Is there an ultimate income tax deadline for prior year, requested extension, didn't owe but still need to file?

Question

Let's say that for your 2020 United States federal and Connecticut state income taxes, you:

• didn't owe any taxes but still needed to file
• had capital losses that you want to carry forward to future years
• filed a federal extension on Tax Day (May 17, 2021) but still haven't filed your taxes.

I see that the IRS charges a Failure to File Penalty and interest on penalties. I don't see what Connecticut's penalties are, if any.

Anyway, in spite of penalties and any interest charged on them, is there a date after which you're no longer allowed to file your 2020 federal or Connecticut state income tax return?

I'm mainly asking because I'd like to be able to carry forward my 2020 capital losses to future years.

Answer 1

Is there a date after which you're no longer allowed to file your 2020 federal or Connecticut state income tax return?

I can't speak to Connecticut, but for the IRS there is no hard limit on filing back-taxes. The IRS says you should file all un-filed returns. They can't audit returns older than 3 years unless there is gross understatement of income (6-year statute of limitations) or fraud (no limit).

You lose ability to claim a refund after 3 years from the filing deadline.

Regarding capital loss carryover IRS Publication 550 (page 66) states:

When you figure the amount of any capital loss carryover to the next year, you must take the current year's allowable deduction into account, whether or not you claimed it and whether or not you filed a return for the current year.

This article from taxcpe.com on Preserving Capital Loss Carryovers concludes:

Bottom line, it appears there is no actual requirement to file a return, where one is not otherwise required to be filed. However, since the carryover is based upon the results of a prior year return, the taxpayer would have to be able to reconstruct the prior year return to prove the carryover if challenged on the amount of the carryover.

Best Practice: That leads us to believe that the best practice may be to actually file a return and run the statute of limitations even though it is not actually required.

I agree with that, just file now and avoid the hassle of gaps.

Answer 2

didn't owe any taxes but still needed to file

At some point the IRS will work though their backlog, and realize you didn't file. They will take any W-2's, 1099's and the like; then decide you are single and taking the standard deduction. If that means they think you owe money they will track you down. If they think you should have filed they will track you down.

filed a federal extension on Tax Day (May 17, 2021) but still haven't filed your taxes.

That got you a reprieve until the fall of 2021. The backlog may have bought you more time before they notice.

had capital losses that you want to carry forward to future years.

If you don't submit your tax forms by the 3 year point (April 2024), you will not be able to claim after that date that you want to tell them about those losses. You have until three years after the due date.

Every year the IRS reminds people that that deadline is approaching for year x. Some people are due a refund but also don't have to file. They realize a few years later they should have filed to get the refund. Sometimes they realize too late to get the money.

I have no idea about the state tax deadlines.