Or,  If You Want a Refund, Ask For It

Taking his cue from John Osborne’s 1956 London hit, thus instructs STJ Dean, in Abdelrahman Rabie, 2011 T.C. Sum. Op. 137, filed 12/12/11. AbRab overpaid his taxes in the year at issue, but IRS issued a SNOD claiming he underpaid. After concessions, everyone agrees AbRab overpaid. But the lookback in Section 6512(b)(3)(b) bars his refund.

AbRab never filed his return for that year until three and a half years later. He did timely file an undated 4868 auto-extension, but that showed a balance due. Then,  two years after his return was due (as extended), he sent IRS a letter apologizing for not filing but claiming he always got a refund in the past. He  sent in a return, and what he styled a “corrected return”, a year after that, which “corrected return” everyone agrees finally got AbRab’s numbers right.

Now, does AbRab get a refund? STJ Dean says no.

“A taxpayer seeking a refund of overpaid taxes ordinarily must file a timely claim for a refund with the IRS that meets the requirements of section 6511. That section contains two separate provisions for determining the timeliness of a refund claim: The taxpayer must file a claim for a refund ‘within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within 2 years from the time the tax was paid.’ Sec. 6511(a)(1).

“Section 6511 also defines two ‘lookback’ periods: if the claim is filed ‘within 3 years from the time the return was filed’, then the taxpayer is entitled to a refund of the portion of the tax paid within the 3 years immediately preceding the filing of the claim plus the period of any extension of time for filing the return. Sec. 6511(b)(2)(A). If the claim is not filed within that 3-year period, then the taxpayer is entitled to a refund of only that ‘portion of the tax paid during the 2 years immediately preceding the filing of the claim.’ Sec. 6511(b)(2)(B). If no claim has been filed the refund cannot exceed the amount that would be allowable under section 6511(b)(2)(A) or (B) if a claim was filed on the date the refund is allowed. Sec. 6511(b)(2)(C).” 2011 T. C. Sum. Op. 137, at pp. 4-5.

Clear, right?

AbRab says he did make a claim, albeit informally, in his 4868 or in his “so sorry but I always get refunds” letter. And those, he says, were timely.

No, says STJ Dean. Even though the courts have accepted claims even so vague that IRS rejected them out of hand (provided they were timely amended to demystify), “(I)t is not enough, however, that the facts supporting the claim reach the IRS in some ‘roundabout’ fashion. ‘The evidence should be clear that the Commissioner understood the specific claim that was made even though there was a departure from form in its submission.’” 2011 T. C. Sum. Op. 137, at pp. 5-6 [Citations omitted.]

In fact, even a 37-page letter was found insufficient in Martin v. United States, 833 F.2d 655 (7th Cir. 1987), because “…to be considered an adequate informal claim, the writing must be ‘sufficient to apprise the IRS that a refund is sought and to focus attention on the merits of the dispute so that an examination of the claim may be commenced if the IRS wishes.’” 2011 T.C. Sum. Op. 137, at p. 7. The taxpayer in Martin never said a refund was wanted, or demanded an IRS administrative review of the return.

IRS need not launch an independent investigation into every piece of paper or e-correspondence it receives. IRS need not, like Peer Gynt in Ibsen’s play, “go round about”. AbRab never said “I want a refund.” He only said he always got one before, and took three and a half years to get the numbers right. His 4868 was insufficient, because it showed a balance due. Even so, in the past a 4868 was held to be sufficient notice when taken together with other documents submitted by the taxpayer (Kaffenberger v.United States, 314 F.3d 944, at pp. 955-956 (8th Cir. 2003). But AbRab’s letter wasn’t specific enough.

Nevertheless, AbRab might be OK in Tax Court, even if not with IRS.

“A taxpayer seeking a refund in this Court, however, does not need to actually file a claim for refund with the IRS. He need only show that the tax to be refunded was paid during the applicable lookback period. Sec. 6512(b). In this case, the applicable lookback period is set forth in section 6512(b)(3)(B), which provides that this Court cannot award a refund of any overpaid taxes unless it first determines that the taxes were paid ‘within the period which would be applicable under section 6511(b)(2) * * * if on the date of the mailing of the notice of deficiency a claim had been filed (whether or not filed) stating the grounds upon which the Tax Court finds that there is an overpayment’.

“Section 6512(b)(3)(B) treats delinquent filers of income tax returns less favorably than those who have filed timely. Whereas timely filers are most likely to have the opportunity to seek a refund in the event they are drawn into Tax Court litigation, a delinquent filer’s entitlement to a refund in Tax Court depends on the date of the mailing of the notice of deficiency. Section 6512(b)(3)(B) directs the Tax Court to measure the lookback period from the date on which the notice of deficiency is mailed and not the date on which the taxpayer actually files a claim for refund. In the case of delinquent filers, section 6512(b)(3)(B) establishes only a 2-year lookback period, so the delinquent filer is not assured the opportunity to seek a refund in this Court. If the notice of deficiency is mailed more than 2 years after the taxes were paid, the Court lacks jurisdiction to award the taxpayer a refund.” 2011 T. C. Sum. Op 137, at pp. 9-10. {Citations omitted.]

Unhappily for poor ol’ AbRab, the SNOD got mailed to him after the three-year window had closed, so he was out of luck even if the three-year lookback applied.

Takeaway–Every letter to IRS should say “I want a refund”. If you file a 4868 and can state in good faith that you overpaid, write on the front in big letters “I want a refund”. And tell ‘em AbRab sent you.