Applying prior year federal refund to prior year owed tax
If I were due a federal refund in 2011 and owed in 2012 and did not file either year, can I apply the 2011 refund to the 2012 bill? I know I can no longer claim the refund for 2011. Will the IRS handle this automatically?
In reality, there were 2 years I was due a refund and a year I will owe a substantial amount.
I am using FreeTaxUSA to prepare the prior year returns. They have an option to apply the refund to next years taxes, but I don't see any difference in the 1040 that's being created.
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It doesn't appear that you can apply refunds due that are outside the statute of limitations to years where taxes are due. According to the IRS Tax Topic 153:
An original return claiming a refund must be filed within 3 years of its due date for a refund to be allowed in most instances. After the expiration of the three-year period, the refund statute prevents the issuance of a refund check and the application of any credits, including overpayments of estimated or withholding taxes, to other tax years that are underpaid.
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