Failure to Attach Required Documents Precludes Interest on Overpayment.
(Parker Tax Publishing March 5, 2014)

Because a foreign bank did not attach to its original income tax return the required documentation for the IRS to mathematically verify its total withholding credit and tax liability for the year in issue, the return was not in processible form, and the bank was not entitled to interest on its overpayment until the date its resubmitted return with the required documentation was filed. Deutsche Bank AG v. U.S., 2014 PTC 84 (Fed. Cir. 2/18/14).

Banking and financial services company, Deutsche Bank, filed its 1999 income tax return, Form 1120F, U.S. Income Tax Return of a Foreign Corporation, in September 2000, after obtaining a six-month extension to file. The bank reported a total tax due of approximately $106 million and total payments of approximately $188 million, which included a credit for taxes withheld at the source of approximately $13 million. Deutsche Bank requested that the resulting overpayment be credited to the 2000 tax year. Form 1120F does not itemize the withholding credit on the return. Instead, the individual withholding credits are derived from various information returns. For 1999, Deutsche Bank received one Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, and five Forms 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, from six different withholding agents. The instructions for Forms 1120F, 8805, and 1042-S and statements on those forms required Deutsche Bank to attach Forms 8805 and 1042-S to its federal income tax return. The IRS sent back the bank's Form 1120F unprocessed and requested documentation to support the claimed withholding credit. The bank resubmitted the return with Forms 8805 and 1042-S in November 2000. Subsequently, a disagreement arose between Deutsche Bank and the IRS over the amount of overpayment interest that should have been credited to Deutsche Bank.The IRS stated that, since the original return was not filed in processible form, the bank was only entitled to interest from January 2001 when the IRS recorded the resubmitted return as filed.

Deutsche Bank filed suit in the U.S. Court of Federal Claims. The court sided with the IRS, holding that the original return (1) was not filed in processible form because all of the required information was not included with the return, and (2) did not contain sufficient information to allow the mathematical verification of income tax liability. The bank appealed, seeking interest from March to December 2000.

Code Sec. 6611 provides that a taxpayer claiming a refund is entitled to interest on the overpayment when the refund is issued more than 45 days after the due date for filing the return or the actual return filing date. If a return is filed late, interest accrues from the date the late return was filed. Under Code Sec. 6611(g), a return is not treated as filed until it is filed in processible form.

Deutsche Bank argued that Forms 8805 and 1042-S were not required attachments to Form 1120F, and thus its 1999 return was filed in processible form when originally filed.

The IRS contended that the required filing of Forms 8805 and 1042-S allow for the mathematical verification of the claimed withholding credits and tax liability on the return and thus a return is not filed in processible form until those forms are included with the return.

The Federal Circuit affirmed the Claims Court holding that Forms 8805 and 1042-S were required attachments and, without the missing forms, the original return did not contain sufficient required information on the return to permit the mathematical verification of the bank's income tax liability. The court first determined that the statements of Forms 1120F, 8805, and 1042-S, the accompanying instructions, and the general return requirements of Code Sec. 6011 supported the Claims Court's determination that Forms 8805 and 1042-S were required attachments to the bank's return.

The court also found that the bank's original return did not contain sufficient required information, whether on the return or on required attachments, to permit the mathematical verification of the withholding credit or tax liability. In rejecting the bank's argument that the IRS could mathematically verify its total withholding credit from copies of Forms 8805 and 1042-S received from the withholding agents, the court noted that it was irrelevant whether the IRS could have used its audit power or the forms submitted by withholding agents to verify the bank's overpayment. Because Forms 8805 and 1042-S were necessary to permit the mathematical verification of the total withholding credit and tax liability and were not attached to the original return, Deutsche Bank's original return did not contain sufficient required information and thus was not filed in processible form.

For a discussion of interest on underpayments and overpayments of tax, see Parker Tax ¶261,510. (Staff Contributor Parker Tax Publishing)

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