Timely refund claims.

Proper tax practice requires CPAs and clients to file necessary forms within prescribed deadlines. One such deadline is the one in IRC section 6511 for filing refund claims. The Ninth Circuit Court of Appeals recently reversed its own 1994 decision concerning the applicable deadline for filing such claims.

Astrid Omohundro appealed a district court decision that held her refund claim was not timely based on the Ninth Circuit decision in Miller, 38 F3d 473 (1994). The taxpayer argued Miller was incorrect and a refund claim was timely as long as it was filed within three years after the return, regardless of the timeliness of the return itself.

Result. For the taxpayer. Section 6511 requires that taxpayers file refund claims within three years of filing a tax return or two years from the time they pay the tax, whichever is later. A taxpayer who does not file a return must file a refund claim within two years of paying the tax. In Miller, the Ninth Circuit had concluded that if a taxpayer did not file a return within the two-year payment period, the two-year period, not the three-year period, limited refund claims.

In an interesting switch, both the taxpayer and the IRS said the lower court had decided Miller incorrectly, arguing that revenue ruling 76-511 (which was outstanding at the time) was on point and the lower court had not considered it.

In this case the Ninth Circuit decided revenue ruling 76-511 was, in fact, on point and the district court should have considered it. Under this ruling, a refund claim is timely as long as a taxpayer files it within three years after filing a tax return--even if the return is filed more than two years after payment. The Ninth Circuit concluded the revenue ruling was consistent with congressional intent and the lower court should have used it to decide the issue. Under this ruling the taxpayer's claim was timely. Therefore, the Ninth Circuit remanded the case to the district court to determine the merits of the taxpayer's refund claim.

In deciding to apply the revenue ruling, the Ninth Circuit interpreted the U.S. Supreme Court decision in Mead as requiring courts to apply the so-called Skidmore deference to revenue rulings. (Thus the Ninth Circuit examined the reasonableness of revenue ruling 76-511 in light of congressional intent, the IRS position on the issue and the like.) If other courts interpret Mead in the same way they would have to follow all IRS revenue rulings as long as they are consistent with the statute and reasonable.

However, the Ninth Circuit decision that revenue rulings deserve Skidmore deference is not uniformly accepted. In fact, the Tax Court had previously said revenue rulings were entitled to no deference. In the Omohundro case, it was reasonable for the court to follow the revenue ruling given that all the other courts that had considered it--and this same issue--had said the ruling was a correct and reasonable interpretation of the law. When a less certain revenue ruling is at issue, the court should examine the application of deference more closely.

More Bang! Bang! for Our Bucks

President George W. Bush's fiscal 2003 budget calls for $2.1 trillion in total spending with $379 billion--or 17.8%--of that going to fund defense programs.

U.S. Government Plays Favorites

For every dollar New Jersey taxpayers paid Uncle Sam in 2001, the state received 67 cents in federal outlays, giving it the lowest federal spending-to-tax ratio in the nation. New Mexico fared much better, receiving $2.08 in federal money for each tax dollar it sent to Washington, D.C.

* Astrid E.A. Omohundro v. United States (CA-9, 2002)

Prepared by Edward J. Schnee, CPA, PhD, Culverhouse Professor of Accounting and director, MTA program, Culverhouse School of Accountancy, University of Alabama, Tuscaloosa.