IRS Has 2 Years To Reclaim Erroneous Refunds, But When Does It Start

Occasionally, the IRS goofs and issues a refund check in error to a taxpayer. If the IRS discovers the error, it will usually attempt informally to recover the funds. When this proves unsuccessful, the government may file a lawsuit against the taxpayer in federal court, requesting a judgment for a return of the erroneous refund.

However, the government does not have forever to file an erroneous refund lawsuit. Rather, section 6532(b) provides that "[r]ecovery of an erroneous refund by suit . . . shall be allowed only if such suit is begun within 2 years from the making of such refund" unless the refund was caused by fraud or misrepresentation. In these latter circumstances, the 2-year statute of limitations period is extended to five years.