Tax trap for non-filers.

• Author: Potter, Mary Ellen
• Position: Brief Article

Practitioners generally believe that a taxpayer has three years to apply for a refund of taxes, which is usually the case. However, the recent Tax Court decision in Allen, 99 TC No. 23 (1992), demonstrates that conventional wisdom may at times prove unreliable. In Allen, the taxpayer extended the filing date of his 1987 Federal income tax return to Aug. 15, 1988, but he did not file his 1987 return until Oct. 2, 1990 - more than two years from the extended due date of the return (Aug. 15, 1990), but less than three years from the extended due date (Aug. 15, 1991).

In the meantime, the Service had sufficient Form W-2 and Form 1099 information to compile a statutory notice of deficiency for 198 7. The notice of deficiency was issued on July 24, 1990. On Oct. 22, 1990, Allen filed a timely petition for the redetermination of the deficiency with the Tax Court.

The return filed by the taxpayer on Oct. 2, 1990 showed a refund due of $17,024. Although the tax return was filed within three years of the extended due date, the claim for refund was disallowed by the IRS. The Tax Court upheld this disallowance.

Under Sec. 6512(b)(1), the Tax Court has jurisdiction to determine the refund of an overpayment, provided that the statute of limitations has not expired. When a claim has not previously been filed, Sec. 6512(b)(3)(b) treats the issuance date of a deficiency notice as the date of the refund claim. Thus, if a claim...