In Uncategorized on 05/01/2017 at 17:31

A refund is when you get back something you paid. Sounds simple, right?

Well, not so simple for Panagiota Pam Sotiropoulos, 2016 T. C. Memo. 75, filed 5/1/17. Remember Pam? No? Well, check out my blogpost “Do We Have Jurisdiction, Or What?” 5/5/14. All Judge Lauber decided two years ago was that the Court did have jurisdiction, leaving resolution of Pam’s UK tax refund for another day.

That day has come.

Pam paid withholding tax in the UK for the years at issue. Over there it’s called PAYE, but the idea is the same. Pam claimed overpayments due to some write-offs from a UK movie deal that HMRC (that’s the UK’s revenooers) claim is sketchy. Pam got the withholding back, but HMRC is still not convinced.

We know that when a US taxpayer takes the foreign tax credit but gets a refund, Section 905(c) says, “tell IRS and we’ll decide what you owe.” No SNOD necessary, just notice and demand from IRS.

“Petitioner contended that these sums had not been ‘refunded’ because her ultimate entitlement to refunds remained under investigation in the United Kingdom.  She accordingly did not notify the Secretary (by filing amended returns or otherwise) pursuant to section 905(c)(1).” 2017 T. C. Memo. 75, at p. 2.

IRS had given Pam a SNOD and a Section 6662(a) chop, but now they want to take back the SNOD, claim Section 905(c) controls, and oust Tax Court of jurisdiction.

Moreover, IRS is willing to drop the chops if it gets summary J tossing the case on Section 905(c) grounds, except maybe the amount of the tax due from Pam can be decided, along with penalties, in a Rule 155 beancount.

Judge Lauber isn’t so sure. “It is not clear that we have jurisdiction to determine the precise amounts of the refunded taxes–section 905(c)(1) provides that ‘the Secretary * * * shall redetermine the amount of the tax’–or of the asserted penalties.  But we need not address these issues in ruling on respondent’s motion for partial summary judgment.  Petitioner’s liability (if any) for penalties will be resolved in further proceedings after disposition of respondent’s motion for partial summary judgment.”  2017 T. C. Memo. 75, at p. 9, footnote 5.

Maybe IRS would have done better to stick with the SNOD. Without getting the numbers done, Pam may have a shot on a CDP, claiming she had no chance to dispute the numbers or the penalty.

Howbeit, ordinary language prevails. Pam got the cash in hand from HMRC, and if HMRC later determines that the movie deal was a prohibited shelter, well, them’s the breaks, Pam.

Or more elegantly, Judge Lauber: “Petitioner contends that rejection of her argument may result in ‘double taxation,’ contrary to the policies underlying the foreign tax credit and the U.S. U.K. income tax treaty.  She bases this contention on the assertion that, if she is required ‘to repay refunds previously received from H.M.R.C. * * * , and such repayments are considered creditable foreign taxes * * * in the year of payment, [her] personal circumstances are such that [she] would obtain no U.S. tax benefit from such credits.’

“Petitioner offers no explanation or factual support for this vague assertion, but it is unpersuasive in any event.  It often happens that taxpayers, because of individual circumstances or passage of time, are unable to derive full benefit from contingent tax assets they have booked or expect to receive, such as carryforwards of foreign tax credits, net operating losses, passive losses, or investment interest. This does not demonstrate any structural defect in the Code and does not give rise to double taxation.’  It ‘simply reflects the facts that the future is unpredictable and that taxable income must be determined on an annual basis.’” 2017 T. C. Memo. 75, at p. 18 (Footnote omitted, but it says that the Section 6689(a) penalty for not telling IRS about the refund is nothing to do with whether there was a refund; IRS hasn’t moved for summary J on the Section 6689(a) chop, and anyway, that chop is nonassessable and thus Tax Court has no jurisdiction to deal with it).

So Tax Court says Pam got a refund.

Do we have jurisdiction, or what?


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