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If you filed your 2011, 2012, and 2013 IRS taxes late around March 2015 and had a refund due for 2011 and 2012 that you filed as applied to the next year's taxes, rolling it forward each year until 2013 with remainder for 2014, is this allowed?

My friend did this and the IRS instead refunded 2011 and 2012 and is now charging penalties and interest for 2013 tax due to not enough tax withheld since instead of applying refund as estimated taxes for following year as requested, IRS refunded those years and now say 2013 is paid late.

If this is allowed, what is best way to get their error corrected? If not allowed, what is basis for that?

2

You're off-by-one; the deadline to file for refund of TY2010 was Apr. 15 2014.

For the remaining (in-statute) refund years, I'm not so sure as @littleadv it's actually prohibited, but it certainly can't go through the normal logic. I had a case involving several back years "offsetting" (but not just late filing like yours) and found that IRS systems and procedures mostly handle each year separately (they call it a "module").

Thus if it is possible to do this for your case, it probably won't be easy. I suggest you try the Taxpayer Advocate Service http://www.irs.gov/Advocate . This is an omsbudsman function funded within the IRS but reporting independently to Congress. They have discretion which cases they take, so they won't necessarily take yours, but if they do they can apply insider knowledge to help you (though they still have to execute through line functions).

Not that it helps now, but I think it might have worked to file out of order. I did experience one exception to the "each year separate" rule; when appeals finally awarded me a refund for one back year, the IRS gladly applied it as of that back year to a debt their systems believed (wrongly!) I owed on another year. If you had filed 2013 and let it be processed, then filed 2011 and 2012 and those processed okay, I am quite certain they would have "diverted" those refunds to your 2013 module -- and maybe "as of" 2012 and 2013 respectively.

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    What the OP tried to achieve was to "prepay" the debt retroactively and claim less penalties. That won't work. Even if technically they will move the money between years instead of giving refunds, it won't matter for the penalties calculations. – littleadv Jun 11 '15 at 15:46
  • @littleadv You are correct about TY2010 deadline for refund, fortunately, that year owed a small amount, but TY11 and TY12 had refunds due. Question is edited to reflect this now. – WilliamKF Jun 12 '15 at 15:11
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    @littleadv yes he's trying to "prepay retroactively" by "moving" money that actually was paid before the debt occurred. If it can be moved -- which is certainly not easy and I say only maybe possible -- then he was timely paid for 2013, there was no underpayment, and with no underpayment there is no penalty or interest. – dave_thompson_085 Jun 18 '15 at 9:18
  • @dave_thompson_085 nope. Budgets don't work this way. The payment for 2013 will be the date on which the money was assigned to 2013. For now it is considered refund due/taxes paid for 2012, and the government cannot add it to its 2013 budget, so it is not considered paid for 2013. – littleadv Jun 18 '15 at 15:50
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    The Federal government doesn't work that way you suggest; all income tax payments, for any year, go into the Treasury General Fund, and can be spent on anything the government is authorized to spend on (which is a whole other and very complicated topic). Some other tax types are restricted, but still not by year: Social Security and Medicare taxes go to the OASI/DI and "part A" trust funds and can only be spent on those programs, but for all current claims regardless of when the money "came from"; the fuel tax goes mostly to the Highway Trust Fund similarly; etc. ... – dave_thompson_085 Jun 21 '15 at 1:22
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No, the IRS will not "roll over" refunds towards the next year liability for past years.

Applying the refund to the next year makes that refund become estimated payment. You cannot make an estimated payment after the year ended.

  • To be exact the due date for the Q4 estimated payment is Jan. 15 (or the next business day) after the year end (but not by much). – dave_thompson_085 Jun 11 '15 at 8:52

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