Did you file a 2019 or 2020 tax return during the pandemic? If so, it’s possible that if you filed in the postponed periods between April 16, 2020, and July 15, 2020, or April 16, 2021, and May 17, 2021 that credits you claimed and refunds you filed could now fall outside of the three-year tax refund lookback period that the IRS typically allows for. To rectify this, the IRS has recently taken action by eliminating the mismatch between the time for filing a claim for credit or refund and the three-year lookback period caused by postponing certain filing deadlines for tax years 2020 and 2021.
The intended result is to avoid the denial of timely claims for credits or refunds which were included in returns filed based on the pandemic-era postponed deadlines for taxpayers who had withholding or estimated payments. You may recall that the IRS tried to provide taxpayers with some relief and assistance during the COVID-19 pandemic, by postponing filing deadlines. If you are a taxpayer who took advantage of the postponed filing deadlines and are planning to seek a claim for credit or refund, without this recent change by the IRS, you would not be able to because of the misaligned dates.
This is because if you believe you have overpaid taxes, you must file a claim for credit or refund with the IRS by the later of:
- Three years from the date the return was filed, or
- Two years from the date the tax was paid.
Keep in mind that the IRS also limits the amount the credit or refund you claim even when you have filed a timely claim, this is what is referred to as the lookback period which is generally two or three years. This particular change to the lookback period only involves the three-year lookback period and is not an extension of the filing deadline.
Taxpayers who file claims for credits or refunds within three years from the date their original return was filed will have their credits or refunds limited to the amounts paid within the three-year period before the filing of the claim plus the period of any extension of time for filing the original return. The problem that the IRS is now resolving is that when the IRS postponed the 2019 and 2020 deadlines, the period of the postponement was not included in the three-year lookback period, creating the misalignment of dates. The new guidance from the IRS disregards the period of postponement for filing returns for TYs 2019 and 2020 to determine the beginning of the lookback period which allows for realignment of the three-year lookback period.
Another key point to note, the lookback period relief provided here is automatic and you do not have to call the IRS, file any form, or send letters or other documents to receive the relief.