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Supreme Court limits time for nonfiler to claim refund.

In 1987, Mr. and Mrs. Lundy had $10,000 in income taxes withheld from their wages, substantially more thai1 they owed for that year. However, they did not file a return or claim a refund of the overpayment.

On September 26, 1990, the Internal Revenue Service mailed the Lundys a deficiency notice for 1987, claiming that they owed an additional $7,600 in tax and interest for 1987 and penalties.

Less than three months later, the Lundys filed a return for 1987, claiming a refund of $3,500. They also filed a timely Tax Court petition challenging the IRS deficiency notice.

The IRS claimed the Tax Court had no jurisdiction over the case, since the Lundys had failed to file a refund claim within the statutory time limit set forth in Internal Revenue Code section 6512(b)(3)(B).

The Tax Court's authority to hear taxpayers' petitions is strictly defined in the code. If the statutory rules regarding timely filing of petitions are not strictly followed, the Tax Court cannot hear the case. For instance, for the Tax Court to be able to award a refund, section 6512(b)(3) says the tax to be refunded must have been paid during the relevant look-back period specified in the section. The look-back period applicable in this case is defined by section 6512(b)(3)(B).

The IRS argued that the tax had to have been paid within two years before the mailing of the deficiency notice. Because the Lundys' 1987 withholding tax was deemed paid on April 15, 1988, and the deficiency notice was mailed more than two years later, the IRS argued the Tax Court had no jurisdiction.

The Tax Court agreed with the ILKS. But the Fourth Circuit Court of Appeals reversed, saying that the taxpayers were entitled to a three-year look-back period because they had filed a refund claim.

To resolve a conflict among the circuits--all but the fourth circuit agreed with the IRS position--the U.S. Supreme Court agreed to hear the case.

Result: For the IRS. Under section 6512(b)(3)(B), the look-back period is defined by reference to the refund-claim look-back periods in section 6511(b)(2). In the case of a nonfiling taxpayer, the correct look-back period is two years from the date the deficiency notice is mailed (sections 6512(b)(3)(B) and 6511(b)(2)(B). Therefore, the Tax Court had no jurisdiction.

* Lundy (Sup. Ct., 1/17/96).
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Article Details
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Publication:Journal of Accountancy
Article Type:Brief Article
Date:Apr 1, 1996
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