Supreme Court says pre-assessment remittances are payments.

• Author: Tapajna, Joseph J.

Sec. 6511(b)(2)(A) limits taxes refundable to amounts paid within three years preceding the filing of a refund claim. In Baral, 120 S.Ct. 1006 (2000), the Supreme Court held that pre-assessment remittances of income tax withholdings and estimated income tax become "payments" on the due date of the taxpayer's return, not on the date the taxpayer actually filed the return. Thus, the Court denied a taxpayer's claim for a refund of taxes paid more than three years before he filed his return.

Sec. 6511 contains the basic rules on refunds or credits of Federal income taxes. Sec. 6511(d)(1) states that "no credit or refund shall be allowed or made after the expiration of the period of limitations ... prescribed for the filing of the claim for credit or refund, unless a claim for credit or refund is filed by the taxpayer within such period." Thus, the first rule governing refunds is that the IRS does not permit a refund or credit, unless a taxpayer files a timely refund claim. The second basic rule is that, for a refund claim to be considered timely, a taxpayer must file it within three years from the time the taxpayer filed the return in question or two years from the time he paid the tax.

Sec. 6511(b)(2) limits the amount of taxes refundable. One limit is that "the amount of the credit or refund shall not exceed the portion of the tax paid within the period, immediately preceding the filing of the claim, equal to three years plus the period of any extension of time for filing the return" (Sec. 6511(b)(2)(A)). Under Sec. 6511(b)(2), the amount of tax paid measures and limits the amount of taxes refundable; therefore, the time a tax is considered paid is critical.

In Baral, the Supreme Court resolved the question of when two types of pre-assessment remittances (withholding and estimated taxes) are deemed "paid" for Sec. 6511 purposes. Baral made two remittances to the Service for his 1988 income tax liability--a remittance of withholdings from wages by his employer and a payment of estimated taxes. Baral applied for and received an extension to file his 1988 tax return until Aug. 15, 1989; however, he failed to file the return until June 1, 1993. The IRS assessed Baral's 1988 tax liability on July 19, 1993. Baral claimed a refund on his 1988 tax return and requested that the Service apply the refund as a credit...