TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, September 4, 2017

The Evilness Of Section 6511

Tax Court (2017)Last week, in Borenstein v. Commmissioner, 149 T.C. No. 10 (Aug. 30, 2017), the Tax Court was asked to apply Section 6511 contrary to its very, very intricate terms.  The Court declined to do so.  That meant that a taxpayer lost out on a $30k+ refund.   Ms. B. had paid about $112k in taxes by the due date of her 2012 return (April 15, 2013), but she did not file the return.  While she did get the 6 month extension she still failed to file a return by October 15, 2013.  The months went by — 22 of them— before the Service was kind enough in June 2015 to send her an NOD but was unkind in slamming her with an asserted $1.2m deficiency.   You know that drill.  Ms. B. then quick-like-a-bunny filed a return that September, showing a $79k liability.  The Service said "oh, ok, that's good" and accepted her return as accurate.  So she now only needed to get her refund, right?  Wrong.  See below the fold for why.

Unhappily for her the 6511(b) lookback period is triggered by an NOD because it treats the NOD as a hypothetical claim for refund.  The reason that was unhappy was at the time of the NOD the two years did not stretch back to April 15, 2013.  If she had just filed her return before the NOD, then 6511(b) would allow recovery of payments made up to three years prior which would have reached back to the April 2013 payments.  

http://taxprof.typepad.com/taxprof_blog/2017/09/the-evilness-of-section-6511.html

Bryan Camp, New Cases, Tax Practice And Procedure | Permalink

Comments

I read this case this morning, and was surprised by the conclusion!

Posted by: Neil I. Rumbak | Sep 4, 2017 3:52:25 PM

Why is that evil? I would have no problem with a rule that anyone who fails to timely file forfeits any refund they're otherwise due. Who doesn't file their taxes for 2 years but a tax evader?

Posted by: JM | Sep 4, 2017 4:39:50 PM

Am I correct that if the NOD had not been filed, then Ms. B had until Oct 15, 2016 to file her return, and receive her refund? (This because she filed her extension for Oct. 15, 2013.)

https://www.law.cornell.edu/uscode/text/26/6511

Posted by: Jay KOVAL | Sep 6, 2017 1:56:35 AM

@Jay: yes. You are correct. As the Court itself noted, its reading of 6512(b)(3)'s interplay with 6511(b) creates a 6-moth "black hole" (as the Court describes it) where folks who properly receive an extension of time are highly vulnerable to the fact pattern that Mrs. B. found herself in. The Court went all-in on a plain language interpretation but the reading is inconsistent with the language in 6511(b) itself that extends the 3 lookback period (applicable to refund claims associated with filed returns) to include any properly granted extensions of time. This is a problem fixable by Congress, but don't hold your breath. Hope that helps, -bryan

Posted by: Bryan Camp | Sep 6, 2017 5:41:37 AM