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Camp (2017)Assortment Due Course of (CDP) hearings are typically all about assortment.  Thus, if a taxpayer says that the IRS failed to use an accessible credit score to the tax at challenge, that could be a correct challenge to deliver up in a CDP listening to.  In Amr M. Mohsen v. Commissioner, T.C. Memo. 2021-99 (Aug. 11, 2021) (Judge Kerrigan), the taxpayer mentioned the IRS ought to have utilized an overpayment credit score from a earlier 12 months to the tax sought to be collected.  The rationale that the claimed credit score was not accessible for use is the lesson for at the moment: there have been no funds throughout the refund lookback interval.  Oh, snap!  The lure!  Particulars under the fold.

Regulation:  The §6511(a) Limitation Intervals For Refund Claims
Many taxpayers suppose that in the event that they overpay their taxes the IRS will routinely ship them a refund.  Nope. Taxpayers who suppose they’ve overpaid their taxes should ask the IRS to challenge the refund.  The rationale that almost all taxpayers suppose that is computerized is as a result of a Type 1040 that stories an overpayment is handled as a declare for refund of that overpayment.  But when a taxpayer later decides they paid an excessive amount of, they should ask.  They usually should achieve this inside a sure time for the IRS to even contemplate the refund declare.  The limitation intervals are present in
§6511(a).  Limitation intervals are, by their nature, arbitrary, foreclosing each simply and unjust claims.  For a tragic instance, see Little People’s School v. United States, 842 F.second 570 (1st Cir. 1988) (non revenue group filed too late to recuperate erroneously assessed and paid employment taxes).

The size of the §6511(a) limitation interval could be both 2 or 3 years.  The overall rule is {that a} declare have to be made “inside 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such intervals expires the later, or if no return was filed by the taxpayer, inside 2 years from the time the tax was paid.”

You see there are two potential intervals.  Every has appreciable nuances that aren’t related to at the moment’s lesson.  However right here is one related nuance:  what constitutes a “return” for functions of making the three 12 months limitation interval and what constitutes a “refund declare.”

Typically, the identical doc that constitutes a return additionally constitutes a declare for refund if it stories an overpayment.  See Treas.Reg. 301.6402-3(a)(1), (2).  For people, which means both the Type 1040 or Type 1040X.  Thus, a late-filed return will likely be thought-about a declare for refund if displays an overpayment.  See Treas.Reg. 301.6402-(3)(a)(5).  And the IRS can even reply to extra casual asks.  See e.g. IRM (“Casual claims can embrace a letter or different doc…requesting modifications to acquire the right and correct reflection of his/her tax legal responsibility.”).  See typically IRM (Casual Claims).  Right now’s case, nevertheless, includes a return so let’s check out that.

One query that comes up is what occurs when the “return” shouldn’t be truly ready by the taxpayer however is ready by the IRS underneath its authority in §6020.  The reply is: it relies upon!  Section 6020 authorizes the IRS to organize a return on behalf of the taxpayer and distinguishes between two forms of “Substitutes For Returns” (SFRs).  Below § 6020(a) the Service prepares the SFR primarily based on the taxpayer’s “consent to reveal all info mandatory for the preparation thereof” and the taxpayer indicators the SFR doc.  Below § 6020(b) the Service prepares the SFR with out the taxpayer’s consent or acknowledgment.

An SFR issued per §6020(a) is taken into account the taxpayer’s return for functions of triggering the evaluation limitation interval and might due to this fact even be a legitimate declare for refund.  As a sensible matter, a taxpayer needn’t present “all” the knowledge however does must cooperate.  Nonetheless, if the taxpayer doesn’t cooperate and the SFR is issued per §6020(b), then the return shouldn’t be handled because the return of the taxpayer can’t represent a legitimate declare for refund.   See Simmons v. United States, 29 Fed. Cl. 136 (1993) (explaining {that a} §6020(b) return can’t represent a refund declare as a result of it doesn’t comprise the knowledge wanted to place the IRS on discover of an overpayment).  See additionally Rev. Rul. 2005-59 (distinguishing between §6020(a) and (b) SFRs).

Regulation: The §6511(b) Lookback Lure
There’s a second limitation contained in §6511.  It’s a limitation on the quantity of overpaid tax that may be the topic of a refund declare.  This limitation principally piggybacks on the suitable declare limitation rule to create an equal time frame the place we glance again to see what quantities have been paid.  Solely quantities paid throughout the acceptable lookback interval could be recovered.  Thus, if a taxpayer has beforehand filed a return and thus the refund declare is topic to the three 12 months interval, §6511(b)(2)(A) offers that “the quantity of the credit score or refund shall not exceed the portion of the tax paid throughout the interval, instantly previous the submitting of the declare, equal to three years plus the interval of any extension of time for submitting the return.”  Equally, if the taxpayer’s refund declare is topic to the two 12 months limitation interval in §6511(a), then §6511(b)(2)(B) offers that “the quantity of the credit score or refund shall not exceed the portion of the tax paid throughout the 2 years instantly previous the submitting of the declare.”

Thus, even when the taxpayer recordsdata a well timed refund declare, you at all times must examine the acceptable lookback interval to see if there’s any cash to get refunded!  For a fantastic instance, see Rev. Rul. 76-511, describing a state of affairs the place the declare was well timed however there had been no funds made within the relevant lookback interval and thus could possibly be no restoration.

The identical §6020 challenge arises in calculating the suitable lookback interval right here simply because it does in calculating the suitable declare limitations interval.  In Healer v. Commissioner, 115 T.C. 316, 323 (2000), the Tax Court docket famous that even when a taxpayer had simply signed the proposed SFR despatched to her by the IRS, that may have created a return underneath 6020(a) which might have been ample to set off the three 12 months lookback interval in 6511(b).  However since she didn’t signal the SFR, the court docket utilized the 2 12 months lookback interval to disclaim her refund declare.

That is the lookback lure that we find out about in at the moment’s case.  Let’s have a look.

In 2002, Mr. Mohsen he filed for an extension of time to file is 2001 return.  Alongside together with his extension he threw $43,000 on the IRS to pay his estimated taxes.

In 2003, Mr. Mohsen nonetheless had not filed his 2001 return.  So the IRS did it for him, making ready a Substitute for Return (SFR) per §6020.  The opinion treats this as a §6020(b) SFR however doesn’t clarify why.  The IRS apparently utilized some however not all the $43,000 to the legal responsibility.  It stored the remaining.

On October 29, 2015, Mr. Mohsen obtained round to submitting his 2001 return and likewise filed a proper declare for refund, claiming an overpayment of $49,000.  The IRS denied the declare on March 16, 2016.  Mr. Mohsen by no means sought judicial assessment.

In 2017, Mr. Mohsen obtained round to submitting his 2004 return and requested that $10,000 of his 2002 fee be utilized, with the rest refunded to him.

The IRS declined to use any quantities and as a substitute began the gathering course of for the self-reported 2004 steadiness due of $10,000.  A part of that course of, as we all know, is to offer the taxpayer a possibility for a CDP listening to.  Mr. Mohsen requested for the CDP listening to and there argued, as soon as once more, that the IRS actually ought to use a part of the 2002 fee and provides the remaining again.  Solely now he tried to assert that the fee was actually a deposit and so was nonetheless accessible.

The IRS Workplace of Appeals sustained the proposal to levy Mr. Mohsen’s property to gather the unpaid 2004 legal responsibility.  Mr. Mohsen well timed petitioned the Tax Court docket.  And thus we get our lesson.

Lesson:  With out A Cost within the Lookback Interval, A Well timed Declare Is an Empty Declare
Decide Kerrigan first explains that the Tax Court docket does certainly have the facility to order the IRS to use an “accessible credit score” to a legal responsibility it seeks to gather.  Nonetheless, she is cautious to notice that “the mere declare of a credit score shouldn’t be an accessible credit score and such a declare needn’t be resolved earlier than the IRS can proceed with assortment of the legal responsibility at challenge.” Op. at 9 (quotes and citations omitted).  That’s, the Tax Court docket can’t reopen closed years and even have a look at different years to independently decide whether or not a credit score is on the market.

Right here, Mr. Mohsen had filed a declare for refund of his 2002 fee on October 29, 2015, when he belatedly filed each his 2001 return and apparently filed a separate formal declare for the $43,000 (after which some) to be refunded.

Decide Kerrigan explains why the IRS correctly denied that declare for refund.  There was no drawback with the timeliness of the declare underneath §6511(a).  Mr. Mohsen had three years from October 29, 2015 to file a declare for refund and he, in truth, filed that declare on the identical day he filed his return, October 29, 2015.

However Mr. Mohsen fell into the §6511(b) lookback lure.  That subsection tells us to make use of a three-year lookback interval beginning on the date of the refund declare.  Right here, that was October 29, 2015.  Mr. Mohsen could be entitled to recuperate solely funds made inside that lookback interval.  Right here, there have been none.

There may be simply no escaping the truth that, for no matter motive, Mr. Mohsen did not act well timed.  Whether or not his declare is simply or unjust doesn’t matter: the bar of the constraints interval grants certitude, not mercy.

Remark 1 – Is it Actually Too Late?
I famous that it was not clear whether or not the 2003 SFR ready by the IRS was a §6020(a) or (b) SFR.  Here is why that may matter.  If it was a §6020(a) SFR then it might represent a declare for refund and because the $43,000 was paid inside two years prior, there could be no drawback with the lookback limitation interval.  There could be an issue, nevertheless, in that the IRS didn’t challenge a refund.  Mr. Mohsen would wish to go to court docket to get that accomplished and would have two years from the date the IRS rejected the declare.  That two 12 months interval, nevertheless, is just triggered when the IRS points an precise discover of disallowance or the taxpayer waives the correct to such discover.  See dialogue in CCA 200202069. Right here, arguably, whereas the IRS rejected Mr. Mohsen’s later declare for refund in 2015, the IRS by no means issued such a discover as to the 2003 SFR.  So if that SFR was handled because the related declare for refund, then arguably Mr. Mohsen would nonetheless be capable of file swimsuit to recuperate and the cash could be accessible for offset.  Nonetheless, if the 2003 SFR had been a §6020(b) SFR, then it might NOT be handled as a declare for refund.  Primarily based on her quotation to Healy, Decide Kerrigan apparently considered the SFR as a §6020(b) SFR.  And it probably was, however it might be good to nail that down.

Remark 2 – Equitable Recoupement?
Mr. Mohsen would additionally not be capable of use the doctrine of equitable recoupment right here.  That doctrine permits a taxpayer to drive the IRS to offset an quantity it seeks to gather from the taxpayer by an quantity that the taxpayer would in any other case be entitled to assert however for the bar of a limitations interval.  Nonetheless, the aim of the doctrine in tax regulation is “to forestall injustice the place the Authorities has taxed a single transaction, merchandise, or taxable occasion underneath two inconsistent theories.”  See Wolfington v. Commissioner, T.C. Memo. 2014-45 (quotes and citations omitted).  Right here, Mr. Mohsen’s claimed overpayment pertains to completely different transactions and a distinct tax interval than the legal responsibility sought to be collected.

Remark 3 – Is Healer Nonetheless Good Regulation?
Healer v. Commissioner, 115 T.C. 316, 323 (2000), continues to be good regulation as a result of its holding is {that a} 6020(b) SFR shouldn’t be ample to be a declare for refund.  However its dicta that if the taxpayers there had solely signed a Type 870 or From 4549, then that may be handled because the taxpayer’s return underneath  §6020(a) is unquestionably open to query now.  On the time, that was certainly the IRS’s place.  However the IRS has since modified its thoughts, in a really poorly reasoned Income Ruling, Rev. Rul. 2005-59, that I roundly critiqued in Bryan Camp, The Function of Forms in the Substitute-for-Return Process, 111 Tax Notes 1511 (June 26, 2006).  Whereas that unlucky Rev. Rul. has been adopted in an unreported Justice of the Peace Decide’s opinion (United States v. Busch, Civil Motion No. 4:17-CV-183-ALM-CAN (Decide Nowak, E.D. Tex.) (opinion signed 12/4/2017), I’ve not discovered it adopted elsewhere.  However neither has it been rejected, because it must be.

Bryan Camp’s is the George H. Mahon Professor of Regulation at Texas Tech College Faculty of Regulation.  He invitations readers to return every week to TaxProf Weblog for one more well timed, if not timeless, Lesson From The Tax Court docket.

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