I remember when I was a young associate at Roberts & Holland LLP in 1983 and marveled at how Sidney Roberts could remember developments in the tax law from as much as 40 years earlier. Well, now I am approaching 40 years of doing tax procedure, and I marvel at long-ago fights that I still remember. One of those fights just came up in a district court case in the Western District of Wisconsin, Harrison v. United States, No. 19-cv-00194 (W.D. Wis. Jan. 9, 2020), and, sadly, the court got the upshot wrong. The exact issue in the case was definitively resolved the other way in regulations adopted in 2001 that followed a once-controversial Second Circuit opinion. Neither the DOJ nor the district court in Harrison seems to be aware of the Second Circuit opinion or the relevant regulation. Sad.
The issue is how the refund claim limitations at section 6511(a) and (b) and the timely mailing is timely filing rules of section 7502(a) interact when a late original return was filed seeking a refund, and the return was mailed out only a few days before the expiration of the period that is 3 years plus the amount of any extension to file after the return’s original due date, where the return/claim is received by the IRS and filed after that period. The DOJ and the district court correctly recognized that the refund claim is timely under section 6511(a) because it was filed on the same date the return was filed – i.e., that a late return is still a return for purposes of section 6511(a). See Rev. Rul. 76-511, 1976-2 C.B. 428 (itself trying to resolve a Circuit split on this issue that still continued for almost 30 years after its issuance). But, then the DOJ argued (and the district court agreed) that the 3 year plus extension lookback period of section 6511(b)(2)(A) looks back from the date of IRS receipt, and since the taxes were deemed paid on the original due date of the return, the refund claim is limited to $0 because no taxes were paid or deemed paid in that lookback period. It is this second holding that is manifestly incorrect.
Harrison Facts
The Harrison facts are quite simple and typical: All of the 2012 taxes at issue were withheld from wages or other income. Thus, section 6513(b)(1) deems them paid as of April 15, 2013. The taxpayers obtained a 6-month extension to file their return, but then did not mail an original return under that extension. Rather, they filed a very late return in 2016. It showed an overpayment of $7,386.48, which they asked to be refunded. The return was sent by certified mail on October 11, 2016, and was received by the IRS on October 17, 2016.
The taxpayers argued that, under the timely mailing is timely filing rules of section 7502(a), the 3 years plus 6 month lookback period for taxes paid begins from the October 11, 2016 date of mailing (making the refund amount limit $7,386.48), while the DOJ argued that the 3 years plus 6 month lookback period for taxes paid begins from October 17, 2016 because section 7502(a) has no application in this case (making the refund amount $0). The DOJ moved (1) to dismiss the case for failure to state a claim on which relief could be granted (i.e., under FRCP 12(b)(6)) – a merits dismissal – or (2), in the alternative, for summary judgment that the claim was limited to $0 (also a merits ruling).
Harrison Ruling
The district court correctly noted that there is no Seventh Circuit authority directly answering the question of the date from which the lookback is determined on these facts. The district court then reasoned that October 15 or 17, 2016, was not the due date for the return – October 15, 2013 was (taking into account the 6-month extension). The court concluded that section 7502(a) had no application here. That statute only provides that if a return or claim is delivered to the IRS after the due date, then the date of the United States postmark is deemed the date of delivery. However, this rule only applies if the postmark falls on or before the due date of the return or claim. (For certified mail, used herein, the date on the certified mail receipt, not the postmark, is used. Section 7502(c).)
What does the district court cite in support of its holding under section 6511(b)(2)(A)? It cites (1) Pitre v. IRS, 938 F. Supp. 95 (D.N.H. 1996), an on point opinion decided before the Second Circuit’s opinion in Weisbart v. United States Dept. of Treasury, 222 F.3d 93 (2d Cir. 2000) (discussed below) and (2) two opinions reaching the right result (i.e., no refund) – Washington v. United States, 123 AFTR 2d 2019-1585 (S.D.N.Y. 2019), and Doyle v. United States, 88 Fed. Cl. 314 (2009) – but where the mailing date was after the 3 years plus any extension period, so the courts’ statements therein that the even-later received date governed under section 6511(b)(2)(A) were correct because section 7502(a)’s extension does not apply if the mailing is after such date.
Weisbart and the Regulation
The district court in Harrison neither discussed the Weisbart opinion nor the regulations under section 7502. Had the district court done so, I expect that it would have reached a different result.
Weisbart is on all fours with Harrison as to its facts. In Weisbart, to quote the court:
Emanuel Weisbart’s 1991 income tax return was due on April 15, 1992, but he obtained an automatic extension until August 17, 1992. Despite the extension, Weisbart did not file his return by the August 1992 deadline. Tarrying three years, he mailed his 1991 return to the IRS on August 17, 1995. The tax return was submitted on the customary Form 1040 and included a refund claim for $4,867 from the $12,477 in taxes that had been previously withheld from Weisbart’s 1991 wages. The IRS received the return on August 21, 1995.
222 F.3d at 94.
The Weisbart court, relying on regulations that have since been clarified and expanded, reasoned that the rules of section 7502 apply in this case to make the amount paid on the due date within the period provided by section 6511(b)(2)(A) – i.e. that the lookback date is the date of mailing, not the date the IRS received the refund claim. The court wrote:
The Service argues, and the district court held, that the “prescribed” period applicable to Weisbart’s tax return should also apply to the refund claim. Applying this construction, Weisbart’s refund claim would not enjoy the benefit of the mailbox rule, and would therefore be barred. . . .
Taken together, these two Treasury Regulations provide that the applicability of the mailbox rule to the refund claim should be analyzed independently of the timeliness of the tax return itself, regardless of whether they are in the same document. As such, even though Weisbart’s tax return was untimely filed, his refund claim enjoys the benefit of the mailbox rule, and is deemed filed on August 17, 1995. Because that date is within 3 years of the date when Weisbart is deemed to have paid his withheld employment taxes, he may recover any overpayment included in those taxes under the look back provisions of section 6511(b)(2)(A).
222 F.3d at 97 (citation omitted).
The Treasury decided to accept the Weisbart holding, and so, in 2001, promulgated T.D. 8932, 66 FR 2257. The Treasury decision stated:
[T]he IRS and the Treasury Department have determined that, in certain situations, a claim for credit or refund made on a late filed original income tax return should be treated under section 7502 as timely filed on the postmark date for purposes of section 6511(b)(2)(A). This is consistent with the opinion of the United States Court of Appeals for the Second Circuit in Weisbart v. United States Department of Treasury and Internal Revenue Service, 222 F.3d 93 (2d Cir. 2000), rev’g 99-1 USTC (CCH) P50,549 (E.D.N.Y. 1999), AOD-CC-2000-09 (Nov. 13, 2000).
66 FR at 2258. The Treasury Decision added a new subsection (f) to Reg. section 301.7502-1. I won’t quote the technical language of the regulation, but I will quote the one on point example at subsection (f)(3). It reads:
(i) Taxpayer A, an individual, mailed his 2001 Form 1040, “U.S. Individual Income Tax Return,” on April 15, 2005, claiming a refund of amounts paid through withholding during 2001. The date of the postmark on the envelope containing the return and claim for refund is April 15, 2005. The return and claim for refund are received by the Internal Revenue Service (IRS) on April 18, 2005. Amounts withheld in 2001 exceeded A’s tax liability for 2001 and are treated as paid on April 15, 2002, pursuant to section 6513.
(ii) Even though the date of the postmark on the envelope is after the due date of the return, the claim for refund and the late filed return are treated as filed on the postmark date for purposes of this paragraph (f). Accordingly, the return will be treated as filed on April 15, 2005. In addition, the claim for refund will be treated as timely filed on April 15, 2005. Further, the entire amount of the refund attributable to withholding is allowable as a refund under section 6511(b)(2)(A).
Emphasis added.
Observations
Before berating the district judge, who is no doubt not a tax procedure specialist, I would point out that the parties’ briefing on the motion did not mention either the Second Circuit’s opinion in Weisbart or the regulation under section 7502. The brief accompanying the motion is here, the taxpayers’ brief is here, and the government’s reply brief is here. I am quite dismayed, though, that the DOJ Trial Section attorney did not know of the relevant authority. I have sent an e-mail to the Harrisons’ counsel suggesting a motion for reconsideration or an appeal to the Seventh Circuit.
The district court in Harrison did do something else right, though: It did not treat compliance with the tax paid amounts rules of section 6511(b) as jurisdictional. Rather, both the DOJ and the court (unlike many other courts) treated compliance with these rules as a merits issue. The court granted the DOJ’s motion on the ground of summary judgment, not FRCP 12(b)(1) (lack of jurisdiction) or 12(b)(6) (failure to state a claim). In not treating the rules of section 6511(b) as jurisdictional, the Harrison court followed Seventh Circuit precedent, stating:
In reviewing the caselaw, requiring administrative exhaustion of a refund claim may be a jurisdictional requirement. See Gillespie v. United States, 670 Fed. App’x 393 (7th Cir. 2016) (acknowledging that recent Supreme Court developments “may cast doubt on the line of cases suggesting that § 7422(a) is jurisdiction”). However, the Seventh Circuit has treated whether there are any tax payments within the “look back period” as an element of the claim. See Gessert v. United States, 703 F.3d 1028, 1036-37 (7th Cir. 2013) (holding that the claims do “not meet the [timing] requirements of the statute,” despite headnotes that describe it as a jurisdictional defect); Curry v. United States, 774 F.2d 852, 855 (7th Cir. 1985) (holding court lacks jurisdiction because plaintiffs failed to exhaust their claims, but even if they had exhausted, they would be barred from obtaining a refund because of the time requirements under § 6511). As such, the merits of plaintiffs’ claim appear to be properly before the court.
Footnote 2 (emphasis in original).
The Federal Circuit took a similar position (i.e., that compliance with the section 6511(b) tax payment rules is not jurisdictional) in Boeri v. United States, 724 F.3d 1367, 1369 (Fed. Cir. 2013), a case on which Stephen blogged here. For a discussion of the Gillespie case cited by the Harrison court, see my prior post here.