Deaton v. C.I.R., 05-60278.

• Decision Date: 09 February 2006
• Docket Number: No. 05-60278.,No. 05-60292.,05-60278.,05-60292.
• Citation: 440 F.3d 223
• Parties: Barbara DEATON, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. Ronny Deaton, Petitioner-Appellant, v. Commissioner of Internal Revenue, Respondent-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

440 F.3d 223

Barbara DEATON, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

Ronny Deaton, Petitioner-Appellant, v. Commissioner of Internal Revenue, Respondent-Appellee.

No. 05-60278.

No. 05-60292.

United States Court of Appeals, Fifth Circuit.

February 9, 2006.

Lawrence R. Jones, Jr., Townsend & Jones, Dallas, TX, for the Deatons.

Annette Marie Wietecha, Gilbert S. Rothenberg, Eileen J. O'Connor, Asst. Atty. Gen., U.S. Dept. of Justice, Robert R. Di Trolio, U.S. Tax Court, Donald L. Korb, Chief Counsel, IRS, Washington, DC, for CIR.

Appeals from the United States Tax Court.

Before GARWOOD, DeMOSS and BENAVIDES, Circuit Judges.

DeMOSS, Circuit Judge:

Barbara and Ronny Deaton (the "Deatons") appeal a decision of the United States Tax Court (the "Tax Court") sustaining a finding of the Internal Revenue Service Appeals Office (the "Appeals Office") that the Deatons' 1994 remittance of $125,000—which accompanied their Form 4868 application for an extension of time to file their 1993 tax return—was a "payment," not a "deposit," and that as such, it could not be credited against the Deatons' 1994-1996 tax liabilities because it fell outside the "look-back period" of I.R.C. § 6511(b)(2)(A).

I. Facts and Proceedings

On April 15, 1994, the deadline for filing a 1993 U.S. Individual Income Tax Return, the Deatons filed a Form 4868 with the Internal Revenue Service (IRS) to extend the time for filing their return. Form 4868, titled "Application for Automatic Extension of Time to File U.S. Individual Income Tax Return," automatically extends a taxpayer's time to file his return if the taxpayer meets certain conditions; however, it does not extend the time to pay tax. See Treas. Reg. § 1.6081-4(b) (1993) ("[A]ny automatic extension of time for filing an individual income tax return . . . shall not operate to extend the time for payment of any tax due on such return."). ¹ To qualify for a Form 4868 automatic extension of time to file, the Deatons had to "[p]roperly estimate [their] 1993 tax liability using the information available to [them], [e]nter [their] tax liability on line 1 of Form 4868, [and] [f]ile Form 4868 by the due date of [their] return." I.R.S. Instructions for Form 4868 (Cat. No. 15385N) (1993); see also Treas. Reg. § 1.6081-4(a)(4) (1993) ("Such application for extension must show the full amount properly estimated as tax for such taxpayer for such taxable year . . . ."). Although the Deatons were not required to remit any amount to the IRS with their form, see I.R.S. Instructions for Form 4868 (Cat. No. 15385N) (1993) ("If you find you can't pay the full amount shown on line 3, you can still get the extension."),² the instructions to Form 4868 indicated that a taxpayer would be liable for interest and possibly a late payment penalty if he submitted less than the full amount of estimated taxes with his form, id.

To avoid incurring interest and any late payment penalty, the Deatons submitted to the IRS with their Form 4868 a check in the amount of $125,000, which they calculated as the line 3 "balance due" after deducting payments of $13,883 (in the form of withholdings) from their estimated tax liability of $138,883. Following receipt of the form, the IRS extended the Deatons' deadline for filing their 1993 return by six months; however, the Deatons missed the extended deadline and in fact did not file their 1993 return until January 2000, nearly six years after its due date. The Deatons also failed to file timely returns for the tax years 1994, 1995, and 1996.

On January 10, 2000, the Deatons filed delinquent returns for the tax years 1993 through 1996. On their 1993 return, they reported a tax liability of only $88,662, which indicated that they had overestimated their 1993 tax liability on Form 4868 by $50,221. The Deatons requested that this overpayment be carried forward and credited as a payment toward their tax liabilities for the years following 1993.

Shortly after the IRS received the Deatons' 1993-1996 tax returns, it formally assessed the amounts reported as tax on each of the returns. For 1993, the IRS applied the amount already paid by withholding ($13,883) and the April 1994 remittance ($125,000) to the reported tax liability of $88,662. The IRS then posted the resulting overpayment of $50,221 to an "excess collections" account and did not carry it forward on the Deatons' account as a credit for subsequent tax years as the Deatons requested. According to the IRS, the Deatons' credit request was barred by I.R.C. § 6511(b)(2)(A), which limits the amount of a credit or refund claimed by a taxpayer to the amount paid within the "look-back period" under that subsection, that is, the three years (plus the period of any extension of time for filing the return) immediately preceding the filing of the claim. I.R.C. § 6511(b)(2)(A). The Deatons had paid nothing to the IRS within the applicable look-back period, which dated back to July 10, 1996,³ so their credit was limited to zero.

This litigation arose out of the IRS's attempt to levy the Deatons' property to satisfy their 1994-1996 tax liabilities, which remained unpaid because of the IRS's refusal to apply the 1993 overpayment as a credit in later years. After the IRS issued a Notice of Intent to Levy, the Deatons timely filed a request for a collection due process hearing with the IRS Appeals Office. In their request for a hearing, the Deatons asserted that the 1994 remittance of $125,000 was a "deposit" rather than a "payment," a status that would have protected the remittance from the look-back period for credits and refunds.⁴ The Appeals Office rejected the Deatons' assertion, classified their 1994 remittance as a payment, subject to I.R.C. § 6511(b)(2)(A)'s look-back period, and sustained the IRS's proposed levy.

The Deatons were likewise unsuccessful before the Tax Court. Although the Tax Court acknowledged the judicially created distinction between a deposit and a payment, the court also recognized a three-way split of authority regarding the treatment of a Form 4868 remittance. Applying its own precedent in Risman v. Commissioner, 100 T.C. 191, 1993 WL 72856 (1993), which calls for an examination of the facts and circumstances of a case in order to determine whether the taxpayer intended his remittance as a deposit or a payment, the Tax Court reviewed the Deatons' tax records and a letter from their accountant asserting that the $125,000 was a deposit. Finding that the Deatons had failed to demonstrate their contemporaneous intent to treat the remittance as a deposit, the Tax Court sustained the Appeals Office's finding that the Deatons' remittance was a payment made outside the look-back period of § 6511(b)(2)(A) and upheld the Appeals Office's determination that the IRS's proposed levy could proceed. This appeal ensued. Because we agree with the Tax Court that the Deatons' 1994 remittance was a payment, rather than a deposit, we AFFIRM the Tax Court's decision.

II. Discussion

A. Standard of Review

The sole issue on appeal is whether the Deatons' 1994 remittance of $125,000 was a payment or a deposit. This is a question of law that we review de novo. San Antonio Sav. Ass'n v. Comm'r, 887 F.2d 577, 581 (5th Cir.1989) ("This court has jurisdiction to review the decisions of the tax court `in the same manner and to the same extent as decisions of the district courts in civil actions tried without a jury.' We therefore examine this decision as we do other summary judgment decisions. Because the dispute concerns findings of law, we review on a de novo standard." (quoting 26 U.S.C. § 7482 (1982))). The Tax Court's factual findings are reviewed for clear error. Sandvall v. Comm'r, 898 F.2d 455, 458 (5th Cir.1990).

B. Analysis

The Deaton's argue on appeal that the $125,000 remittance that accompanied their Form 4868 application for an extension of time to file was a deposit and that as such, it is not subject to the look-back period of I.R.C. § 6511(b)(2)(A). They ask this Court to reverse the Tax Court's decision and order the IRS to apply their 1993 overpayment as a credit to their 1994-1996 tax liabilities or refund the overpayment to them. The Deatons concede that if the 1994 remittance is properly classified as a payment, the IRS may keep their overpayment because of § 6511(b)(2)(A)'s look-back period.

In deciding this appeal, we must assess the impact of the Supreme Court's recent decision in Baral v. United States, 528 U.S. 431, 120 S.Ct. 1006, 145 L.Ed.2d 949 (2000), on this Circuit's longstanding rule that remittances made prior to assessment of a tax are deemed deposits rather than payments. See Harden v. United States, 74 F.3d 1237 (5th Cir.1995) (unpublished); Ford v. United States, 618 F.2d 357 (5th Cir.1980); Thomas v. Mercantile Nat'l Bank, 204 F.2d 943 (5th Cir.1953). The Deatons contend that Baral has no effect on their case or on our longstanding rule because it is limited to cases involving remittances governed by the "deemed paid" provision of I.R.C. § 6513(b)⁵—for example, wage withholdings and payments of estimated tax—and they argue that their remittance does not fall under that section. They urge that the proper characterization of their remittance depends on the facts and circumstances associated with it under Rosenman, which predates Baral. According to the Deatons, the facts and circumstances surrounding their 1994 remittance establish their contemporaneous intent to treat it as a deposit, and they assert that Fifth Circuit law at that time supports such a finding.⁶ The Commissioner counters that after Baral, we should treat remittances accompanying Form 4868 applications as payments as a matter of law; alternatively, the Commissioner argues that the Tax Court correctly ruled under the facts-and-circumstances test that the Deatons' remittance was a payment, not a deposit. Because we have not previously explicitly addressed Baral's impact on our law,⁷ we do so...