Ninth Circuit overturns earlier holding on refund limits.

• Author: Lerman, Jerry L.

In Omohundro, 300 F3d 1065 (9th Cir. 2002), the Ninth Circuit ruled that a refund claim made within three years of a non-timely filed return was valid. In so doing, it overruled its own highly criticized decision in Miller, 38 F3d 473 (1994).

Background

Sec. 6511(a) limits the period in which taxpayers can claim a credit or refund for overpaid taxes. Taxpayers must file a refund claim within three years from the time they filed the return or within two years from the time they paid the tax, whichever period expires later. If taxpayers filed no return, they must file a refund claim within two years from the time they paid the tax or the tax was deemed paid.

Controversy surrounds how these rules apply to taxpayers who file delinquent returns and then claim a refund between two and three years after they paid the tax. According to Rev. Rul. 76-511, Sec. 6511(a) provides that taxpayers must file a claim within three years from the time they filed a return, regardless of when the latter occurred. Thus, for Sec. 6511 (a) purposes, it does not matter whether taxpayers filed a return three or six years after the due date. Of course, a refund claim would be barred under Sec. 6511 (b) if it were made more than three years after the taxes were paid. Thus, according to Rev. Rul. 76-511, even if there is no timely filed return, taxpayers still have three years from the time they paid the tax or the tax was deemed paid (typically, on the return's due date) to file a valid refund claim.

The Ninth Circuit's 1994 decision in Miller was contrary to the IRS's interpretation. In Miller, the court held that a taxpayer had to have a timely filed return to satisfy the three-year deadline for a refund. Accordingly, taxpayers would be required to file a return or refund claim within two years of paying taxes to recover a refund or credit.

Miller Overturned

In Omohundro, the taxpayer filed her 1993 return on Oct. 14, 1997. She filed a claim for credit on that return; thus, she filed the claim within three years of filing a delinquent return. A district court relied on Miller and ruled that the taxpayer was not entitled to a refund, because she did not timely file the refund claim. On appeal, the taxpayer contended that Miller was incorrectly decided and urged the Ninth Circuit to overturn it.

The Ninth Circuit concluded that the...