Tax Court's decision in Risman gives hope for some refunds previously thought barred by SOL.

• Author: Ruane, James F.
• Position: Statute of limitations

The Tax Court has held that a taxpayer's remittance accompanying Form 4868, Application for Automatic Extension of Time, was a "deposit" and not a "payment" of taxes. Because the remittance was deemed a deposit, the statute of limitations (SOL) on refunds under Sec. 6511 did not begin to run until the taxpayer's return was filed (at which time the deposit became a payment of taxes) (Risman, 100 TC No. 13 (1993)).

Facts

Risman, an independent real estate broker and insurance agent, was experiencing distress in both his business and personal affairs during April 1982. Among other things, Risman's long-time office manager and bookkeeper was terminally ill with cancer. In addition, he moved his business office. As a result, his business records were in disarray at the time he was required to file his return. In April 1982, he filed Form 4868 for his 1981 Federal income tax return. Along with the extension application, Risman remitted a $25,000 payment to the IRS.

In June 1983, the taxpayer indicated to the Service that the $25,000 remittance was not based on any estimate of the taxpayer's 1981 liability. Instead, the funds were to be applied to future taxes owed on the returns he had not yet filed.

In June 1989, the taxpayer filed a Federal income tax return reflecting a tax liability of $1,283 and an overpayment of $23,717. In the same month, the IRS assessed the reported liability and applied $1,283 of the $25,000 remittance against this amount.

Subsequent to a later audit, the Service issued deficiency notices for 1981 through 1985. Due to various concessions, the sole issue before the Tax Court was the point in time at which the $25,000 remittance was to be treated as a payment of taxes. If the taxpayer's remittance was treated as a payment when remitted in April 1982, the SOL under Sec. 6511 would bar any refund or credit to later years.

SOL under Sec. 6511

The limitations on claims for refund or credit are twofold: Sec. 6511(a) imposes specific filing periods and Sec. 6511(b) places a limit on the amount of overpayment that may be credited or refunded. Under Sec. 6511(a), a timely claim for refund must be filed within (1) three years from the date the return was filed or (2) two years from the date the tax was paid, whichever is later. Sec. 6511(b)(2)(a) provides that if the claim was filed within three years from the date the return was filed, the amount of the credit or refund will not exceed the amount of tax paid within the period...