New legislation seeks to address disaster relief refund claim discrepancies

Editor: Rochelle Hodes, J.D., LL.M.

In January 2025, the U.S. Senate Finance Committee released a discussion draft of the Taxpayer Assistance and Service Act (TAS Act). The TAS Act is bipartisan proposed legislation that undertakes the ambitious goals of modernizing the IRS and improving taxpayers’ experience when interacting with the IRS. The TAS Act includes numerous suggestions offered by the national taxpayer advocate in her Annual Report to Congress for 2024 and previously. Subsequently, on April 1, 2025, the U.S. House of Representatives unanimously passed the Disaster Related Extension of Deadlines Act (H.R. 1491). A similar bill, identical to and also named the Disaster Related Extension of Deadlines Act, was introduced in the Senate on April 10, 2025 (S. 1438).

This item focuses on Section 112 of the TAS Act and more recent proposed legislation that addresses the deadline for filing refund claims under Sec. 6511 for taxpayers who file income tax returns after the ordinary due date for the return has been postponed under Sec. 7508A following a federally declared disaster. Specifically, these legislative initiatives would clarify that the postponement period under Sec. 7508A is ignored for purposes of the lookback period of Sec. 6511(b)(2)(A) for filing claims for refund. COVID–19–era guidance in a Chief Counsel Advice memorandum (CCA) stated that the lookback period was not postponed, creating confusion in this area and potentially depriving disaster victims access to refunds of overpaid tax. As discussed further below, the legislative fixes for the refund lookback period under Sec. 7508A would be an important step in providing certainty and fairness to taxpayers already suffering from the effects of disasters.

The authors of this item draw on their previous article (Silva and Hodes, “Lookback Period Fix Should Apply to All Disaster Relief,” 54–9 The Tax Adviser 15 (September 2023)) addressing Notice 2023–21 and postponements under Notices 2020–23 and 2021–21 related to the COVID–19 pandemic, for the background and general facts regarding the period of limitation for refunds and the lookback period.

Period of limitation for refunds under Sec. 6511

Generally, under Sec. 6511(a), a claim for refund or credit must be filed by the later of either three years from the date a return was filed or two years from when the tax was paid. In the case of a timely refund claim filed within three years of the date the return is filed, Sec. 6511(b)(2)(A) limits the amount allowable as a refund to the amount of tax paid within three years preceding the date the claim is filed, plus the period of any extension of time to file the return.

Under ordinary conditions, the three–year lookback period under Sec. 6511(b)(2)(A) aligns with the three–year period to claim a refund or credit under Sec. 6511(a). However, under certain conditions, including situations where returns are filed late, a mismatch can occur between the Sec. 6511(a) period to file a timely refund claim and the amount of refund allowed under the Sec. 6511(b)(2)(A) lookback period.

The primary reason for this mismatch is the date upon which certain payments made prior to the filing deadline are deemed to be paid. Generally, for calendar–year taxpayers, under Sec. 6513, amounts paid as estimated tax and income tax withheld on wages are deemed to have been paid on April 15 of the year following the tax year to which the prepaid amounts relate.

For example, an individual taxpayer who filed a 2023 Form 1040, U.S. Individual Income Tax Return, on April 15, 2024, will have until April 15, 2027, to file a claim for refund for the 2023 tax year under Sec. 6511(a), and the amount allowed by the lookback period will include estimated tax and withheld tax deemed to have been paid on April 15, 2024.

However, if this same taxpayer filed the original return late on Aug. 15, 2024, without having filed a timely request for extension of time to file their return, there will be a mismatch because estimated tax and withheld wages are deemed to have been paid on the original April 15, 2024, due date of the return, which would be outside the Sec. 6511(b)(2)(A) three–year lookback period and therefore could not be refunded.

Lookback period and disaster relief

Sec. 7508A provides the Treasury secretary discretion to postpone certain tax–related deadlines for up to one year due to a federally declared disaster, a significant fire, or a terroristic or military action. The IRS interprets these rules to provide a period of postponement, not extension, and that the postponement period does not change the due date of the return (see Regs. Sec. 301.7508A–1(b)(4)). For purposes of the lookback period, however, an example in regulations illustrates that the postponement period is disregarded (see Regs. Sec. 301.7508A–1(f), Example 5).

In the wake of the COVID–19 pandemic, two contradictory CCAs were released on Dec. 31, 2020. CCA 202053013, which was issued on Sept. 25, 2020, provides that because a postponement of deadlines under Sec. 7508A is not an extension, and an extension is specifically referenced in Sec. 6511(b)(2)(A), the Sec. 7508A postponement period is not added to the three–year lookback period under Sec. 6511(b)(2)(A). But CCA 202053015, issued on Oct. 15, 2020, relying on Regs. Sec. 301.7508A–1(f), Example 5, concluded that the Sec. 7508A postponement period is disregarded for purposes of determining the lookback period.

In light of the confusion created by the conflicting CCAs, in February 2023, the IRS issued Notice 2023–21, which provided relief for taxpayers who had postponements related to the COVID–19 pandemic under Notices 2020–23 and 2021–21 by disregarding the Sec. 7508A period of postponement for both 2019 (April 15, 2020, through July 15, 2020) and 2020 (April 15, 2021, through May 17, 2021) in determining the beginning of the lookback period. However, because Notice 2023–23 is limited to disaster relief under Notices 2020–23 and 2021–21, it provides no clarity or relief for taxpayers affected by other disasters where Sec. 7508A relief has been provided.

Proposed fix for the lookback period

The TAS Act is a wide–ranging piece of legislation with a broad scope of goals consisting of 68 provisions to improve federal tax administration. One of those provisions, in Section 112 of the discussion draft, proposes a statutory fix for the potential mismatch between the three–year period to file refund claims under Sec. 6511 and the lookback period of Sec. 6511(b)(2)(A) for victims of federally declared disasters who file returns timely by the postponed due date pursuant to Sec. 7508A disaster relief. Under the TAS Act, the period of postponement under Sec. 7508A is treated as an extension, but only for purposes of Sec. 6511(b)(2)(A). Subsequent to the release of the discussion draft of the TAS Act, the House passed the Disaster Related Extension of Deadlines Act, which would make the same changes as Section 112 of the TAS Act, and a similar bill was introduced in the Senate.

Deadline clarity for taxpayers affected by disasters

In the Tax Clinic item in The Tax Adviser two years ago, the authors requested that the IRS expand the relief provided in Notice 2023–21 to all disasters, not just postponements under Notices 2020–23 and 2021–21 related to the COVID–19 pandemic. However, further IRS guidance on this issue was not forthcoming. Accordingly, congressional proposals to fix this issue permanently are welcome.

Taxpayers who have previously filed postponed returns, as well as taxpayers who are victims of future disasters, deserve clarity and certainty about their deadlines for filing refund claims and whether they will be subject to the Sec. 6511(b)(2)(A) limitation. There seems to be no particular policy–driven explanation for treating taxpayers filing after original due dates on extension differently from taxpayers filing late due to disaster relief. Given that IRS informal guidance has contributed to the confusion in this area, it is encouraging that Congress appears to be addressing this situation. While all taxpayers deserve certainty when dealing with their tax obligations and rights, it is particularly important to ensure that taxpayers already dealing with the effects of natural disasters are not forced to deal with uncertainty caused by inconsistent and unclear guidance from the government.

Editor

Rochelle Hodes, J.D., LL.M., is principal with Washington National Tax, Crowe LLP, in Washington, D.C.

For additional information about these items, contact Hodes at Rochelle.Hodes@crowe.com.

Contributors are members of or associated with Crowe LLP.