In Uncategorized on 07/07/2016 at 22:08

We used to sing a little song many years ago, about tiptoeing through minefields, but it wasn’t anything to do with Tax Court’s, shall I say Byzantine, jurisdiction.

But today Judge James S. (“Big Jim”) Halpern does a pas seul over, around and through Section 6512(b)(4) interplay with Section 6402, leading to a  prohibition on Tax Court reviewing IRS’s wisdom in assigning overpayments in one year to underpayments in another.

Settle back in your seats and watch Gonzalo Luque and Maribel Luque, 2016 T. C. Memo. 128, filed 7/7/16.

IRS hit Gonz and Mari with a SNOD, but took it all back and wanted entry of decision saying nothing owed, no refund due. Gonz and Mari say no, we want a refund.

IRS’s evidence as to the dates when all this happened is a little bit squirrely, so Judge Big Jim gave IRS some ‘splainin’ to do. And they do. And since y’all might be interested, he lays it out.

No proof that Gonz and Mari filed late, although IRS didn’t process their return until May 21, though it was due April 17 (DC holidays and all that). But they credited Gonz and Mari with their over-withholding on April 15. So Gonz’s and Mari’s eagle-eyed attorney says “assignment of overpayment for that year to shortfall in prior year wasn’t made under Section 6402, because as of April 15 the IRS hadn’t even looked at Gonz’s and Mari’s return, so how could they know there was or was not an overpayment?”

A Taishoff “good try, first class” goes to Shahin Rahimi, Esq. (or USTCP, as the case may be).

Judge Halpern: “We disagree with the premise of petitioners’ argument. Section 6402(a) applies to the crediting of refunds shown on a return even before any final determination of the taxpayer’s tax liability for the year covered by the return. In Savage v. Commissioner, 112 T.C. at 48-49, for example, we concluded that, after relying on section 6402(a) to apply a taxpayer’s overpayment for one year against the taxpayer’s liability for another year, ‘the Commissioner is not precluded from subsequently determining a deficiency for the taxable year in respect of which the overpayment was originally claimed and allowed.’ See also sec. 301.6402-3(a)(5) and (6), Proced. & Admin. Regs. (allowing a refund shown on a return to be credited under section 6402 against any outstanding tax liability of the taxpayer). Obviously, if the Commissioner can still determine a deficiency for the taxable year that generated the credit, the overpayment initially credited under section 6402(a) cannot have been based on a final determination of the taxpayer’s tax liability for that year. Therefore, we accept that section 6512(b)(4) limits our ability to review respondent’s crediting of the overpayment shown on petitioners’ [year-at-issue] return against any liabilities assessed for [prior year]. But we do not read section 6512(b)(4) to prevent us from verifying, in the exercise of our jurisdiction under section 6512(b)(1), that the credit respondent professes to have made was actually applied.” 2016 T. C. Memo. 128, at pp. 6-7.

While Gonz and Mari want to fight about prior year, Judge Big Jim isn’t going there because that year is not before the Court, and eagle-eyed counsel didn’t raise mitigation (probably because it wouldn’t have worked).

IRS deems all overpayments to be available (like bank deposits) as of the due date of the return (without counting holidays, weekends, extension or anything else). This it does to save taxpayers interest on underpayments. So it doesn’t matter when IRS processed the return, or whether Gonz and Mari were timely or late.

There is an extensive visit to the IRS Integrated Data Retrieval System, which, if you are a total geek with a penchant for obsolete software, can be found at pp. 11-14. If you are not such a one, you might find it useful nonetheless, as a good cure for insomnia. When IRS’s ‘splainer gets through, Judge Big Jim is satisfied.

At the end of the day, IRS properly picked up Gonz’s and Mari’s overpayment and applied it to the past shortfall (I won’t call it a deficiency to avoid confusion, as there’s no mention of a SNOD  for that year for whatever reason).

So no tax due, no refund due.

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