In what appears to be a continuing bid to tell taxpayers that in the current economic downturn the IRS “feels our pain,” has become a kinder, gentler government agency and tax collector, and even perhaps that the days of being a “no more Mr. Niceguy” government agency have passed into the days of “No more ‘no more Mr. Niceguy,'” IRS Commissioner Doug Shulman recently reminded taxpayers who may be owed a refund for 2005, but have not yet filed their income tax returns for 2005, to claim that refund by filing their return and to do so quickly to avoid losing it.

This may qualify as a continuing effort in light of Commissioner Shulman’s “I feel your pain” comments, published by the IRS in early January, 2009. See Feb 5, 2009 post in this blog, “IRS to Bail Out Taxpayers?” below.

IRS estimates that there is roughly $1.3 billion in unclaimed refunds for tax year 2005 awaiting more than a million taxpayers around the country.

But time is running out for these taxpayers:  Under the rules, a taxpayer has three years from the original due date of the tax return to file his or her return and so be eligible for the refund. After three years, the obligation to file a return remains, but the taxpayer’s right to collect his refund is forfeited. Applying this to tax year 2005, tax returns were due on April 15th, 2006. Three years from April 15th, 2006 is coming up soon, on April 15th, 2009.

So, not only is April 15th this year the due date for 2008 tax returns, but it is the “drop dead date” for claiming a refund for 2005. After that, no refund, Mr. Bond.

Commissioner Shulman said, “Especially in these tough economic times, people should not lose out on the money that is rightfully theirs.” He added, “People should check their records, especially if they had taxes withheld from their paychecks but were not required to file a tax return. They may be leaving money on the table, including valuable tax credits that can mean even more money in their pockets.”

According to IRS estimates, about half the taxpayers who can claim a refund would receive more than $581.  IRS estimates that there are approximately 76,800 taxpayers in New York due refunds at a median higher than the national average median of $581 — $639 — and a total amount of possible refunds of $82,994. New Jersey has 41,100 taxpayers due refunds at a median of $646 and a total of $43,761. Connecticut has 23,700 taxpayers due refunds at a median of $659, and a total of $18,234.

When a taxpayer files a return in time to claim a 2005 refund, that refund might be withheld if they also did not file for 2006 or 2007. The refund might also be used to pay off unpaid child support obligations, or past due federal debts like unpaid student loans or tax debts from other years.

Along with these kinder, gentler public service announcements of the Commissioner, taxpayers should not forget that the primary purpose of the IRS is in fact to collect money through taxes to fund the federal government, and that it has enormous powers beyond those of other, ordinary creditors.