Question

Mimi had $40,000 in federal income taxes withheld in 2016. Because of a sizable amount of itemized deductions, she figured that she had no further tax to pay for the year. For this reason and because of personal problems, and without securing an extension, she did not file her 2016 return until July 1, 2017.  Actually, the return showed a refund of $2,400, which Mimi ultimately received. On May 10, 2020, Mimi filed a $16,000 claim for refund of her 2016 taxes.  

1. How much of the $16,000 will Mimi rightfully recover?

2. How would your analysis differ if Mimi had secured from the IRS an automatic six-month extension of time for filing her 2016 return?

Answer 1

a. IRS allows a grace period of three years to claim the refund. This grace period of three years is calculated from the last date of filing the tax return. In given case, the due date to file 2016 return is April 15, 2017. Accordingly, the three year grace period ends on April 15, 2020. Since Mimi filed her claim for refund after April 15, 2020 (May 10, 2020), she will not be able to recover the whole $16,000 of the refund.

b. If Mimi had secured from the IRS an automatic six-month extension of time for filing her 2016 return, her last date to claim the refund would be October 15, 2020. Thus Mimi would succeed in claiming the refund from IRS. The amount of refund that Mimi would be able to recover is $13,600 ($16,000 claim - $2,400 already received).