Payment vs. deposit under refund SOL.

• Author: Blom, Helen E.
• Position: Statute of limitations

A, executrix of her aunt's estate (E), seeks to recover $140,000 remitted to the IRS as estimated estate taxes in 1996. The Service opposes the refund request as untimely, barred by the statute of limitations (SOL) applicable to refund claims.

Facts

A filed Form 4768, Application for Extension of Time to File a Return, for E and tendered two checks totaling $140,000 to the ILLS. The Service accepted the checks and categorized them as payment of estimated taxes on the estate. It also approved a requested extension to file Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, but A failed to file it in the requisite time period. As a result, the IRS sent A two deficiency notices. E ultimately filed Form 706, reflecting no estate taxes due. The Service treated the Form 706 as a request for a refund of the amount A paid in 1996, but declined to issue the refund, because the request was made after the three-year SOL had run.

Analysis

The parties agree that if the remittance was a payment, then A is not entitled to a refund, due to the SOL, under Sec. 6511(a) and (b).To designate a remittance as a deposit, rather than as a payment, after the mailing of a notice of deficiency, the taxpayer must designate it as such in writing; see Rev. Proc. 84-58, 1984-2 CB 501, superceded by Rev. Proc. 2005-18, IRB 2005-13,798. However, when the remittance is prior to a notice of deficiency, the Third Circuit has adopted a "facts and circumstances" analysis to determine the legal characterization of the remittance; see Fortugno, 353 F2d 429 (3d Cir. 1965); and Ertman, 165 F3d 204 (2d Cir. 1999).This approach mandates an inquiry into (1) the timing of the remittance; (2) the taxpayer's intent in making it; and (3) how the IRS treated the remittance on receipt.

Here, although the IRS treated the remittance as a payment, the first two factors point toward designating it as a deposit. A did not consult with a tax...