Deduct Lost Refund

Today TaxMama hears from Bruce in the Tax Parlor, asks an interesting question. “I filed 1997 taxes well past the 3-year statute of limitations to get my refund. Naturally IRS denied my request for my $8,000, saying I had filed too late. Is there any way to get IRS to release that refund? Or can I take a deduction for the $8,000 refund that I’ve lost?”

Dear Bruce,

Why in the world did you wait all these years to file a tax return when you had a refund that large? To answer your last question first…

If you have a really good reason, like being in an insane asylum, being a victim of total amnesia, being in a (documented) drunken or drug-induced stupor – in other words, if you were totally incapacitated all that time, IRS might accept that as an excuse for not filing and consider giving you credit for the refund.

No, Bruce, I am not being mean, insulting or sarcastic. Those are valid reasons that IRS will accept.

If you were busy, distracted, or taking care of others – but not 100% of the time, IRS won’t accept that as an excuse.

The law says that you must file your tax returns within three years of the due date – i.e. by April 15, 2001 (for 1997) in order to be able to get your refund.

None of those other things you suggest are available solutions. And I’ve never heard of anyone being able to deduct a loss for not getting their refund.

But I like that idea. It’s worth trying to see what happens.
Report it on Schedule D as a capital loss.

Only, be prepared to defend it! It may need to go to Tax Court or beyond. But that would make an interesting case.

And remember, you’ll find answers to lots of questions about tax refunds and other tax information, free. Where? At

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