Attorney-at-Law

IF AT FIRST YOU DON’T SUCCEED – PART DEUX

In Uncategorized on 09/24/2014 at 18:04

Don’t think you’ll get the interest abated. That’s the moral for Maryann Larkin and Thomas Larkin, 2014 T. C. Memo. 195, filed 9/24/14, completing my hat-trick for today.

Maryann and Tom had a big NOL, and decided to carry it forward, wiping out some tax. But they never filed the Section 172(b)(1) and (3) election timely.

You need to do that if you elect not to go back two years with an NOL, but rather to go forward off the bat.

Then they asked IRS for tax advice, were told to amend to carryback and then carryforward. They did, and asked IRS to credit the remainder of the NOL forward.

IRS didn’t. They just refunded whatever was left to Maryann and Tom.

This left Maryann and Tom short the next year, and they got charged beaucoup interest.

They went to Nina (“The Big O”) Olson’s Taxpayer Advocate Service, who told them too bad, so sad, but IRS didn’t create the problem, you did.

And that’s where Judge Gustafson leaves it.

Interest on underpayment and overpayment are asymmetrical, which means unfair, but that’s life.

“On the one hand, a taxpayer will owe underpayment interest beginning on “the last date prescribed for payment”, sec. 6601(a), which for individual income tax is the due date of the return–typically April 15 of the following year, see secs. 6072(a), 6151(a)–without regard to when or whether he actually files his return. On the other hand, the Government will owe no interest on an overpayment before the return is filed, sec. 6611(b)(3); and where (as here) the relevant return is deemed untimely filed… the Government will owe no interest at all if the overpayment ‘is refunded within 45 days after the date the return is filed’, sec. 6611(e)(1).” 2014 T. C. Memo. 195, at p. 15.

And IRS coughed up within 45 days of when Maryann and Tom finally got it right.

Well, what about the advice they got from IRS? Well, first, Maryann and Tom don’t say exactly what was wrong with what IRS told them. Anyway, giving legal advice is neither “ministerial” nor “managerial”, and those are the only IRS acts that set up an abatement.

“Providing an interpretation of Federal tax law (such as on the question whether section 172 requires a taxpayer to carry back an NOL deduction one year or two) is neither a ministerial nor a managerial act. 26 C.F.R. sec. 301.6404-2(b)(1) and (2), Proced. & Admin. Regs.” 2014 T. C. memo. 195, at pp. 24-25. (Footnote omitted, but read it. 26 C.F.R. sec. 301.6404-2(c), Proced. & Admin. Regs., Example 12, states in pertinent part, as my expensive colleagues say, “Interpreting complex provisions of federal tax law is neither a ministerial nor a managerial act. Consequently, interest attributable to an error or delay arising from giving the taxpayer an incorrect amount due to satisfy the taxpayer’s income tax liability in this situation cannot be abated under paragraph (a) of this section. [Emphasis added.]” 2014 T. C. Memo. 195, at p.25, footnote 15.)

And Maryann and Tom blew it by not taking a carryback, or by not electing to waive the carryback timely.

Takeaway–If at first you don’t succeed, be prepared to pay interest.

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