Carry-forward of individual losses, with late-filed past taxes [US]

Question

Asking on behalf of a close family member who has had significant medical issues over the past five years... Let's call him Jim.

Jim hasn't yet filed his 2012, 2013, 2014 or 2015 taxes (the 2015 aren't due yet, of course). In each of these years, Jim has had significant negative income that would otherwise qualify for carry-forward.

In 2016, Jim plans to realize some stock gains and would like to use the negative carry-forward from 2012-2015 to offset these gains.

Jim's worry is that because he is late in filing is 2012-2014 taxes, he might no longer be allowed to carry forward losses from those years.

Is Jim right to be worries?

Thanks!

Answer 1

The 2012 return was due 4/15/2013 (I'm assuming it didn't fall on a weekend). No late filing penalty if there was no tax due, but he has until 4/15/2016 to file for a refund or to document anything that should have carried forward.

Answer 2

Is Jim right to be worries?

Yes, since the statute of limitations for refunds for 2012 is close and he might lose any tax refunds he might be entitled to for that year.

Also, the pattern itself may raise some flags of suspicion and trigger audits, both because of such a variance in income and because of the medical expenses (which are generally considered a red flag). So he might get audited. However, if all the income and expenses are properly documented, audit itself should not be a problem.