Eric Schwartz ( 2022 )

United States Tax Court
T.C. Memo. 2022-125ERIC SCHWARTZ,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent 1
—————
Docket No. 17291-14L. Filed December 21, 2022.
—————
Karen J. Lapekas, for petitioner.
Derek P. Richman and Daniel C. Munce, for respondent.
SUPPLEMENTAL MEMORANDUM
FINDINGS OF FACT AND OPINION
VASQUEZ, Judge: In this collection due process (CDP) case, the
Internal Revenue Service (IRS) Office of Appeals (Appeals) issued
notices of determination sustaining proposed levies to collect petitioner’s
federal income tax liabilities for 2006, 2007, 2010, 2011, and 2012 (years
in issue). 2 After this case was tried, we remanded it to Appeals to clarify
the administrative record as to whether Appeals had advised petitioner
to submit additional evidence regarding a refund claim. See Schwartz I.
Appeals conducted a supplemental CDP hearing and issued a
supplemental notice of determination sustaining the proposed levies for
This Opinion supplements our previous Opinion Schwartz v. Commissioner
1
(Schwartz I), T.C. Memo. 2019-162.
2 On July 1, 2019, the IRS Office of Appeals was renamed the IRS Independent
Office of Appeals. See Taxpayer First Act, Pub. L. No. 116-25, § 1001, 133 Stat. 981,
983 (2019). Since both names were in effect at different times relevant to this case, we
will refer to them both as Appeals.
Served 12/21/22
2
[*2] the years in issue. Petitioner seeks review of Appeals’
determinations, as supplemented, pursuant to section 6330(d)(1). 3
The issues for decision are (1) whether we have jurisdiction to
review a determination of Appeals as to whether to apply a credit elect
overpayment from 2005 against the liabilities at issue and, if so,
(2) whether petitioner’s communications with the IRS pertaining to his
2005 overpayment constituted an informal claim for refund.
FINDINGS OF FACT
Because the findings of fact in Schwartz I are relevant to the
issues addressed herein, we incorporate some of them verbatim. We also
intersperse, where appropriate, additional findings based upon the
administrative record developed at the supplemental CDP hearing. The
parties have stipulated some additional facts, and those facts are so
found. 4 We incorporate the parties’ First Stipulation of Facts, First
Supplemental Stipulation of Facts, and accompanying Exhibits by this
reference. Petitioner resided in Florida when the Petition in this case
was filed.
2005 overpayment
In 2006 petitioner was party to a divorce action before the Family
Division of the Circuit Court for Miami-Dade County, Florida (circuit
court). The circuit court directed petitioner and his ex-spouse to make
an estimated tax payment of $150,000 to cover their expected 2005
federal income tax liability arising from the sale of their marital
residence. 5 Petitioner and his ex-spouse made the payment on or about
April 17, 2006. They also filed a six-month extension request for their
2005 federal income tax return, causing it to be due October 16, 2006. 6
3 Unless otherwise indicated, all statutory references are to the Internal
Revenue Code, Title 26 U.S.C., in effect at all relevant times, and all regulation
references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all
relevant times.
4 On November 17, 2020, the parties jointly filed a Motion to Reopen the Record
and a First Supplemental Stipulation of Facts with Exhibits 43-J through 66-J. Those
Exhibits constitute the administrative record from the supplemental CDP hearing. By
Order dated November 18, 2020, we granted the parties’ Joint Motion and admitted
Exhibits 43-J through 66-J into evidence.
5 The credit was later allocated $75,000 to each spouse.
6 April 15, 2006, fell on a Saturday; October 15, 2006, fell on a Sunday.
3
[*3] Petitioner did not file a joint or separate return by the extended
deadline. He interpreted the circuit court order as a bar to filing a
return until the divorce was final and/or the order was lifted. 7
Therefore, petitioner delayed filing a return until after the divorce
became final several years later.
Petitioner attempted to keep the IRS apprised of his situation by
telephone. On August 13 and October 19, 2007, he called the IRS to
discuss his delinquent return for 2005 and his pending divorce action.
During the latter phone call, petitioner discussed the possibility of the
IRS’s preparing a substitute for return for him and his ex-spouse. In
February 2008 an IRS employee added the following notation to
petitioner’s 2005 file: “WORKING V5. SUPOL SHOWS REFUND.”
Meanwhile the IRS issued petitioner a Notice CP–515, Request
For Your Tax Return, advising him that a 2005 return had not been filed
and that he had a $150,000 credit balance. The notice included a form
seeking information about petitioner’s return and the allocation of the
credit. On or about March 28, 2008, petitioner mailed the form to the
IRS. He checked the boxes on the form directing the IRS to “Apply the
credit to the tax return, tax year [2005] and SSN on this letter” and
“Apply the credit to another tax return, tax year, and SSN below.”
Petitioner signed the form, attesting under penalty of perjury that the
information thereon was “true, correct, and complete.” He also attached
to the form a letter, which stated:
7 The order stated in relevant part:
6.0 Neither party shall draw upon, utilize, or otherwise use the
$150,000.00 currently held by the I.R.S. in the parties’ joint names.
Any tax returns filed by either party for which payment is required to
the I.R.S. shall be filed contemporaneously with payment for all sums
due by the individual filing the return. Any portion of the $150,000.00
returned to either party shall be placed in the escrow account at Mellon
Bank created pursuant to paragraph 1.0 above. These funds shall not
be removed or distributed to either party absent a Court Order or
written agreement of both parties.
....
8.0 Any other marital funds not specifically delineated above
received by either party shall be placed in the escrow account at Mellon
Bank created pursuant to paragraph 1.0 above. These funds shall not
be removed or distributed to either party absent a Court Order or
written agreement of both parties.
4
[*4] RE: Delay in filing tax returns for 2005 thru [sic] 2008:
Eric Schwartz
Social Security Number: . . .
Dear administrator,
In April of 2006 you received an anticipated tax
liability payment to be applied toward the 2005 tax year
forward which remains a pending credit.
I am in receipt of the attached letter [Notice CP–515]
seeking to determine the status of my 2005 return and how
the above credit should be handled.
Therefore please be advised that the referenced
returns have been delayed due to a pending divorce and
ask that the above mentioned payment be credited toward
the tax liability associated therewith once they are filed.
Thereafter petitioner received a letter dated May 7, 2008, from
the IRS which stated in relevant part:
Dear Taxpayer:
Thank you for your correspondence received Apr. 10, 2008.
We haven’t resolved this matter because we haven’t
completed all the research necessary for a complete
response. We will contact you again within 45 days to let
you know what action we are taking. You don’t need to do
anything further now on this matter.
Petitioner subsequently received another letter from the IRS dated
August 7, 2008, which stated in relevant part:
Dear Taxpayer:
We previously sent you a letter concerning your inquiry
received Apr. 10, 2008. Although we try to respond quickly,
extensive research is often required. At this time we are
unable to provide a complete response because:
5
[*5] Due to heavy workload, we have not yet completed
our research to resolve your inquiry.
....
Please allow an additional 45 days for us to obtain the
information we need and to let you know what action we
are taking.
Over the next few years, petitioner did not receive additional
correspondence from the IRS regarding the $150,000 estimated tax
payment. However, petitioner and IRS personnel had five more
telephone conversations between 2009 and 2010 discussing petitioner’s
divorce, unfiled returns, adjusted basis in the former marital residence,
and estimated tax payment. On December 14, 2009, the circuit court
issued an amended final judgment of dissolution of marriage. Several
postjudgment motions followed.
In October 2011, after the postjudgment motions were resolved,
petitioner filed his delinquent income tax returns for 2005, 2006, 2007,
and 2010. On his 2005 return petitioner reported total tax of $45,282
and an estimated payment of $75,000. Accordingly, he claimed a refund
of $29,718. On line 74 of the return petitioner specified that he wanted
to apply the entire amount of the claimed refund against his 2006
estimated tax.
Respondent accepted petitioner’s 2005 return as filed, assessed
the reported liability, and credited the $75,000 payment against that
liability. However, on April 30, 2012, respondent transferred the
$29,718 overpayment for 2005 to an excess collections account. 8
On his 2006 return petitioner reported tax of $5,941, claimed
estimated tax payments of $29,718, and elected to apply the remaining
$23,777 for the following year. On his 2007 return petitioner reported
tax of $707, claimed estimated tax payments of $23,777, and elected to
apply the remaining $23,070 for the following year. For 2010 petitioner
8 Although an IRS transcript for 2005 indicates that petitioner’s refund claim
was disallowed on that date, respondent does not dispute the existence or amount of
the 2005 overpayment. There is no indication in the record that the IRS issued a notice
of disallowance pursuant to section 6532(a)(1).
6
[*6] reported tax of $5,217 on his return but did not claim estimated tax
payments arising from a prior year credit. 9
On May 12, 2012, and July 11, 2013, petitioner timely filed his
returns for 2011 and 2012. 10 On his 2011 return petitioner reported tax
of $630 and claimed estimated tax payments of $23,070, which is the
amount petitioner had elected on his 2007 return to apply for taxable
year 2008. Petitioner elected to apply the remaining $22,440 for his
2012 tax year. On his 2012 return petitioner reported tax of $12,517
and claimed estimated tax payments of $22,440.
The IRS assessed the reported tax for the years in issue. Having
transferred petitioner’s 2005 overpayment to an excess collections
account, respondent did not credit the 2005 overpayment against those
liabilities.
Initial CDP hearing and judicial proceedings
Respondent issued a final notice of intent to levy with respect to
petitioner’s 2006, 2007, 2010, and 2011 tax years. Respondent later
issued a separate final notice of intent to levy with respect to petitioner’s
2012 tax year. Petitioner timely requested CDP hearings in response to
both notices and asked Appeals to apply his 2005 overpayment against
his liabilities for the years in issue.
On June 9, 2014, respondent issued notices of determination
sustaining the proposed levies. The notices state: “You were advised on
4/23/2014 to submit additional information for consideration regarding
the specifics you claim would sway the decision of the Appeals Officer.
As of May 19, 2014, this information has not been received.”
Petitioner timely petitioned this Court, and trial was held in
Miami, Florida. The parties disputed whether petitioner had preserved
his informal claim argument during the CDP hearing. In Schwartz I,
at *22–23, we held that the administrative record was insufficient for
the Court to resolve that issue. Accordingly, we remanded this case to
Appeals to clarify the administrative record as to whether Appeals had
advised petitioner to submit additional evidence regarding his refund
9 The record indicates that petitioner has no income tax liabilities for
nondetermination years 2008 and 2009. Tax returns for those years are not in
evidence.
10 For those years petitioner timely filed requests for extension.
7
[*7] claim. Id. We further instructed Appeals, if it was unable to
conclude that petitioner was so advised, to consider any evidence or
information petitioner might wish to submit. Id.Supplemental CDP hearing
Appeals assigned the supplemental CDP hearing to Appeals
Officer (AO) Maria Smith. After conferring with the Appeals employees
who had conducted the initial CDP hearing and reviewing the
administrative file, AO Smith was unable to confirm that petitioner had
had an opportunity to submit additional information regarding the
specifics of his refund claim. Accordingly, she gave petitioner an
opportunity to submit evidence or information pertaining to his informal
refund claim. Petitioner’s counsel asked AO Smith to consider
(1) petitioner’s Simultaneous Opening Brief and Simultaneous
Answering Brief; (2) the March 28, 2008, correspondence from petitioner
to the IRS; (3) the May 7, 2008, correspondence from the IRS to
petitioner; (4) the August 7, 2008, correspondence from the IRS to
petitioner; and (5) a copy of an IRS computer transcript for petitioner’s
2005 taxable year dated May 13, 2006. After reviewing those documents
and conducting further research, AO Smith determined that petitioner’s
March 28, 2008, correspondence did not constitute an informal refund
claim. She informed petitioner’s counsel of her determination by
telephone and offered to consider collection alternatives. Petitioner,
through his counsel, declined the invitation.
AO Smith reviewed IRS records for the years in issue and
confirmed that petitioner’s liabilities had been properly assessed and
that all other legal requirements had been met. Thereafter she prepared
a supplemental notice of determination sustaining the proposed levies.
On April 20, 2020, Appeals issued the supplemental notice, which states:
The Appeals Officer concluded your letter of March 28,
2008 was not a valid informal claim for refund as it does
not notify the Service you were seeking a refund on the
December 31, 2005 tax year or that you overpaid the taxes
on the December 31, 2005 tax year or asked the Service to
apply the refund to tax years after 2005. Per Treas. Reg.
Section 301.6402-2(b)(1), a claim must set forth in detail
each ground upon which a credit or refund is claimed and
facts sufficient to appraise [sic] the Commissioner of the
exact basis thereof. The statement of the grounds and facts
must be verified by a written declaration that is made
8
[*8] under penalties of perjury. A claim which does not comply
with this requirement will not be considered for any
purposes as a claim for refund or credit.
On November 17, 2020, the parties moved to reopen the record to
allow for the submission of the supplemental administrative record.
After we granted the parties’ Joint Motion, the parties filed
supplemental briefs.
OPINION
I. Standard of review
Section 6330(d)(1) does not prescribe the standard of review that
this Court should apply in reviewing an IRS administrative
determination in a CDP case. The general parameters for such review
are marked out by our precedents. Where the validity of the taxpayer’s
underlying liability is properly at issue, we review the AO’s
determination of that issue de novo. Sego v. Commissioner, 114 T.C.
604, 610 (2000). Where there is no dispute as to the taxpayer’s
underlying liability, we review the administrative determination for
abuse of discretion. Cropper v. Commissioner, 826 F.3d 1280, 1284 (10th
Cir. 2016), aff’g T.C. Memo. 2014-139; Goza v. Commissioner, 114 T.C.
176, 182 (2000). Abuse of discretion exists when a determination is
arbitrary, capricious, or without sound basis in fact or law. See Murphy
v. Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir.
2006).
Petitioner’s sole contention is that his 2005 overpayment offsets
his tax liabilities for the years in issue. There is some uncertainty in
our precedents as to whether a de novo or an abuse-of-discretion
standard of review applies in a situation such as this. 11 As explained
11 In Landry v. Commissioner, 116 T.C. 60 (2001), we applied a de novo
standard of review where the taxpayer challenged the Commissioner’s failure to apply
an overpayment credit from another year. We concluded that this was a challenge to
the taxpayer’s underlying tax liability, i.e., “the amount unpaid after application of
credits to which [the taxpayer was] entitled.” Id. at 62. On the other hand, we have
applied abuse-of-discretion review when considering challenges to the Commissioner’s
application of a tax payment. See Melasky v. Commissioner, 151 T.C. 89, 92 (2018)
(holding that a dispute as to whether a payment was properly credited to the taxpayer’s
account for a particular year is not a challenge to his underlying liability), aff’d, 803 F.
App’x 732 (5th Cir. 2020); Orian v. Commissioner, T.C. Memo. 2010-234, 2010 Tax Ct.
Memo LEXIS 269, at *16–17; Kovacevich v. Commissioner, T.C. Memo. 2009-160, 2009
Tax Ct. Memo LEXIS 160, at *16.
9
[*9] below, we would overrule AO Smith’s determinations pertaining to
2006 and 2007 under either standard of review. As for her
determinations pertaining to 2010, 2011, and 2012, we would uphold
them under either standard of review. Accordingly, we need not decide
which standard applies. See Dixon v. Commissioner, 141 T.C. 173, 184
(2013); Estate of Adell v. Commissioner, T.C. Memo. 2014-89, at *10–11;
Golub v. Commissioner, T.C. Memo. 2013-196, at *7.
II. Evidentiary issue
The First Stipulation of Facts includes Exhibits 37–P, 38–P,
39–P, 40–P, 41–P, and 42–P, to which respondent objected on the
grounds of relevance. At trial we reserved ruling on respondent’s
objections. Respondent subsequently withdrew his objections to those
Exhibits in his supplemental briefs. Accordingly, we will admit Exhibits
37–P, 38–P, 39–P, 40–P, 41–P, and 42–P into evidence.
III. Jurisdiction
Before we consider petitioner’s informal claim argument, we
address our jurisdiction to review Appeals’ determination whether to
apply petitioner’s 2005 overpayment against the liabilities at issue. Our
jurisdiction in CDP cases generally does not permit us to consider
matters regarding nondetermination years—i.e., tax years that are not
the subject of the collection action before us. See, e.g., Swanberg v.
Commissioner, T.C. Memo. 2020-123, at *9. But we may consider facts
and issues from other years to the extent they “are relevant in
evaluating a claim that an unpaid tax has been paid.” Freije v.
Commissioner, 125 T.C. 14, 27 (2005). An available credit from another
year is a fact that may affect the amount of the taxpayer’s unpaid tax
for the year before the Court. Weber v. Commissioner, 138 T.C. 348,
371–72 (2012).
A. Credit elects and other overpayments
On his 2005 return, petitioner elected to apply his overpayment
against his estimated tax for 2006. That election is authorized by
section 6402(b) and Treasury Regulation § 301.6402-3(a)(5). The latter
provides:
If the taxpayer indicates on its return (or amended return)
that all or part of the overpayment shown by its return (or
amended return) is to be applied to its estimated income
10
[*10] tax for its succeeding taxable year, such indication shall
constitute an election to so apply such overpayment . . . .
“The subject of such an election is known as a ‘credit elect overpayment’
or simply a ‘credit elect.’” 12 Weber, 138 T.C. at 357 (quoting FleetBoston
Fin. Corp. v. United States, 483 F.3d 1345, 1347 (Fed. Cir. 2007)). In
Weber we held that we have jurisdiction to consider a non-
determination-year credit elect claimed on a return for the
determination year. Id. at 360. We stated:
We note that a credit elect overpayment is not a claimed
overpayment of an unrelated liability that the taxpayer
asks us to adjudicate and then to offset against the
different liability that is the subject of the IRS’s collection
efforts. Rather, the credit elect overpayment is a credit
that a taxpayer is explicitly permitted by regulation to
report on the income tax return for the year at issue. In
such an instance—where a credit elect overpayment is
claimed on the return for the year at issue—we have held
that “. . . the amount unpaid after application of credits to
which [the taxpayer] is entitled, is properly at issue” in a
CDP case.
Id. (quoting Landry, 116 T.C. at 62).
We also may consider “cascading” credit elects—i.e., older credit
elects which affect the calculation of the credit elect at issue—provided
they do not “implicate years or issues so remote from the year at issue
that they should not fall within a CDP case.” See id. at 361 n.10. In
Weber the taxpayer asserted that a credit elect from 2007, a
nondetermination year, offset his 2008 tax liability. Id. at 360. Because
the taxpayer’s 2007 credit elect depended on the existence of a credit
elect from 2006, we decided “the merits of the credit elect overpayment
from 2006 as reported on the 2007 return.” 13 Id. at 360–61.
12 The taxpayer’s election to apply an overpayment against the succeeding
year’s liability is not binding on the Commissioner. Weber, 138 T.C. at 357; see Treas.
Reg. § 301.6402-3(a)(6). Thus, a taxpayer may request a credit elect, but the
Commissioner has discretion whether to allow it or instead to credit the overpayment
against another liability owed by the taxpayer or to refund it. Weber, 138 T.C. at 357.
13 In Weber the Commissioner did not dispute that the taxpayer had overpaid
his 2006 income tax. Weber, 138 T.C. at 361. Similarly, respondent does not dispute
11
[*11] With respect to unrelated liabilities, however, we held in Weber
that we lack jurisdiction “to adjudicate a disputed refund claim that is
unrelated to the liability the IRS proposes to collect.” Id. at 366, 369.
Although we may consider “whether a credit available from another tax
year should be applied to the taxpayer’s liability for the year before the
Court,” we may do so only if that other credit “indisputably exists.” Del-
Co W. v. Commissioner, T.C. Memo. 2015-142, at *6–7 (citing Weber, 138
T.C. at 366). A mere claim for a credit “is not an ‘available credit,’” and
such a claim “need not be resolved before the IRS can proceed with
collection of the liability at issue.” Weber, 138 T.C. at 371–72; see Del-
Co W., T.C. Memo. 2015-142, at *7–8.
B. Taxable years 2006 and 2007
Petitioner claimed a credit elect from 2005 on his 2006 return and
elected to apply the resulting overpayment to his 2007 estimated tax.
He then claimed a credit elect from 2006 on his 2007 return and elected
to apply the resulting overpayment to his 2008 estimated tax.
Petitioner’s credit elect from 2005 is not an overpayment of an unrelated
liability, but rather a credit petitioner was authorized to claim on his
return for 2006 and, in turn, 2007. See Weber, 138 T.C. at 360–61. We
therefore have jurisdiction to review Appeals’ determinations as to
whether petitioner’s 2006 and 2007 liabilities are offset by the 2005
credit elect. 14 See id.C. Taxable years 2010, 2011, and 2012
Petitioner also seeks to use the balance of his 2005 overpayment
(after application for 2006 and 2007) to offset his liabilities for
determination years 2010, 2011, and 2012. In order to do so in this
collection case, however, he must establish a chain of cascading credit
elects linking those determination years to his 2005 overpayment. See
id. Otherwise, he must establish that he has an “available credit” from
the existence or amount of petitioner’s 2005 overpayment in this case. Cf. Shuman v.
Commissioner, T.C. Memo. 2018-135, at *9, *18 *32–34 (declining to consider the
merits of a non-determination-year credit elect claimed on an amended return where
the existence of the reported overpayment was in dispute), aff’d, 774 F. App’x 813 (4th
Cir. 2019).
14 Respondent has not refunded the 2005 overpayment or applied it against
another liability. Cf. Weber, 138 T.C. at 361–62 (holding that the taxpayer had no valid
claim of a credit elect because the Commissioner had applied the overpayment against
an unrelated liability).
12
[*12] an unrelated year that we can apply against his 2010, 2011, and
2012 liabilities. See id. at 371–72.
The record does not establish a chain of cascading credit elects
linking petitioner’s 2005 overpayment to his 2010, 2011, and 2012
liabilities. To be sure, the 2005 overpayment resulted in credit elects for
2006 and 2007, and petitioner elected to apply his 2007 overpayment
against his 2008 estimated tax. However, tax returns for 2008 and 2009
are not in evidence. Although respondent’s transcripts show no tax
liabilities for those years, it is unclear whether petitioner elected to
apply his 2008 overpayment for 2009 and his 2009 overpayment for
2010. Moreover, the return information for petitioner’s 2010 tax year
does not reference a credit elect from 2009 and does not include an
election to apply an overpayment against his estimated tax for 2011.
Because there is no evidence of cascading credit elects from 2008, 2009,
and 2010, we cannot link the 2005 overpayment to any years beyond
2007.
Accordingly, we are without jurisdiction to direct the application
of credit elects against petitioner’s 2010, 2011, and 2012 liabilities
unless petitioner has an “available credit” from an unrelated
nondetermination year. See id. at 366, 369, 371–72. The record does
not include any transcripts or other evidence showing such a credit. We
therefore sustain respondent’s determinations not to apply the 2005
overpayment against petitioner’s 2010, 2011, and 2012 liabilities. 15
IV. Credit elects claimed on 2006 and 2007 returns
For taxable years 2006 and 2007, we must decide whether
petitioner has valid claims of cascading credit elects from his 2005
return. To do so, we must determine whether petitioner’s election to
apply his overpayment was time barred under the limitations period for
refunds. Respondent contends that it was. Petitioner, relying on the
15 One might question whether we could apply petitioner’s reported
overpayment for 2007 against his 2010, 2011, and 2012 liabilities. However, Treasury
Regulation § 301.6402-3(a)(5) authorizes credit elects for the “succeeding taxable year”
only, and we have found no evidence of cascading credit elects after 2007. We also lack
jurisdiction in a CDP case to order a refund or credit of an overpayment. Greene-
Thapedi v. Commissioner, 126 T.C. 1, 12–13 (2006). Thus, we cannot treat the 2007
overpayment as an “available credit” that we can apply, in the absence of cascading
credit elects, for 2010, 2011, and 2012.
13
[*13] judicially created informal claim doctrine, contends that his
election was timely. For the reasons below, we agree with petitioner.
Section 6402(a) provides:
Sec. 6402(a). General rule.—In the case of any
overpayment, the Secretary, within the applicable period
of limitations, may credit the amount of such overpayment,
including any interest allowed thereon, against any
liability in respect of an internal revenue tax on the part of
the person who made the overpayment and shall, subject
to subsections (c), (d), (e), and (f), refund any balance to
such person.
“[U]nder section 6402(a) the application of overpayments of a
taxpayer from other years to a particular year of the taxpayer is subject
to the applicable refund period of limitations.” Crum v. Commissioner,
T.C. Memo. 2008-216, 2008 Tax Ct. Memo LEXIS 212, at *4. Thus, if
petitioner’s overpayment claim is statutorily time barred, his claims of
cascading credit elects for 2006 and 2007 would also be time barred. See
Brady v. Commissioner, 136 T.C. 422, 428 (2011).
Section 6511(a) provides that a taxpayer must file his or her claim
for credit or refund of overpayments within the later of three years from
the date the return was filed or two years from the date the tax was paid.
If the taxpayer filed no return, then the claim must be made within two
years from the time the tax was paid. § 6511(a). If the three-year period
applies, the refund is limited to the tax paid during the three years, plus
any extension of time for filing the return, immediately preceding the
filing of the refund claim (three-year lookback period). § 6511(b)(2)(A).
If the two-year period applies, the refund is limited to the tax paid
during the two years immediately preceding the filing of the refund
claim. § 6511(b)(2)(B).
The regulations provide that a properly prepared claim for credit
or refund of income tax “shall be made on the appropriate income tax
return.” Treas. Reg. § 301.6402-3(a)(1). Petitioner’s formal refund claim
for the 2005 overpayment was his return filed in October 2011. Since
his return doubled as his refund claim, the refund claim was by
definition filed no later than three years after the return (it was in fact
filed simultaneously in the same document), and the claim was therefore
timely. See McGregor v. United States, 225 Ct. Cl. 566 (1980); Murdock
v. United States, 103 Fed. Cl. 389, 394 (2012). However, since the
14
[*14] relevant payment was made beyond the three-year lookback
period, section 6511(b)(2)(A) bars petitioner from recovering any 2005
overpayment on the strength of that original return’s serving as a refund
claim. Petitioner’s only other chance of recovery is to show the filing of
a refund claim “within . . . 2 years from the time the tax was paid” on
April 17, 2006. See § 6511(a), (b)(2)(B). He contends that his
communications with the IRS in the two years following his April 17,
2006, payment constituted a timely informal claim for refund.
It has long been recognized that a writing which does not qualify
as a formal refund claim nevertheless may toll the period of limitations
applicable for refunds if (1) the writing is delivered to the Commissioner
before the expiration of the applicable period of limitations, (2) the
writing in conjunction with its surrounding circumstances adequately
notifies the Commissioner that the taxpayer is claiming a refund and
the basis therefor, and (3) either the Commissioner waives the defect by
considering the refund claim on its merits or the taxpayer subsequently
perfects the informal refund claim by filing a formal refund claim before
the Commissioner rejects the informal refund claim. United States v.
Kales, 314 U.S. 186, 194 (1941) (involving a protest letter); George Moore
Ice Cream Co. v. Rose, 289 U.S. 373 (1933) (involving a defective original
claim); Bemis Bros. Bag Co. v. United States, 289 U.S. 28, 32 (1933)
(involving a defective original claim); United States v. Factors & Fin.
Co., 288 U.S. 89, 91 (1933) (involving a claim for refund “of sweeping
generality”); United States v. Memphis Cotton Oil Co., 288 U.S. 62 (1933)
(involving a claim rejected as too general); Bonwit Teller & Co. v. United
States, 283 U.S. 258 (1931) (involving a letter and executed waiver
form); Am. Radiator & Standard Sanitary Corp. v. United States, 162
Ct. Cl. 106, 318 F.2d 915, 920 (1963). There are no bright-line rules as
to what constitutes an informal claim. Turco v. Commissioner, T.C.
Memo. 1997-564, 1997 Tax Ct. Memo LEXIS 650, at *7 (citing New
England Elec. Sys. v. United States, 32 Fed. Cl. 636 (1995)); see also
PALA, Inc. Emps. Profit Sharing Plan & Tr. Agreement v. United States,
234 F.3d 873, 877 (5th Cir. 2000). Rather, each case must be decided on
its own particular set of facts. Turco, 1997 Tax Ct. Memo LEXIS 650,
at *8. The relevant question is whether the Commissioner knew or
should have known that a refund claim was being made. Id.Petitioner satisfied the requirements for making an informal
refund claim. The IRS received a writing—i.e, the March 28, 2008,
letter—from petitioner within two years of his payment. In the letter
petitioner referenced his pending divorce and stated that he expected
his payment to satisfy his anticipated tax liability for 2005, with a
15
[*15] surplusage available for taxable years 2006 through 2008. The
IRS did not reject his request or insist on a formal claim that complied
with the regulations. To the contrary, in two responsive letters, the IRS
advised petitioner that it was reviewing his claim. The first states:
“[W]e haven’t completed all the research necessary for a complete
response. We will contact you again within 45 days to let you know what
action we are taking. You don’t need to do anything further now on this
matter.” The second states: “Please allow an additional 45 days for us
to obtain the information we need and to let you know what action we
are taking.” Petitioner received no further communications from the
IRS before he filed his 2005 income tax return.
We conclude that the IRS made “a waiver of the requirements of
the regulations as to the formality and particularity with which the
grounds for refund are required to be stated,” Kales, 314 U.S. at 197,
when it assured him: “You don’t need to do anything further.” By filing
his return before the IRS took any action on his letter, petitioner timely
perfected his informal refund claim. See Treas. Reg. § 301.6402-3(a)(5)
(providing that a properly executed return shall constitute a claim for
refund or credit).
Respondent contends that petitioner did not make an informal
refund claim. The supplemental notice of determination, which
summarizes respondent’s reasoning, states:
The Appeals Officer concluded . . . [the] letter of March 28,
2008 was not a valid informal claim for refund as it does
not notify the [IRS that petitioner was] seeking a refund on
the December 31, 2005 tax year or that [petitioner]
overpaid the taxes on the December 31, 2005 tax year or
asked the Service to apply the refund to tax years after
2005.
In reaching this conclusion, however, AO Smith apparently ignored the
letter’s plain language. In the letter petitioner associated his payment
with taxable year 2005, referenced “returns” for 2005 through 2008, and
requested that his payment be “credited toward the tax liability
associated therewith once they are filed.” (Emphasis added.)
AO Smith further erred by considering only the March 28, 2008,
letter without any regard for the surrounding circumstances. See
Gustin v. U.S. IRS, 876 F.2d 485, 489 (5th Cir. 1989) (“[T]he writing
should not be given a crabbed or literal reading, ignoring all the
16
[*16] surrounding circumstances which give it body and content. The
focus is on the claim as a whole, not merely the written component.”
(quoting Am. Radiator & Standard Sanitary Corp., 318 F.2d at 920)).
The administrative record establishes that petitioner made several
contemporaneous phone calls to the IRS regarding his 2005 tax return.
Respondent’s narratives reflect substantive discussions between
petitioner and IRS personnel about the preparation of substitutes for
returns and petitioner’s pending divorce (the resolution of which would
affect the allocation of the joint $150,000 payment). One narrative in
February 2008 explicitly references a refund for taxable year 2005.
Considering all of the facts and circumstances of this case, we find that
the IRS was on notice that petitioner was claiming a refund for 2005.
Accordingly, we hold that the cascading credit elects claimed on
petitioner’s 2006 and 2007 returns were timely and therefore valid. AO
Smith’s conclusions to the contrary lacked sound bases in fact and law.
See Murphy, 125 T.C. at 320.
Because the cascading credit elects eliminate petitioner’s
liabilities for 2006 and 2007, AO Smith abused her discretion by
sustaining the proposed levies for those years.
V. Other issues
For taxable years 2010, 2011, and 2012, we consider whether AO
Smith abused her discretion in any other respect. In deciding whether
the AO abused her discretion, we consider whether she (1) properly
verified that the requirements of any applicable law or administrative
procedure had been met, (2) considered any relevant issues petitioner
raised, and (3) considered “whether any proposed collection action
balances the need for the efficient collection of taxes with the legitimate
concern of [petitioner] that any collection action be no more intrusive
than necessary.” See § 6330(c)(3).
Except as discussed supra Part IV, our review of the record
establishes that AO Smith properly discharged all of her responsibilities
under section 6330(c). She verified that petitioner’s tax liabilities for
2010, 2011, and 2012 were properly assessed. She gave petitioner an
opportunity to propose collection alternatives. Petitioner did not avail
himself of that opportunity or raise any other issue besides the 2005
credit elect. See Cavazos v. Commissioner, T.C. Memo. 2008-257, 2008
Tax Ct. Memo LEXIS 256, at *16 (“It is not an abuse of discretion for an
appeals officer to sustain a levy and not consider any collection
alternatives when the taxpayer has proposed none.”). Petitioner does
17
[*17] not dispute any part of AO Smith’s balancing analysis besides her
refusal to apply the 2005 overpayment against his liabilities. See
Mendes v. Commissioner, 121 T.C. 308, 312–13 (2003) (“If an argument
is not pursued on brief, we may conclude that it has been abandoned.”).
Accordingly, we sustain respondent’s determinations with respect to
2010, 2011, and 2012.
VI. Conclusion
For taxable years 2006 and 2007, petitioner’s income tax
liabilities were offset by valid credit elects. Accordingly, we do not
sustain the proposed levies for those years. However, we affirm
respondent’s determinations to sustain the proposed levies for taxable
years 2010, 2011, and 2012.
We have considered the parties’ arguments and, to the extent not
addressed herein, conclude that they are moot, irrelevant, or without
merit.
To reflect the foregoing,
An appropriate decision will be entered.