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IRS Extends Refund Timeframe for Many Foreign Returns

The IRS has decided to extend the time frame for refunds for nonresident and certain foreign US taxpayers who use Form 1042NR.  The IRS has decided to exceed the 180 day time frame in order to provide additional scrutiny to refund requests leaving many undocumented workers without a refund for up to 365 days.

By law, the IRS has 180 days to review foreign returns including:

  • nonresident aliens
  • foreign corporations
  • foreign partnerships
  • foreign trusts
  • foreign estates
  • foreign governments
  • international organizations

before the IRS is required to pay interest.  Many of the returns involve workers who are classified as independent contractors.

This also affects numerous 1040NRs for Canadian owners of US rental properties, gamblers, and dual status filers. A substantial number of refunds are still on hold. Many parties are questioning if the IRS actually has systems and procedures to verify if the amounts on a 1042-S have actually been submitted to the IRS.

While this may have been an area of substantial fraud in the past, the IRS has certainly been cracking down on issues relating both to independent contractors and offshore investments and assets.  It is important to ensure that foreign returns provide all supporting documentation, and that US taxpayers with foreign bank accounts, investments or corporate holdings are in compliance with FBAR regulations.