Lundy v. I.R.S.
| Decision Date | 30 January 1995 |
| Docket Number | No. 94-1260,94-1260 |
| Citation | 45 F.3d 856 |
| Parties | -697, 95-1 USTC P 50,085 Robert F. LUNDY, Petitioner-Appellant, v. INTERNAL REVENUE SERVICE, Respondent-Appellee. |
| Court | U.S. Court of Appeals — Fourth Circuit |
ARGUED: Glenn P. Schwartz, John Marshall Law School, Chicago, IL, for appellant. Regina Sherry Moriarty, Tax Div., U.S. Dept. of Justice, Washington, DC, for appellee. ON BRIEF: Lawrence J. Ross, Washington, DC, for appellant. Loretta C. Argrett, Asst. Atty. Gen., Gary R. Allen, Richard Farber, Tax Div., U.S. Dept. of Justice, Washington, DC, for appellee.
Before RUSSELL and MICHAEL, Circuit Judges, and MESSITTE, United States District Judge for the District of Maryland, sitting by designation.
Reversed and remanded by published opinion. Judge RUSSELL wrote the opinion, in which Judge MICHAEL and Judge MESSITTE joined.
Robert F. Lundy appeals the judgment of the United States Tax Court denying his claim for a refund of income taxes withheld in 1987. This case requires this Court to interpret sections 6511 and 6512 of the Internal Revenue Code (the "Code") to determine whether Lundy's refund claim was timely.
Lundy was employed in 1987 and had federal income tax withheld from his wages. He did not file a tax return by April 15, 1988, the due date for 1987 tax returns. On September 26, 1990, over two years after Lundy's tax return was due, the Commissioner of Internal Revenue mailed Lundy a notice of deficiency, notifying him that there was a deficiency in the amount of $13,806 in his income tax for 1987.
On December 22, 1990, Lundy mailed his 1987 tax return (filed jointly with his wife), which was received by the Internal Revenue Service (the "IRS") on December 28, 1990. The return showed an overpayment of income tax in the amount of $3,537. On December 28, 1990, Lundy filed a petition in the Tax Court requesting it to determine that there was an overpayment of tax and that he was entitled to a refund.
The Commissioner filed her answer on February 19, 1991. She generally denied the allegations in Lundy's petition but did not at that time claim that Lundy's petition was time-barred. In the Tax Court, the parties stipulated that Lundy's tax liability for 1987 was $778 greater than the amount stated on the tax return. Joint Appendix ("J.A.") 13. The parties also stipulated that there was an addition to tax of $369 under 26 U.S.C. Sec. 6653(a)(1)(A). J.A. 14. The parties also stipulated that the Commissioner, in a conference call with the Tax Court, "indicated that it was her understanding that a settlement had been reached which involved a refund." J.A. 56. On February 3, 1992, the IRS sent a notice to Lundy which stated the following:
Amount to be refunded to you if you owe no other obligations $3,537.00
You may have already received this check. If not, please allow 2 weeks for it to be mailed to you, unless there are other matters pending which could postpone your refund.
On March 17, 1992, more than a year after the Commissioner filed her answer, the Commissioner filed a motion to amend her answer and raised the defense that Lundy's claim for refund was time-barred by the limitation periods of 26 U.S.C. Secs. 6511 and 6512. The Tax Court granted the motion.
On June 28, 1993, the Tax Court held that it could not grant a refund for the overpayment of income tax. The Tax Court held that, under 26 U.S.C. Sec. 6512(b)(3)(B), Lundy is entitled to a refund only for taxes paid within two years prior to the date that the Commissioner sent the notice of deficiency. Lundy's tax payments, consisting of amounts withheld from his and his wife's wages, are deemed to have been paid on April 15, 1988. 26 U.S.C. Sec. 6513(b)(1). Because the Commissioner sent the notice of deficiency on September 26, 1990, more than two years after the date Lundy is deemed to have paid his taxes (April 15, 1988), the Tax Court could not order a refund for the overpayment of taxes. Both parties agree that if Lundy had filed a claim for refund in a United States district court or in the United States Claims Court, he would have received his refund.
The limitation provisions in 26 U.S.C. Sec. 6511 apply to claims for refund filed in a United States district court or in the United States Court of Claims. The limitation provisions in 26 U.S.C. Sec. 6512 apply to petitions filed in the United States Tax Court. Because Lundy filed a petition in the Tax Court, the limitation provisions in Sec. 6512 apply to this case. For background, however, we first provide an overview of Sec. 6511.
Section 6511 imposes limitations on both the period for filing a claim for refund (the "filing period"), 26 U.S.C. Sec. 6511(a), and the period for calculating the amount of refund (the "refund period"), 26 U.S.C. Sec. 6511(b). Regarding the filing period, Sec. 6511(a) requires that the taxpayer file a claim for refund within three years of filing a tax return or within two years of paying the tax. 26 U.S.C. Sec. 6511(a). 1
The refund period in Sec. 6511(b) restricts the taxpayer's ability to recover overpaid taxes to either the two-year or three-year period immediately preceding the filing of the refund claim. Which refund period applies depends upon how the taxpayer satisfied the requirements of Sec. 6511(a). If the taxpayer satisfied Sec. 6511(a) by filing the claim for refund within three years of filing a tax return, the three-year refund period applies, which means that the taxpayer can recover overpaid taxes that were paid within the three years preceding the filing of the claim. 26 U.S.C. Sec. 6511(b)(2)(A). If the taxpayer has satisfied Sec. 6511(a) by filing the claim for refund within two years of paying the tax, the two-year refund period applies, which means that the taxpayer can recover overpaid taxes that were paid only within two years preceding the filing of the claim. 26 U.S.C. Sec. 6511(b)(2)(B). 2
Section 6511 gives a taxpayer three years from the due date of his income tax return to claim a refund for all income tax withheld from him during the tax year. The due date for 1987 income tax returns, for instance, was April 15, 1988. If a taxpayer filed a claim for refund of 1987 taxes in a United States district court or the United States Claims Court between April 15, 1988 and April 15, 1991, the taxpayer would satisfy the requirement of Sec. 6511. He could easily meet the limitation requirement of Sec. 6511(a) simply by filing a tax return before filing the claim for refund. 3 Furthermore, the three-year limitation period would apply under Sec. 6511(b)(2)(A); since taxes withheld during the 1987 tax year are deemed to have been paid on April 15, 1988, 26 U.S.C. Sec. 6513(b)(1), 4 the taxpayer could collect a refund of any overpayment of withheld taxes as long as the taxpayer filed his claim on or before April 15, 1991. On the other hand, if the taxpayer filed his claim for refund after April 15, 1991, the claim would be barred under Sec. 6511(b) because the payment of taxes occurred more than three years from the date of the filing of the claim. Nonetheless, when a taxpayer fails to file a tax return by the due date, he has a three-year window of opportunity to file a tax return and claim his refund.
The two-year refund period allows certain taxpayers, in very specific circumstances, to file a legitimate claim for refund beyond the three-year window of opportunity. Although a taxpayer normally pays income tax during the tax year and is deemed to have paid the tax on April 15 of the following year, a taxpayer may have a reason to pay additional tax after this time. In such a case, the taxpayer can file a claim for refund more than three years from the due date of tax returns, as long as the claim is filed within two years of paying the additional tax. Furthermore, the amount of refund is limited to the amount of the additional tax paid within two years of filing the claim. The two-year period, however, does not cut short the three-year window of opportunity that taxpayers have to collect refunds on their withheld tax; it only extends the three-year window in cases where the taxpayer paid additional tax after the due date of tax returns.
The limitation provisions in 26 U.S.C. Sec. 6512 apply to Lundy's case because he filed a petition in the United States Tax Court. A taxpayer can invoke the jurisdiction of the Tax Court only if the IRS sends a notice of deficiency. A taxpayer can challenge the notice of deficiency in the Tax Court by filing a petition for redetermination. The petition may include a claim for a refund of an overpayment. If, in its redetermination of a taxpayer's liability, the Tax Court finds that the taxpayer has made an overpayment of tax, Sec. 6512(b)(1) gives the Tax Court jurisdiction to determine the amount of such overpayment and to include the refund in its final order. Because a taxpayer files a petition for redetermination in the Tax Court only in response to a notice of deficiency, there is no equivalent in Sec. 6512 to the filing period of Sec. 6511(a).
On the other hand, the Tax Court is also limited by a refund period. Section 6512(b)(3) limits the period for which the Tax Court can calculate the amount of refund. That section reads, in relevant part, as follows:
(3) Limit on amount of credit or refund
No such credit or refund shall be allowed or made of any portion of the tax unless the Tax Court determines as part of its decision that such portion was paid--
* * * * * *
(B) within the period which would be applicable under section 6511(b)(2), (c), or (d), if on the date of the mailing of the notice of deficiency a claim had been filed (whether or not filed) stating the grounds upon which the Tax Court finds that there is an overpayment.... 5
26 U.S.C. Sec. 6512(b)(3)(B). Section 6512(b)(3)(B) cross-references to Sec. 6511(b)(2) to determine the refund period. 6 The crux of this case is...
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