In Uncategorized on 08/27/2015 at 23:52

When a taxpayer sends IRS money, it can be intended for one of two things: either to pay a liability, or to serve as a deposit (which can stop the accrual of interest). If a deposit, the taxpayer wants to fight the asserted liability, and can do so. But if a payment, then to the extent the money is applied to the liability (and the taxpayer so intended), then there’s nothing more to fight about.

But payment of an asserted deficiency strips Tax Court of jurisdiction, while a deposit does not.

So The Judge With a Heart, STJ Armen, wants to know which it is, in Hilbert Edward Schoeninger & Janis H. Schoeninger, Docket No. 16875-14S, filed 8/27/15.

It’s been a long day, starting with vacation in the Berkshires, a meeting in Albany, and a trip to the Green Mountain State, so I’ll be brief.

IRS hit Hil & Jan with a CP2000, Hil & Jan sent IRS a check, IRS sent a SNOD, Hil & Jan petitioned the SNOD, and IRS moved to dismiss, claiming no jurisdiction as Hil & Jan paid in full. But Hil & Jan’s petition was directed to liability for the deficiency.

So STJ Armen wants to know whether Hil & Jan paid or deposited.

Tax Court jurisdiction depends upon a valid SNOD. If the asserted deficiency has been paid before issuance of the SNOD, no jurisdiction. But if the petitioner deposited the money to stop accrual of interest and still wants to fight the deficiency, then jurisdiction.

“Rev. Proc. 2005-18, 2005-1 C.B. 798, gives guidance in determining whether a remittance is considered a payment or a deposit. According to Rev. Proc. 2005-18, sec. 4.01(1), 2005-1 C.B. at 799, the taxpayer may make a deposit by remitting to the IRS a check or money order, accompanied by a written statement designating the remittance as a deposit. However, if the remittance is undesignated, i.e., is not designated as a deposit, other facts and circumstances help determine whether it is a payment or a deposit. Rev.Proc. 2005-18, secs. 4.01(2), 4.03, 4.04, 2005-1 C.B. at 799-800.

“If an undesignated remittance is made in the full amount of a proposed liability, such as an amount proposed in a revenue agent’s or examiner’s report, the undesignated remittance will be treated as a payment of tax. Rev. Proc. 2005-18, sec. 4.03, 2005-1 C.B. at 799. However, any undesignated remittance that is made while the taxpayer is under examination, but before a liability is proposed in writing (e.g., before the issuance of a revenue agent’s or examiner’s report), will be treated by the Service as a deposit if the taxpayer has no outstanding liabilities. Rev. Proc. 2005-18, sec. 4.04(1), 2005-1 C.B. at 800.” Order, at p. 3.

But since neither IRS nor Hil & Jan address what the remittance was for, they should do so now.

Takeaway– Make it clear, practitioner: payment or deposit?

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