Apr 18, 2019

Appeals Court interprets Tax Code to allow refund claim

The Tax Court interpreted the Tax Code to deny a non-filer a refund of her overpayment. The statute allows a refund claim when it is made in the “third year after the due date (with extensions).” Here, the 2012 tax return was originally due on April 15, 2013, and had an extended due date of October 15, 2013. But when the taxpayer did not file her tax return on June 19, 2015, the IRS issued a notice of deficiency. The Tax Court then denied the non-filer’s refund claim because it was deemed to have been made in the second year after the due date (i.e., June 19, 2015, is within two years of October 15, 2013) and not during the third year. The Appeals Court reversed the Tax Court ruling.

The Appeals Court noted that had the taxpayer not filed for an extension, the refund claim would have been timely (i.e., June 19, 2015, is in the third year after April 15, 2013). The refund claim could also have been considered timely if the notice of deficiency was issued four months later, after October 15, 2015. It was unfair and against the Congressional intent for there to be a window of time for a refund claim to be denied as untimely.

The Appeals Court interpreted the phrase, “third year after the due date (with extensions)” to modify the third year and not the due date of a tax return. Consequently, as interpreted by the Appeals Court, if the notice of deficiency is mailed during the third year after the initial return due date, with any additional extension time added thereto, then the three-year look-back period applies. This case illustrates the difficulty of interpreting the Tax Code and the need for competent tax counsel.

Please contact me if you have any questions about this matter or if you need assistance resolving tax issues. 

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.

Client alert authored by: David B. Shiner, Principal