Appeals court reverses Tax Court, finds refund jurisdiction in favor of late filer

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A federal appeals court has overruled the Tax Court and sided with a taxpayer who overpaid her taxes and later filed for a refund.

The Second Circuit Court of Appeals, considering an issue of first impression, reversed a Tax Court decision that denied a taxpayer seeking a refund of her overpayment of 2012 income tax. The IRS did not dispute that she overpaid the amount of her tax, but argued — and the Tax Court agreed — that the Tax Court lacked jurisdiction to order a refund or credit of the overpayment.

Code section 6512(b)(3) limits the jurisdiction of the Tax Court to order refunds or credits of overpayments. On appeal, the taxpayer argued that the Tax Court’s interpretation of section 6512(b)(3) is unreasonable and inconsistent with congressional intent.

Roberta Borenstein’s 2012 federal income tax return was due on April 15, 2013. By that date she had made tax payments for 2012 totaling $112,000. She was granted a six-month extension, but failed to file her return by October 15, and was mailed a notice of deficiency on June 19, 2015, stating that she owed $1,666,463 in 2012 income taxes and $572,756in penalties. On Aug. 29, 2015, Borenstein filed her 2012 return, reporting an income tax liability of $79,559, which the parties stipulated is the correct amount. The return also reported an overpayment of $38,447. Borenstein and the IRS have since stipulated that the correct amount of overpayment is $32,441, the difference between Rosenstein’s $112,000 in payments and $79,559 in liability.

Borenstein filed a petition in Tax Court on Sept. 16, 2015 seeking a redetermination of her 2012 deficiency and a refund of her overpayment. The Tax Court ruled that it lacked jurisdiction, since under section 6512(b)(3) of the tax code, Borenstein was only entitled to a two-year look-back period for any refund. Since the overpayment occurred more than two years prior to the mailing of the notice of deficiency, the Tax Court said it lacked jurisdiction to order a refund.

According to the Second Circuit, the Tax Court’s interpretation of section 6512(b)(3) of the tax code “results in differential treatment of taxpayer’s that the statute’s flush language was intended to eliminate: it would have had jurisdiction to grant Borenstein a refund if she had not been granted an extension for the filing of her return, but lacks jurisdiction because she obtained an extension that was not used. And if the commissioner had mailed the notice of deficiency six months earlier, or six months later, the Tax Court would have unquestioned authority to grant Borenstein a refund under two-year and three-year look-back periods, respectively. The Tax Court’s interpretation disclaims jurisdiction to order a refund simply because the commissioner chose to mail the notice of deficiency during a supposed) gap in the Tax Court’s jurisdiction in the second half of the second year after Borenstein’s extension period.”

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Tax-related court cases Tax refunds Tax returns Tax Court IRS