Penalties are not Taxes

Today TaxMama hears from Mike in North Carolina who just won – nothing. “ I recently got the penalties for a 1999 tax return abated. The IRS claims that any penalties over two years old are not refundable and referred to IRS publication 556. I contend penalties are not overpaid taxes and therefore are refundable. Who is right?”

TaxMama answers a question on Tax

Dear Mike,

Congratulations on getting your penalties abated. That’s not the easiest thing to do.

But what took you so long? It’s 10 years later?

Why would you think IRS is lying to you about the refundability of your payment? They are not.

You can get refunds on taxes, penalties or interest paid for up to two years after you pay them, or up to three years after the return, amendment or revision is made. You could have gotten around that by:

a) Not paying the penalty and keeping the collections actions on hold until the issue was resolved.

b) Paying the penalty, but as a deposit, instead of a payment. Deposits are always refundable. But you don’t earn interest on the money.

c) Filing a protective claim for refund, every two years, until the case was resolved.

I don’t think you will succeed, but you can always try to file a claim for refund on those penalties, using Form 843. http://www.irs.gov/pub/irs-pdf/f843.pdf

Read the instructions to Form 843 carefully. Perhaps you will find some extenuating circumstances that will allow IRS to issue your refund. http://www.irs.gov/pub/irs-pdf/i843.pdf

Good luck!

And remember, you can find answers to all kinds of questions about getting refunds and other tax issues, free. Where? Where else? At TaxMama.com.

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