Things That Make You Say Hmmm

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We welcome back guest blogger and commenter in chief, Bob Kamman.  As usual, Bob has found things that the rest of us overlook. 

In addition to the interesting twists on the way things work that Bob discusses below, I received a message from Carl Smith who, though retired, still takes some interest in what is happening in the world of tax procedure.  Carl provides some data on the Tax Court that might be of interest to court watchers.  After checking DAWSON, Carl sent the following message:

The last docket number for 2020 was 15,351.  Since the court doesn’t give out the first 100 docket numbers (i.e., the court starts at docket no. 101), that means filings in 2020 totaled 15,251, which is the lowest in two decades.  (The 1998 Act so froze the IRS that, according to Dubroff and Hellwig (Appendix B), only roughly 14,000 petitions were filed in 1999 and 15,000 petitions were filed in 2000.)  The last docket number in 2019 was 23,105, so filings in 2020 fell off about a third from 2019 to 2020.

As of right now, May 27, before the court’s Clerk’s Office opens, the last docket number is 8856-21 — only slightly ahead of the pace for 2020, though I would note that the first 10 weeks of 2020 were not impacted by the virus at all.

Oddly, the Tax Court is still very backlogged in serving petitions on the IRS.  Docket 8856-21 was filed on 3/15, but says it was served 5/27 — i.e., it will be later today.  That time gap of two and a half months to serve the petition is typical right now. Looking to the last few dockets of 2019, it typically took only 14 days to serve a petition filed on Dec. 31, 2019.

Keith

I thought I knew at least the basics of tax procedure, but lately I am starting to wonder if they changed the rules while I was slipping into old age.

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For example, there is the statute of limitations for refunds of individual income tax.  From a Notice CP81 mailed from IRS in Austin and dated May 24, 2021: “We haven’t received your tax return for the year shown above.  The statue [yes, that’s what it says, not statute] of limitations for claiming a refund for the tax year shown above is set to expire.  As a result, you are at risk of losing the right to a potential refund of your credits and/or payments shown above.”

The credit on the account is $145. The tax year is 2017.

No, the taxpayer does not live in Texas or other disaster area.  I should say, did not live there.  He died in July 2020. 

Of course it’s possible that the credit came from a timely-filed extension request in April 2018.  No one alive now, has any records of what he did back then.  We do know that IRS paid him refunds on 2018 and 2019 returns, without any reminders or requests about 2017.  Requesting an account transcript for a decedent would take some time, to find out. 

And another thing.  I thought I knew the rules about when IRS would pay interest on refunds, and when it would not.

Then another tax practitioner reported that a Form 1040 that was e-filed on April 15 resulted in a refund deposited on April 23, with several dollars of interest added.  The refund was in the $10,000 range.  I had my doubts about this, until something similar happened with one of my clients.

They had filed their return in March, but claimed a “Recovery Rebate Credit” for a payment they had not received.  IRS is verifying all of these, so the refund was not approved and deposited to their bank account until April 28.  It included $1.31 in interest. 

I had always thought that IRS has 45 days from the date the return is due, or when received if later, to pay the refund without interest.  The IRS website states, “We have administrative time (typically 45 days) to issue your refund without paying interest on it.”

So I did some research, and this is what I found.  But I may not have gone far enough.

Code Section 7508A deals with disaster areas and allowed IRS to permit last year’s 3-month extension and this year’s 1-month extension.  It provides:

( c)        Special rules for overpayments
The rules of section 7508(b) shall apply for purposes of this section.

And Section 7508(b) says

(b)         Special rule for overpayments
(1)         In general
Subsection (a) shall not apply for purposes of determining the amount of interest on any overpayment of tax.
(2)         Special rules
If an individual is entitled to the benefits of subsection (a) with respect to any return and such return is timely filed (determined after the application of such subsection), subsections (b)(3) and (e) of section 6611 shall not apply.

So what are these two parts of Section 6611 that should be disregarded?

The second one mentioned, 6611(e) has the 45-day rule. So IRS can’t rely on that.

But the first one, 6611(b)(3), deals only with “late returns”. That still leaves Section 6611(b)(2), which gives IRS 30 days to issue a refund with no interest:

(b)         Period
Such interest shall be allowed and paid as follows: . . .
(2)         Refunds
In the case of a refund, from the date of the overpayment to a date (to be determined by the Secretary) preceding the date of the refund check by not more than 30 days, whether or not such refund check is accepted by the taxpayer after tender of such check to the taxpayer. 

So the 45-day rule is out, but shouldn’t the 30-day rule still be followed? At least, that’s the way I followed the trail.  But I could be wrong. I’m expecting a TIGTA or GAO report later this year, telling me why IRS did it right.  But I also expect some members of Congress to lament the interest expenditures.

Then there came along the repeal of the tax on ACA premium underpayments in 2020.  If taxpayers paid less for health insurance last year because they underestimated their income and received too much premium tax credit, they would have to make up the difference – until that requirement was repealed by the American Rescue Plan (ARP) in mid-March.  So now IRS has started issuing refunds to those who had already paid this tax. 

According to other practitioners, these refunds have included interest, even when paid before May 15.

IRS is about to start paying refunds to taxpayers who included unemployment compensation in income, before it was excluded for most returns by ARP.  Should these refunds include interest, even if paid within 45 days of April 15?  I suppose so.  These are, after all, not normal times.

Comments

  1. Bob Probasco says

    A very minor nit-picking observation: 6611(b)(2) provides for a refund back-off period of “not more than 30 days.” The IRS does not, as an administrative practice, use the entire 30 day period that Congress has authorized. The back-off period, in practice, is significantly less. See IRM 20.2.4.7.1.1(2) for details. It would be interesting to check the *amount* of interest to see if the IRS (a) is paying interest, but still applying the back-off period, or (b) not taking advantage of *any* back-off period at all.

    It’s interesting that the IRS is applying 6611(e)(1) the way they appear to be, although it appears to be consistent with the language of 7508(b). The reference to 6611(e) is a bit confusing. If there’s an emergency and taxpayers might be filing their returns “late” based on the normal deadline, but within the revised deadline, it makes some sense to apply 6611(b)(2) instead of 6611(b)(3). Although that’s not exactly is done by 7508(b); it seems to do that even if the return is filed late based on the revised deadline.

    The application to 6611(e), though, seems – maybe? – just a case of “eh, go ahead and pay them interest, they’re dealing with an emergency and need it.” I’m not sure I see how this remedies a *disadvantage* to the taxpayer as a result of the emergency, because the 45 days runs from either the prescribed deadline date or the date filed. Leaving it as is instead of making it inapplicable doesn’t harm the taxpayer any more than in normal circumstances in the absence of an emergency.

  2. larry kars says

    Judges in my era (Tannenwald ,et al) would be going crazy if this was happening then.

  3. Lavar Taylor says

    Dinosaurs like myself may recall that, back in the early to mid-1980’s, the Tax Court’s caseload exceeded 100,000 cases at times. The distribution of Tax Court cases among the various District Counsel offices was a frequent topic of conversation among those of us who worked in a District Counsel office.

    In the fall of 1984, the Laguna Niguel District was created out of the Los Angeles District. I was one of five line attorneys who went to work for the late Dorothy Westover (God bless her soul) in the newly established Laguna Niguel District Counsel Office in 1984. That office was assigned over 10,000 Tax Court cases. At least two, and sometimes three, Tax Court trial calendars were held in LA each month. At the time, there was a Special Trial Judge sitting in Los Angeles full time.

    How do five line attorneys handle 10,000+ (pre-TEFRA) Tax Court cases? Particularly when we had no computer research, had no law library (the closest one was 20 miles away in Santa Ana), and had one loose leaf set of CCH reporter volumes? The stories that could be told ………

    Let’s just say that it was a good place for a young attorney to learn how the real world works.

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