Billy Gilbert’s invocation of the Chief of the London Fire Brigade doesn’t help Erik Schwartz, T. C. Memo. 2022-125, filed 12/21/22. Erik is back from remand, when the admin record from his CDP was too scanty to evidence a prior chance to contest four years ago.

Erik sought a credit elect for an overpayment made pursuant to his divorce decree, but didn’t file for that year (hereinafter “Year of Divorce”) because he thought an interlocutory decree of State court prevented him from filing. On remand, the AO said the epistolary volleying between Erik and IRS didn’t constitute an informal request to apply the remaining balances of the overpayment from Year of Divorce to the five (count ’em, five) subsequent nonconsecutive years Erik claims.

First issue, this is a real credit. Erik did pay, IRS credited Year of Divorce but put the rest in an excess collections account, and never issued a Section 6532(a)(1) notice of disallowance.

Second, the credit Erik wants to apply is a credit against income tax, the tax for which the overpayment was made, not some unrelated liability. The problem is whether Erik’s letter-writing and telephonic campaign constituted an informal request to apply the overpayment from Year of Divorce to the subsequent years within the Section 6511 lookback.

Judge Vasquez: “It has long been recognized that a writing which does not qualify as a formal refund claim nevertheless may toll the period of limitations applicable for refunds if (1) the writing is delivered to the Commissioner before the expiration of the applicable period of limitations, (2) the writing in conjunction with its surrounding circumstances adequately notifies the Commissioner that the taxpayer is claiming a refund and the basis therefor, and (3) either the Commissioner waives the defect by considering the refund claim on its merits or the taxpayer subsequently perfects the informal refund claim by filing a formal refund claim before the Commissioner rejects the informal refund claim.” T. C. Memo. 2022-125, at p. 14. And there’s “copious citation of precedent,” so get it for your memos of law.

IRS said they were too busy to reply, but they wrote Erik that he didn’t need to do anything else. And IRS’ logs showed Erik’s phonecalls. IRS waived formal notice.

But all Erik establishes is a credit elect for Years Two and Three. Years Four, Five, and Six took place after a two-year gap. The gap puts paid to Erik’s cascade.

“The record does not establish a chain of cascading credit elects linking petitioner’s [Year of Divorce] overpayment to his [Years Four, Five , and Six] liabilities. To be sure, the [Year of Divorce] overpayment resulted in credit elects for [Years  Two and Three], and petitioner elected to apply his [Year Two] overpayment against his [Year Three] estimated tax. However, tax returns for [Years Two and Three] are not in evidence. Although respondent’s transcripts show no tax liabilities for those years, it is unclear whether petitioner elected to apply his [Year Three] overpayment for [Year Four] and his [Year Four] overpayment for [Year Five]. Moreover, the return information for petitioner’s [Year Five] tax year does not reference a credit elect from [Year Four] and does not include an election to apply an overpayment against his estimated tax for [Year Six]. Because there is no evidence of cascading credit elects from [Years Three, Four, and Five], we cannot link the [Year of Divorce] overpayment to any years beyond [Year Two].

“Accordingly, we are without jurisdiction to direct the application of credit elects against petitioner’s [Four, Five, and Six] liabilities unless petitioner has an ‘available credit’ from an unrelated nondetermination year. The record does not include any transcripts or other evidence showing such a credit. We therefore sustain respondent’s determinations not to apply the [Year of Divorce] overpayment against petitioner’s [Years Four, Five, and Six] liabilities nondetermination year. The record does not include any transcripts or other evidence showing such a credit. We therefore sustain respondent’s determinations not to apply the [Year of Divorce] overpayment against petitioner’s [Years Four, Five, and Six] liabilities.” T. C. Memo. 2022-125, at p. 12.

To avoid the fate of Captain Shaw in the Gilbert opus, each level of the cascade must be proven. Don’t count on IRS’ transcripts. There’s no substitute for copies of the returns themselves.