Attorney-at-Law

LOOKBACK IN ANGER – PART DEUX

In Uncategorized on 04/15/2015 at 17:15

A new take on an old issue–the delayed request for refund. See my blogpost “Lookback in Anger”, 12/12/11, for background, and then fast-forward to Tax Day, 4/15/15, and Judge Wherry’s hypothetical measurements in Dan E. Butts and Patricia J. Butts, 2015 T. C. Memo. 74, filed 4/15/15.

IRS stipulates that Dan and Pat overpaid for the two years at issue, once Dan and Pat cough up their returns four years after the fact.

But since Dan and Pat never filed returns for those years until the audit, they get the two-year, and not the three-year treatment. In simplest terms, 6512(b)(3)(b) requires the application in the instant case of the two-year lookback period in I.R.C. sec. 6511(b)(2)(B).

Nonfilers get the two-year lookback automatically, because they can’t be on a footing equal to or better than those who did timely file.

You can read Judge Wherry’s deconstruction of the timelines involved (there were separate deficiencies here, one set for Dan and Pat pre-petition, and one for Pat alone, which she separately petitioned, mailed at different times) if you like, but your facts as well as your mileage may vary.

Howbeit, the two-year clock ran before Dan and Pat and Pat alone claimed a refund, and the SFRs that triggered the audit don’t count as timely filed returns. So Dan and Pat are out a refund.

This case has an interesting point aside from timing of refunds.

Dan and Pat, and IRS, stipulated that “the sole issue to be resolved” in this proceeding was entitlement to a refund. IRS reiterated that position in a status report. 2015 T. C. Memo. 74, at pp. 4-5, footnote 3.

So, if Dan and Pat were overwithheld, and IRS agreed they were, no additions for failure to pay tax or failure to pay estimated taxes, right? Right.

But what about failure to file timely? Everyone agrees Dan and Pat didn’t cough up until after the audit had begun, and that was four years late. Sounds like IRS met its burden of production going away.

Yes, but. “If petitioners’ entitlement to a refund is the sole issue left for the Court to resolve, then the sec. 6651(a)(1) addition to tax must have already been resolved between the parties. The SOSI [Stipulation Of Settled Issues] and the parties’ other stipulations leave the nature of that resolution ambiguous: Did petitioners concede the addition to tax, or did respondent? Because respondent drafted the SOSI and petitioners are  unrepresented, we will construe this ambiguity against respondent. See Rink v. Commissioner, 100 T.C. 319, 325 (1993) (construing closing agreement in accordance with contract law principles), aff’d, 47 F.3d 168 (6th Cir. 1995); Stamos v. Commissioner, 87 T.C. 1451, 1455 (1986) (construing stipulation in accordance with contract law principles); Cung v. Commissioner, T.C. Memo. 2013-81, at *6 (construing stipulation of settled issues in accordance with contract law principles); 5 Corbin on Contracts, sec. 24.27 (Rev. ed. 1998) (written contract may be construed against the drafting party for the purpose of resolving ambiguities). Accordingly, we conclude that respondent conceded all additions to tax determined in the notices of deficiency that gave rise to these cases.” 2015 T. C. Memo. 74, at p. 5 (Footnote 3 carried over from p, 4; Judge Wherry must have been on law review, because he loves long footnotes).

I’ve said more than once that one should stipulate but not capitulate. That goes for you, my dear readers, but also for IRS.

Now beware! Very often a contract, or stipulation, will contain language to this effect: “The terms, conditions, and provisions in this [contract][stipulation] set forth are the product of extensive negotiation between the parties hereto. For that reason, no rule, presumption, inference or canon shall arise or control the interpretation of this [contract][stipulation] on account of the identity of the drafter hereof, or the party who procured the drafting hereof.”

Watch it; this may knock out the construe-against-the-drafter rule.

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