Tax fun in the summer time!

Looking for a productive way to spend a summer afternoon?  How about digging through tax returns for the past three years, examining your withholding, and adding up your estimated payments, to find out if you received the refunds to which you were entitled?  

A recent audit of the IRS's Excess Collections Account resulted in the discovery of money set aside for thousands of unclaimed tax refunds.  The Treasury Inspector General for Tax Administration, David C. Williams, who functions independently from the IRS, performed the audit.  The Excess Collections Account is an account set aside for holding tax funds that are due to taxpayers in the form of refunds - assuming the taxpayers claim the refunds.  

It seems that approximately $360 million of the money sitting in this account (I certainly hope it's an interest-bearing account) appears to be going unclaimed by taxpayers.  Here's the breakdown:  

The IRS made some mistakes  

About $25 million represents money that was supposed to be refunded to taxpayers who filed their returns after the original due date, but within the designated time limit (three years) for claiming a refund.  Due to the fact that certain IRS computers don't seem to communicate very well with other IRS computers, the IRS had apparently failed to connect this refund money with the amounts claimed by the late filers, and instead sent out a number of demand notices requesting that these tax filers actually owed more in taxes.  In some cases the IRS even issued liens against the property of these taxpayers, not realizing that it was the IRS who owed money to the taxpayers, not the other way around.  

The IRS claims it has corrected the problems regarding erroneous notices sent to taxpayers.  

Taxpayers made some mistakes  

Approximately $162 million in the IRS slush fund represents refunds that should have been claimed by taxpayers.  Due to the three-year rule which states that taxpayers must file a claim for a refund within three years of the due date of the tax return else they forfeit the refund, this money apparently now belongs to the IRS.  This money represents tax refunds that were owed to taxpayers who should have filed for refunds but did not.  

It's interesting to note that the IRS apparently knows that this money was owed to taxpayers, but will not send it unless a tax return is filed.  For example, a student who worked at a summer job and had a few hundred dollars withheld from her pay, but actually owed no taxes, and did not file a return, relinquishes the right to get that tax money back by not filing a return within the three-year time period.  

There's still time!  

The remaining $173 million is money just waiting to be claimed.  This is money that the IRS is certain should be returned to taxpayers, but the taxpayers have yet to file returns claiming their refunds.  The tax returns that can claim this money have yet to pass out of the three-year filing period, so all of this money is eligible to be returned to taxpayers, if they will only file their returns.  

If you had some taxes withheld, or if you paid estimated payments, and your payments more than covered the tax you actually owed for 1997, 1998, or 1999, get busy and file a tax return!  The money rightfully belongs to you if you overpaid your taxes.  

The most likely candidates for claiming refunds are part-time workers who may not even realize a small amount of tax money was withheld from their pay, and people living on retirement incomes who pay their taxes with estimated payments, and may not have realized they overpaid their estimates.  If you know any people in this situation you will be doing them a service if you remind them that they must file their tax returns within three years if they expect to get their refunds.