the IRS were not included – the statute of limitation will stand at 6 years instead of 3.
  • במקרים שבהם חל איחור בדיווח או אי דיווח מוחלט על הכנסות מחשבונות זרים (FBAR) בסכום העולה על 5,000 דולרים – ההתיישנות תעמוד על תקופה של 6 שנים במקום 3.
  • In the cases where a tax return on income in foreign accounts (FBAR) was submitted late or not submitted at all, on an amount over 5,000 dollars – the statute of limitation will stand at 6 years instead of 3.

The subject of the statute of limitations on tax audits is brought up in this regard because the same exceptions apply to the subject of the statute of limitations on tax refunds in the United States.

 

How can the statute of limitations on tax refunds in the United States be avoided?

In most cases, submitting tax returns late in the United States cause a loss of very significant amounts of money, that the tax – payer could have gotten back from the IRS.

Because of that, it is heavily recommended for tax – payers in Israel to avoid tardiness as much as possible when submitting tax return in the United States for the purpose of receiving tax refunds, in case they are held to withholding tax in the United States – to make sure that the tax payment or the tax deduction was made according to the agreement in the treaty, so that the tax payment in Israel won’t have to be paid out of pocket after the last date for submitting the request for tax refunds in the United States passes.

 

How can you get a tax refund in the United States on time without the statute of limitations on tax refunds in the United States?

When there is an eligibility for receiving tax refunds in the United States, a yearly tax return must be submitted to the IRS in order to receive the refunds. There is an option to submit the report online, in order to make the process faster and receive the money sooner. Of course, all income must be reported to the Israeli tax authority as well.

Even though in certain cases this may lead to a tax requirement, in most cases this creates an eligibility to receive tax refunds from the United States, that will be sent as a nice cheque in the mail.

In order to fully fulfil your rights to tax refunds in the United States, make sure to fill in the tax return in an exact and meticulous way, best if done with the assistance of a professional company for consultation on American tax, like the experts at the “Mas America” website.

The aforesaid should not be regarded as legal advice. It is advisable to consult with the MasAmarika team before any action. The service is provided by a professional team, fluent in English and Hebrew, and includes attorneys and accountants with American licenses.

For American taxes consulting only
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