About Leslie Book

Professor Book is a Professor of Law at the Villanova University Charles Widger School of Law.

NTA Report Released: Essential Reading

Earlier this week the NTA released the 2021 Annual Report to Congress (link to full report). The report also includes as a separate volume the 2022 Purple Book, which lists 68 legislative recommendations that focus on ways to strengthen taxpayer rights and improve tax administration.  Both the Annual Report and the Purple Book have separate appendices. For example, the Purple Report has an appendix featuring additional reference materials relating to its recommendations and a separate appendix detailing the considerable number of prior legislative proposals that have been enacted into law. For those wanting a quick snapshot, there is also a standalone Executive Summary that includes the preface from NTA Erin Collins.


The report has generated significant national media coverage, with that focus mostly on the Report’s situating issues facing taxpayers in the context of the considerable service problems the IRS has and continues to face. For example see NBC News’ Get ready for ‘frustrating’ tax season as IRS battles historic backlogs and staff shortages.

For people interested in tax administration, the NTA report continues to be a must read document. Most readers of PT need little reminder of IRS problems but the Report details in striking ways the decline in IRS resources and the concomitant reduction in service metrics and compliance activities.  We will undoubtedly revisit in detail some of the figures, but for purposes of this brief post I wanted to highlight two significant differences in this year’s report compared to prior annual reports.

First, the report contains a new feature, At a Glance,  which for the Ten Most Serious Problems “summarizes what taxpayers want from the IRS, explains why the problem is serious, and provides some key statistics.” This feature nicely brings attention to the highlighted problems, and provides ample justifications for the NTA’s proposed fixes.

Another welcome development is the Report’s discussion of Most Litigated Issues. In the past the discussion relied on commercial research that keyed in on published opinions issued by all federal courts (including Tax Court). This year, for Tax Court cases TAS added a new wrinkle, by looking not only at the court’s output but also reviewing the notices of deficiency relating to the petitions filed with the Tax Court. This allows for study of the approximately 28,000 petitions filed in FY2021, a number considerably higher than the 224 decided Tax Court opinions. (Of course many substantive Tax Court determinations come in published orders that do not find their way into opinions.) As the report notes, the change in methodology produced some differences as compared to prior years’ lists of  most litigated issues, with new topics including the American Opportunity Credit, the standard deduction, and issues relating to withholding.


The Top Ten Procedurally Taxing Posts of 2021

As 2021 comes to a close, Procedurally Taxing has been around for over eight years.  When we kicked it off in 2013 with Welcome to Procedurally Taxing, we did not know precisely how the blog would evolve. With over 3,400 subscribers and closing in on two million views, the blog has exceeded our expectations.  Stay tuned, as we will be announcing some changes and new features in the new year.

What were the most viewed posts of the year?


Not surprisingly issues relating to economic impact payments and the receipt of refunds when there is a hardship topped the list. Those posts reflect the needs of not only practitioners but also taxpayers who at times are desperate for information concerning access to needed refunds. To that end, the top post of the year was Keith’s post, Requesting an Offset Bypass Refund and Tracing Offsets to Non-IRS Sources. That post is our all time reigning champ, having generated over 93,000 views since its 2015 posting.

Also on the list was my favorite post of the year, Biden Administration Floats Refundable Pet Tax Credit Idea to Boost Child Tax Credit. With the Build Back Better legislation currently stalled, we will have to wait until 2022 to see if Congress will enact that piece of legislation.

Here is the complete top ten list, including posts that were published in prior years:

  1. Requesting an Offset Bypass Refund and Tracing Offsets to Non-IRS Sources (Keith Fogg)
  2. Offset of Injured Spouse Stimulus Payment (Keith Fogg)
  3. How Will I Get My CARES Stimulus Payment if my Preparer Paid My Refund? (Connor Moran, guest post)
  4. Injured Spouse and Economic Impact Payments (Caleb Smith)
  5. Lost or Destroyed EIP Debit Card (Keith Fogg)
  6. Senators Question Commissioner About Company Offering Fee-Based Access to IRS Phone Lines (Leslie Book)
  7. Offsets in a Time of Coronavirus (Keith Fogg)
  8. Refunds, Offsets & Coronavirus Tax Relief (Barbara Heggie, guest post)
  9. My IRS Wishlist for 2021 – Part 1: The mail and return processing backlog (Nina Olson)
  10. Biden Administration Floats Refundable Pet Tax Credit Idea to Boost Child Tax Credit (Leslie Book)

What about for the posts that were published in 2021? Here are the top ten most viewed posts from this year.

  1. Senators Question Commissioner About Company Offering Fee-Based Access to IRS Phone Lines (Leslie Book)
  2. My IRS Wishlist for 2021 – Part 1: The mail and return processing backlog (Nina Olson)
  3. Biden Administration Floats Refundable Pet Tax Credit Idea to Boost Child Tax Credit (Leslie Book)
  4. The Current State of Taxpayer Service (or Lack Thereof) at the IRS (Nina Olson)
  5. Tax Court Announcement re Premature Assessments (Keith Fogg)
  6. Thinking Out Loud About the Advanced Child Tax Credit (Part 1) (Nina Olson)
  7. Can the IRS Ever Collect on Erroneous EIPs? (Caleb Smith)
  8. Congress to Consign IRC 6751(b) To The Graev? (Keith Fogg)
  9. Calculating the Collection Statute of Limitations (Keith Fogg)
  10. Major Change to Offer in Compromise Policy (Keith Fogg)

We wish our readers a happy and healthy new year.

District Court Latest to Find Mailbox Rule Supplanted By Regulations

The story is familiar: a taxpayer or their practitioner allegedly mails a refund claim before the statute of limitations has expired. The IRS never receives the claim. The mailing was not done by registered or certified mail, nor by authorized private delivery service.  Eventually the taxpayer or their practitioner checks on the supposedly filed claim only to discover that IRS has no record of receiving it.  The taxpayer learns of this after the SOL has expired, so when they mail a supposed copy of the earlier claim or new claim, IRS rejects it as untimely.

These are the facts from Crispino v US , a case out of a federal district court in New Jersey.  The case sweeps in some important administrative law principles, including Chevron and the Brand X doctrine.


The underlying tax issue stems from a rollover of an IRA. On their 2009 return the Crispinos reported it as tax-free; IRS examined the return and concluded the rollover was taxable. It resulted in an additional $134,000 of assessed tax liability. IRS collected the assessment through two levies in June of 2013.

The Crispinos disagreed with the IRS’s characterization of the IRA transfer. The opinion states that their “tax agent” Minelli asserted in a deposition that that he mailed a refund claim using a postage label printed from a Stamps.com postage meter on April 15, 2015.  Having heard nothing about the claim, Minelli also testified that at some point in 2015 he checked on the claim’s status and learned that the IRS did not have a record of receiving it. In November of 2015, Minelli mailed a copy of the supposedly earlier filed claim. On December 31, 2015 IRS mailed a disallowance on the basis that the claim was untimely because it was filed beyond two years of the tax’s payment.

In December of 2017 the Crispinos filed a complaint seeking a refund of the $134,000. The complaint alleged that they timely filed the claim. The US filed a motion for summary judgment alleging that the claim was untimely.

The issue in the case tees up the common law mailbox rule and regulations that expressly overturn that rule. The regs provide that Section 7502 is the only way to prove that documents that IRS never receives were actually mailed.

This is important because a statutory tax-filing requirement generally can be satisfied only by actual, physical delivery. Section 7502 provides an exception to the physical delivery rule if a document is postmarked before the deadline and received after the deadline. In addition, sending the document via registered or certified mail, or with an authorized private delivery service, establishes that the document was in fact received even if the document never was received or the IRS has no record of receiving it.

The issue as to whether a taxpayer can introduce extrinsic evidence to prove mailing in the absence of using a 7502-proscribed method or whether Section 7502 was the exclusive way to prove mailing has been contested over the years. Some circuits said yes; others said no. The Third Circuit, where an appeal in this case would lie, had come down in favor of allowing a taxpayer to prove mailing beyond what Congress established in 7502.

In 2004, IRS issued proposed now finalized regs that purported to resolve the split. The regulation establishes that absent delivery a taxpayer can only rely on 7502 to prove mailing. The reg reads: 

Other than direct proof of actual delivery, proof of proper use of registered or certified mail, and proof of proper use of a duly designated [private delivery service] as provided for by paragraph (e)(2)(ii) of this section, are the exclusive means to establish prima facie evidence of delivery of a document to the agency, officer, or office with which the document is required to be filed. No other evidence of a postmark or of mailing will be prima facie evidence of delivery or raise a presumption that the document was delivered.

The Crispinos challenged the regulation’s validity. Under Chevron Step One, the district court concluded that the language in 7502 “d[id] not direct a result” as to whether the statute displaced the mailbox rule. Under Step Two, the district court, citing the 9th Circuit’s analysis in Baldwin v US (a case Carl Smith discussed in Ninth Circuit Holds Reg. Validly Overrules Case Law; Disallows Parol Evidence of Timely Mailing) found that the regulation’s interpretation was reasonable:

[T]he mere fact that dueling principles of statutory interpretation support opposing constructions of a statute does not prove, without more, that the agency’s interpretation is unreasonable.” It is possible for an agency’s construction to be reasonable “even if another, equally permissible construction of the statute could also be upheld.

Should Chevron even play a role if prior circuit court precedent held in favor of the common law rule? The Crispinos argued that pre-regulation Third Circuit precedent that allowed extrinsic evidence to prove mailing controlled. This brings in the so-called Brand X doctrine, which provides that, a “prior judicial construction of a statute trumps an agency construction otherwise entitled to Chevron deference only if the prior court decision holds that its construction follows from the unambiguous terms of the statute and thus leaves no room for agency discretion.” Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967, 982 (2005). The district court concluded, as did the Ninth Circuit in Baldwin, that prior taxpayer-friendly appellate law precedent on the issue did not mean “that its interpretation of § 7502 followed from the unambiguous terms of the statute.”

As an aside, for readers who would like to dig deeper in the Brand X issue, check out Kristin Hickman’s excellent Notice & Comment blog post,  Justice Thomas, Brand X, and Baldwin, where she discusses Justice Thomas’ dissent from the Supreme Court’s denial of certiorari in Baldwin, interesting in part because Thomas authored the Brand X opinion that he has later questioned.

The taxpayers also argued that the regulation impermissibly conflicts with Rule 406 of the Federal Rules of Evidence. Rule 406 provides that 

[e]vidence of a person’s habit or an organization’s routine practice may be admitted to prove that on a particular occasion the person or organization acted in accordance with the habit or routine practice. The court may admit this evidence regardless of whether it is corroborated or whether there was an eyewitness.

Brushing this off, the court stated that the regs make habit evidence less relevant but does not preclude the introduction of that evidence.

A final argument the taxpayers made concerned the IRS’s application of the levy proceeds to the assessed liability. In addition to the 2009 year at issue in the case, there were older assessments. The Crispinos argued that the IRS should have applied the levy proceeds to those earlier years; that would have presumably  allowed the later filed “copy” of the original claim to have been made within the two-year SOL.  Unfortunately for the Crispinos for involuntary payments such as levy proceeds, the IRS is free to allocate the payments as it sees fit.

The Crispinos are out of luck, at least insofar as getting a court to consider the claim’s merits. Whether they have a cause of action against their practitioner is another matter.  The case is yet another reminder that if one is snail mailing something important to the IRS, it is worth the extra time and money to mail it in a way that eliminates any risk of non-delivery.

Feinstein Letter Probes Relationship Between Tax Prep and Financial Products

Some tax practitioners charge fees for preparing tax returns and also offer or facilitate sales of financial products. A December 9th letter Senator Diane Feinstein wrote to Rohit Chopra, the Director of the Consumer Financial Protection Bureau, highlights concerns and the limited information lawmakers know about preparers selling financial products.


Senator Feinstein, while noting that there is nothing inherently wrong with preparers selling financial products, observes that for lower-income and vulnerable taxpayers it may dilute federal benefits and not be accompanied by sufficient information describing the products. 

To help understand the scope of the practice as well as properly evaluate the costs and benefits, Senator Feinstein asked for responses to the following questions within 60-days:

  1. What is the quality of information available about the extent to which high-cost financial products are being purchased by taxpayers, the characteristics of those who are most likely to sell and purchase such products, and whether the use of such products is growing or decreasing? How many complaints has the Bureau received about such products?
  2. To what extent are tax preparers making the costs of high-cost financial products tied to tax preparation and tax refunds clear and easily understandable? Is the CFPB considering any actions to improve the ease with which consumers can understand these costs
  3. For its 2006 report on paid tax preparers, the Government Accountability Office sent staff posing as taxpayers to visit tax preparers to see how they operated under two scenarios. Similarly, a 2015 report from the National Consumer Law Center involved sending “mystery shoppers” to paid tax preparers in Florida and North Carolina to check error rates. Would a similar approach be productive for the CFPB to gather additional information about financial products offered by tax preparers?
  4. Is there any evidence that companies that offer high-cost financial products have offered them in conjunction with assisting people in applying for other forms of government aid? If so, is the CFPB taking or considering actions to address these situations? If not, what safeguards are in place in case such companies do so in the future?
  5. The COVID-19 pandemic and the extra responsibilities Congress has conferred on the Internal Revenue Service (IRS) in response have caused substantial delays in tax processing. Is the CFPB concerned that potential delays in processing 2021 tax returns — such as the IRS having to reconcile child tax credit and economic impact payments — will lead to significant accrual or compounding of interest or other charges for taxpayers who have purchased refund advance loans or similar financial products? Has the Bureau received complaints about this?
  6. The CFPB has provided advice and information for taxpayers, including on refund advance loans and checks. Do you have evidence on whether the Bureau’s educational activities in this area have been effective?

Some Quick Observations

Through pandemic relief and expanded child-related tax benefits, millions of people who had no or little exposure to the federal income tax system now must file tax returns. Current House-passed legislation is pushing the IRS to consider what a true IRS-hosted online return platform would look like.  A recent Politico piece by Brian Faler, Democrats hope to get a foot in the door for free tax-filing by the IRS, [paywall], discusses the proposed legislative initiative, as well as possible Byrd-rule problems with the proposal and opposition from anti-tax activist Grover Norquist, who heads Americans for Tax Reform. As reconciliation packages must focus on fiscal matters, the Byrd-rule limits proposals that have budgetary effects that are only incidental. Norquist is a well known opponent of pretty much any substantive tax increase or proposal that would expand IRS capabilities.

There are many reasons related to tax administration to support the IRS developing its own platform, especially for lower income and vulnerable taxpayers.  To be sure, there are also reasons to oppose it. For a point/counterpoint see Professors Joe Bankman and Jim Maule squaring off in the ABA Tax Times Perspectives on Two Proposals for Tax Filing Simplification, which discusses the merits of a pro-forma and data retrieval proposals. The Biden Administration’s Executive Order from earlier this week Transforming Federal Customer Experience and Service Delivery to Rebuild Trust in Government explicitly calls on Treasury to consider expanded e-filing options (Sec 4(b)).

Even if IRS were to create a true public option for e-filing that minimized taxpayer burdens, there will be taxpayers who choose to engage private practitioners. A few years ago when I worked at TAS we produced a report with recommendations on improving the administration of refundable credits. One of our proposals was legislation to require all paid return preparers to provide a fee disclosure statement to taxpayers prior to providing tax preparation and filing service. Senator Feinstein’s letter highlights that policymakers should consider the costs (and possible benefits too) of products that are not directly related to return preparation, especially when millions of lower-income and less sophisticated taxpayers pay to file returns.

IRS Failure to Process Return Does Not Mean Taxpayer Failed to File A Return

It is all too common for the IRS to fail to process returns that taxpayers submit either electronically or by mail. In Willets v Commissioner, a nonprecedential summary opinion, the Tax Court held that the IRS’s failure to process a return did not equate to the failure to file the return. The legal distinction between processing and filing is significant given that the filing of a return is the jump off point for determining timeliness of assessments and refund claims, and also may determine whether a taxpayer is subject to delinquency penalties. 

Willets involves an original late filed return that reflected an overpayment. That context triggers some dense procedural rules relating to refund claims, so I will discuss the case’s facts, its legal background, and its significance even though it is an S case.


In Willets, the taxpayer timely filed a request for an extension of time to file his 2014 Federal income tax return. With the extension, the taxpayer sent in an $8,000 payment. He failed to file his return by the extended October 15, 2015 date.  On April 14, 2018, he mailed the 2014 return to the IRS. On May 2, 2018 IRS records indicated that IRS rejected and failed to process the return due to concerns IRS had over identity theft. After the taxpayer failed to respond to the IRS identity theft correspondence, the IRS automated underreporter unit sent a notice of deficiency.  In addition to proposing about $17,000 in additional tax it also proposed approximately $1,000 in delinquency penalties.

The taxpayer filed a Tax Court petition, and in the petition he alleged that he overpaid his 2014 tax by about $1,500. The IRS did not disagree with the amount of the overpayment but alleged that the claim was not timely.

How do the refund claim limitations apply in Willets? Recall that Willets failed to file his original return by the extended October 15, 2015 due date and then mailed his 2014 return on April 14, 2018. That return served dual purpose as a refund claim as it reflected an overpayment.

Willets tees up the refund claim limitations of Sections 6511(a) and 6511(b).

For the purposes of the refund claim SOL, Section 6511(a) provides that the three-year period of limitation for filing a refund claim begins on the filing due date of the relevant return.  For taxpayers whose original return itself serves as the refund claim (like Willets) the key issue concerns the lookback limits of Section 6511(b)(2)(A) and not the general three-year SOL in Section 6511(a) because a refund claim contained in the original return is filed within three years of the filing of the return — in fact the refund claim is filed at the same time as the original tax return.  As a slight tangent, I note that it may be surprising that a late return that contains a refund claim (as in Willets) is automatically timely under the three-year rule of section 6511(a). That position is reflected in Rev. Rul. 76-511, 1976-2 C.B. 428, followed in Omohundro v. United States, 300 F.3d 1065 (9th Cir. 2002) (per curiam).  In Omohumdro, the 9th Circuit overruled its prior precedent of Miller v. United States, 38 F.3d 473 (9th Cir.1994), that had held that in cases of a late original return claiming a refund, the untimely return should not count as a return for purposes of section 6511(a), only a claim, and the taxpayer had to file the claim within two years of payment to be timely under (a). 

Just because a refund claim is timely under 6511(a) does not mean that the taxpayer is home free. The (b)(2)(A) lookback rule generally limits the amount of a refund on a timely filed claim to taxes deemed paid during the period looking back three years plus the six-month extension period from the date the taxpayer files the claim.  

Similar issues have arisen in the past when a taxpayer mails an original return that also has embedded within it a refund claim but arrives to the IRS more than three years after the extended due date. For that issue see Carl Smith’s post District Court Gets Timely Mailing Is Timely Filing Rule of Section 7502 Wrong as Applied to Refund Claim Lookback Period of Section 6511(b)(2)(A) and follow up post District Court Reverses Its Section 6511(b)(2)(A) Ruling and Excoriates IRS and DOJ for Not Citing Relevant Authority .

As Carl discusses in his posts the Second Circuit in Wesibart and eventually the IRS itself conceded that section 7502’s timely mailing rules apply such that the lookback period should begin from the date the return was mailed (not received) if the IRS receives the return outside the three-year plus six month extension time window.

The 7502 issue is not at play in the Willets case, as here the IRS acknowledged receiving the 2014 1040/refund claim in May of 2018 (less than three years from the extended 2014 due date).  The May 2018 delivery of Willets’ 2014 1040 avoids any direct application of the Section 7502 timely mail timely file issue as the IRS received the return before the three-year period (plus extension) of limitation expired on October 15, 2018.

The wrinkle in Willets is that the IRS failed to process the return before the three years had elapsed from the 2014 return’s extended due date of October 15, 2018.  That failure to process the return by October 15, 2018 led to the IRS arguing that the refund claim was barred (I assume under 6511(b) since as I discussed above a late filed return that has an embedded refund claim is timely under 6511(a) though the opinion is not clear on that point).

What Willets adds, and what Keith previously discussed when addressing the Fowler case in Rejecting Returns That Meet Beard and what I discussed in TIGTA Audit Flags Inconsistency in IRS Treatment of E-filed Returns is that when IRS fails to process a return it does not mean the rejected return was not in fact filed.  The Willets opinion discusses the Beard test and easily concludes that Willets’ 1040 satisfies Beard’s requirements. As such, as Willets notes,  “a valid return is deemed filed on the day it is delivered, regardless of whether it is accepted by the Commissioner.”

In holding that Willets’ return was filed even though IRS failed to process it due to ID theft concerns, the opinion notes that the return/claim was deemed filed as of the date of delivery, May 2, 2018.  That filing date meant that the refund claim was both timely under 6511(a) and not limited by the lookback rules of 6511(b).


Willets holds appropriately that the IRS rejection or failure to process a return or refund claim does not mean that a taxpayer has failed to file a return or claim. The distinction between processing and filing is significant, and even more so these days as IRS has had and continues to have a backlog of returns and claims that it has failed to process. As Willets holds, returns that are not processed due to delay or other reasons may in fact be deemed filed so long as they satisfy the Beard requirements. Practitioners need to be alert to consider whether a taxpayer has in fact filed a return, even if IRS transcripts fail to reflect that the taxpayer has in fact filed the return. As IRS may be sitting on a significant number of unprocessed returns that request a refund for well more than six months after their filing date, I would not be surprised to see some taxpayers bringing refund suits off of filed but unprocessed returns.

Hat tip to Ed Zollars whose Current Federal Tax Developments post flagged the Willets case. Ed’s work on that blog is outstanding, and I encourage readers to check it out.

Senators Question Commissioner About Company Offering Fee-Based Access to IRS Phone Lines

It is not news to our readers that the IRS struggles to answer the calls it receives. This frustrates taxpayers and practitioners alike. It interferes with the IRS’s ability to serve taxpayers and impedes taxpayers from understanding and meeting their responsibilities. To help address this problem, a private company, enQ, offers a fee-based service that “drastically reduces the hold time in reaching an IRS agent.”

How does it do this? According to its web-site, it was founded by an MIT trained engineer and “employs proprietary breakthrough patented technology.” The service offers a number of fee-based plans that range from about $100 to $300 a month. While directed at practitioners, it is also available to taxpayers.  To obtain a detailed understanding of the way the service works read the Forbes post cited below.  Essentially, the person who buys the services gets to jump the line of persons waiting to talk to the IRS by riding the coattails of a robo-call.

The service is controversial.


At Forbes in Is A Private Company’s Automated Dialing Making It Impossible To Reach The IRS?Amber Gray-Fenner wrote a terrific blog post that discusses the service and situates the controversy. As Amber notes, the service implicates issues of fair play and access.

Should phone access to the IRS be dependent on resources and ability and willingness to pay?

Earlier this week Senators Cassidy, Menendez, Young and Warner wrote a letter to Commissioner Rettig. The senators criticize the service and question whether the robo-call approach that enQ apparently uses reduces the quality of phone service for those who do not use the service. The senators also question whether the Service could use Section 7212 to address the problem. That is a criminal statute used when there is an attempt to interfere with administration of internal revenue laws. As the senators explain, “being able to call the IRS is a free, public service that should be available on an equal basis. Paying to receive preferential access to the IRS should not be permitted.”

While criminal prosecution seems a bit far-fetched, the letter highlights how the IRS inability to answer phone calls is inconsistent with fundamental taxpayer rights. The bottom line is that there should not be a need for a service like enQ. The letter ends with a request for the IRS to take steps that would limit the need and demand for the service:

Finally, we ask that you take necessary action to dramatically improve the quality of service called for in the Taxpayer Bill of Rights. Hold times should be measured by minutes, not hours. The percentage of calls answered should be in the high double-digits, not the high single-digits. Improving service should be an utmost priority to the IRS.

Interest on Overpayments in the Absence of a Filing Obligation

More often that I would like to admit when reviewing developments for the update to Saltzman and Book IRS Practice & Procedure I come across an issue that I had not thought about at all. In this round, with my colleague Marilyn Ames taking the lead we have been working on discussing a number of challenging and technical issues relating to interest, the subject of an entire chapter in the treatise.  One issue that jumped out at me was an IRS legal memo’s discussion of when interest on an overpayment accrues when a foreign corporation may have no obligation to file a US income tax return but eventually does so to claim a refund relating to withholding taxes. The issue centers on whether interest accrues from the due date of the return or the later date when the corporation filed a processable return.  The legal memo focuses on whether the taxpayer  knew it was entitled to a refund on the due date of the return and hence had to file a return to alert the IRS of the corporation’s claimed overpayment.

As with almost all interest issues, the matter is a bit technical so I will review the applicable provisions and briefly discuss the memo’s analysis.


The facts in question in the legal memo involved the foreign corporation filing a tax return claiming a refund of the withheld tax after the due date of the 1120-F, the income tax return for foreign corporations. The corporation was not engaged in a US trade or business.

Generally under Section 6611 interest is paid on any overpayment of tax from the date of overpayment to a date that precedes the refund date by not more than 30 days. Withholding taxes are generally deemed as being paid on the due date of the return. Section 6611(b)(3) provides an exception to the general rule that interest accrues from the date of overpayment and provides when a return is filed after its due date “no interest shall be allowed or paid for any day before the date on which the return is filed.”

Regulation Section 1.6012-2(g) provides that a foreign corporation that is not engaged in a US trade or business is not required to file a return if its tax liability for the taxable year is fully satisfied by withholding. But the regulations also provide that if that foreign corporation believes it has overpaid its tax, it must file a return claiming the overpayment.

Is a return considered filed after the due date for interest purposes if the foreign corporate taxpayer did not have an obligation to file the return but for the claimed overpayment attributable to excess withholding?

The legal memo discusses a few cases that considered the issue, including Overseas Thread Industries (OTI), 48 Fed. Cl. 221, 230 (2000). In discussing Overseas Thread the memo notes that the “Court of Federal Claims reasoned that the proper interpretation of § 1.6012-2(g) is that the foreign corporation must file a return when claiming a refund, but that the return will not be considered late for purposes of section 6611(b)(3) if the foreign corporation did not know that it was owed a refund when the return was due.”

In applying that standard to the facts in the memo, the memo notes that it was unclear when the foreign corporation knew that the withholding would result in an overpayment of its US tax. If the taxpayer knew that the withholding exceeded its tax due before the due date (plus extension) then interest would accrue only upon the later filing of a processable return. If the taxpayer did not know that it was entitled to a refund of excess withholding at or before the due date, then the interest would accrue from the earlier due date.


While the difference between the due date and the date of actual filing might not be that long of a time, when the dollars are large enough the difference may be meaningful. There are some lurking issues, including what kind of proof will the IRS be looking for in evaluating when the interest begins to accrue.

The knowledge standard raises significant challenges for tax administrators who may not be able to determine that knowledge on the face of a return.  Also lurking if the parties disagree is the jurisdictional basis for standalone interest overpayment suits, an issue we and guest poster Bob Probasco have discussed many times in the context of the Pfizer case (see for example Pfizer Again – On to the Substantive Issue).

For what it is worth, I would prefer that the law reflect a bright line rule going in either direction. The approach reflected in the memo at least allows some compensation to taxpayers for the government’s use of the money, and also provides some incentive for non-US taxpayers to timely file returns. It does, however, open the door to disputes and suggests that non US corporate taxpayers engaged in a trade or business may wish to state when they knew that they had overpaid their US tax obligation.

Update on CIC Services: The Scope of Relief Available if A Court Finds That An Agency’s Rulemaking Violates the APA

Following the Supreme Court decision in CIC Services, the matter was remanded back to the district court. Last month the district court granted CIC Services’ motion for preliminary injunction, finding that the Notice 2016-66 was a legislative rule and its issuance violates the notice-and-comment provisions of the APA.  Following CIC Services’ victory, however, it filed a motion to reconsider.

Why would CIC file a motion for reconsideration? Last month’s district court’s opinion narrowly enjoined the IRS from enforcing the Notice against CIC Services. In its motion, CIC Services has requested that the court broaden the relief and issue a national outright injunction that would prevent the IRS from enforcing it against anyone.

Readers may recall that in CIC Services: Now that AIA Issue Resolved, On to Some Meaty Administrative Law Issues I discussed the lurking issue as to the extent of any relief that a court could grant if it were to find that the IRS issuance of the notice violated the APA. In that piece I pointed to an excellent Notice & Comment blog post, Do you C what I C? – CIC Services v. IRS and Remedies Under the APA. In the post Professor Mila Sohoni provides context on the debate within administrative law. She argues that a district court has the power to set aside the Notice for everyone and should not be constrained to focus only on the application of the Notice to the plaintiff.

In the motion CIC Services acknowledges that there is uncertainty as to the scope of relief but argues that the court’s power to vacate the notice is broad (citing to the Notice & Comment blog). It also discusses the particular harm that CIC Services faces in the absence of a national injunction, including how it must incur costs to assist its nationwide clients who still have to comply and how the order “does not explicitly relieve CIC Services of the on-going and compulsory record-keeping that Notice 2016-66 requires.”

This is an important issue not only for tax administration. It has wide implications for administrative law.