By Paul N. Gada, Business Owner's Toolkit Staff Writer

The IRS is sitting on more than $2 billion in unclaimed federal income tax refunds. The refunds are owed to approximately 1.7 million taxpayers who failed to file 2001 returns. The IRS estimates that about half of the individuals entitled to refunds would receive over $484.

In addition, some taxpayers may also be owed state tax refunds. Many states are posting the names of individuals who have unclaimed state tax refunds on their official web sites. Some states include information about federal tax refunds on their sites.

Ground rules

The refund and credit claim period generally expires three years after the taxpayer's return was filed or two years after the tax was paid, whichever period expires later. In cases where no return was filed, most taxpayers have a three-year window of opportunity to claim a refund. For 2001, that means a return must be filed with the IRS no later than April 15, 2005. If no return is filed to claim the refund, it becomes the property of the U.S. government.

"The window is closing for 2001 refunds," IRS Commissioner Mark W. Everson said. "As soon as you send us your tax return, you'll get your money. But if you don't file, you won't get anything."

No penalty is assessed by the IRS for filing a late return that qualifies for a refund.

There are some minor exceptions. For example, the existence or amount of an overpayment for a particular year may not be determinable until after the claim period for credit or refund has expired. Accordingly, there are special limitations periods for recovering overpayments for bad debts and worthless securities, net operating loss or capital loss carrybacks, foreign tax credits, business credit carrybacks, and some self-employment taxes.

Refund payments

The IRS reminds taxpayers seeking a 2001 refund that their checks will be held if they have not filed returns for 2002 or 2003. Also, the refund, if claimed within the requisite three-year period, first will be applied against any outstanding tax liability. Refunds may also be used to satisfy unpaid child support or pay federal debts, such as delinquent student loans.

Students, retired individuals and part-time workers are likely the largest group of taxpayers with uncollected refunds. They may have had to file returns in the past, but because of school, retirement or part-time employment, they didn't have to file recently.

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