Late-Filed Return Nixes Taxpayer's Claim for Refund of Excess Withholdings

(Parker Tax Publishing August 2023)

The Tax Court held that it lacked jurisdiction to order a refund of an overpayment by a taxpayer who did not file an income tax return for 2015 until shortly after receiving notice of deficiency from the IRS in April of 2021. The court found that because the taxpayer failed to file a return before 2021, under Code Sec. 6511(b)(2)(A) the court had jurisdiction to determine a refund of an overpayment of tax paid within two years of the issuance of the notice of deficiency and the statute does not allow the court to give equitable consideration to the taxpayer's personal circumstances. Golden v. Comm'r., T.C. Memo. 2023-103.

Background

Michael Golden did not timely file a federal income tax return for 2015. The IRS prepared a substitute for return (SFR) on the basis of third-party reporting and, on April 5, 2021, issued him a notice of deficiency. The notice determined that Golden had a net tax liability of $2,981. It also determined additions to tax under Code Sec. 6651(a)(1) and (2) for failure to timely file and pay.

On April 19, 2021, shortly after he received the notice of deficiency, Golden filed a return for 2015. This return reported an overpayment of $5,552. Golden petitioned the Tax Court, seeking redetermination of his deficiency and contending that he was entitled to a refund. Golden's case was sent to the IRS Independent Office of Appeals (Appeals) for consideration of possible settlement. On the basis of information supplied by Golden, the Appeals officer assigned to his case concluded that Golden overpaid his 2015 tax by $6,265.

Given Appeals' conclusion that Golden overpaid his 2015 tax, the IRS conceded that Golden did not owe the deficiency or the additions to tax determined in the notice of deficiency. Golden did not dispute the IRS's calculation of his overpayment amount. However, Golden and the IRS disagreed about whether Golden was entitled to a refund of his overpayment. In a motion for summary judgment, the IRS argued that Golden's refund was barred by Code Secs. 6511(b)(2)(B) and 6512(b)(3)(B).

Under Code Sec. 6512(b)(1), the Tax Court has jurisdiction to determine the amount of any overpayment a taxpayer made for a year that is properly before the court on a petition to redetermine a deficiency. The court's jurisdiction to order a refund of an overpayment, however, is limited and depends on when the tax was paid. The court may determine a refund for an overpayment of tax paid within one of two applicable lookback periods. These two periods are: (1) the two-year period before the IRS issued the notice of deficiency under Code Sec. 6511(b)(2)(A), or (2) the three-year period before the taxpayer filed his return under Code Sec. 6512(b)(3)(B). If the taxpayer failed to file a return before the notice of deficiency was issued, the two-year lookback period applies.

Observation: Under Code Sec. 6512(b)(3), the lookback period is three years where the notice of deficiency was issued during the third year after the due date of the return (with extensions) but where no such return was filed. In this case, because the notice of deficiency was issued in 2021, more than three years after the due date of Golden's 2015 tax return, Code Sec. 6512(b)(3) did not operate to extent the lookback period to three years.

Golden did not dispute the facts or applicable law. Instead, he asked the Tax Court to give equitable consideration to his personal circumstances. He represented that he was unable to timely file his 2015 return because of the "double load" placed upon him while he was working simultaneously as a program manager in the civilian sector and as a senior military officer in the United States Navy Reserve. These burdens evidently made his life "extremely difficult." He asked that the statutory limitations on his refund be waived, adding his belief that it was not Congress's intent to "punish" taxpayers like him.

Analysis

The Tax Court held that granted the IRS's motion for summary judgment. The court found that the two-year lookback period applied because Golden failed to file a 2015 return before April 5, 2021, the date the IRS issued the notice of deficiency. Therefore, the court found that it had jurisdiction to determine a refund only if Golden paid the tax of which refund is sought within two years of April 5, 2021. The court noted that Golden's tax payments for tax 2015 consisted entirely of withholding from his wages. Under Code Sec. 6513(b)(1), income tax deducted and withheld from an employee's wages is deemed to have been paid on April 15 of the following tax year - in this case, April 15, 2016. Because this date was almost five years (and thus more than two years) before the date on which the notice of deficiency was issued, the court concluded that it did not have jurisdiction to determine a refund of Golden's overpayment.

The Tax Court sympathized with Golden's predicament. However, the court noted that Code Sec. 6512(b)(3) sets forth a jurisdictional requirement that limits the court's power, and the court may not assume jurisdiction upon equitable considerations. The court observed that in Comm'r v. Lundy, 516 U.S. 235 (1996), the Supreme Court made clear that the limitations on refunds of overpayments prescribed in Code Sec. 6512(b)(3) shall be given effect, consistent with Congress's intent as expressed in the plain text of the statute, regardless of any perceived harshness to the taxpayer.

For a discussion of the timing of tax refund claims, see Parker Tax ¶261,190.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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