On August 11, 2021, the Tax Court issued a Memorandum Opinion in the case of Mohsen v. Commissioner (T.C. Memo. 2021-99). The primary issues presented in Mohsen were whether the Tax Court possessed jurisdiction to decide the taxpayer’s claim for refund and whether the taxpayer’s unpaid income tax liability could be offset by a claimed (time-barred) credit.
Filing Background to Mohsen v. Commissioner
On April 15, 2002, the petitioner mailed the IRS a Form 4868 (Application for Automatic Extension of Time To File U.S. Individual Income Tax Return) for 2001. The petitioner attached to his Form 4868 a $43,000 check. The IRS applied this amount to pay petitioner’s tax liability for 2001, and the remainder was sent to excess collection.
On or about August 25, 2003, the IRS prepared a substitute for return on behalf of the petitioner for 2001. On October 29, 2015, the petitioner untimely filed his Form 1040, U.S. Individual Income Tax Return, for 2001. On the same day the petitioner also filed a claim for refund of an overpayment of $49,064 for 2001. On March 3, 2016, the IRS sent the petitioner a letter denying this claim.
On November 17, 2015, the petitioner untimely filed Form 1040 for 2004. He reported $10,257 in tax due. On February 15, 2016, the IRS assessed an addition to tax for failure to pre-pay tax of $294 and an addition to tax for failure to timely file of $2,564. In February 2017, the petitioner filed Forms 1040X for 2001 and 2004.
In a memorandum attached to the returns, the petitioner asserted that the $43,000 remittance attached to his Form 4868 in 2002 had been intended as a deposit in the nature of a cash bond. On his Form 1040X for 2001 petitioner edited the description for line 16 to read “Total amount paid with Deposit,” instead of “Total amount paid with request for extension of time to file, tax paid with original return, and additional tax paid after return was filed.”
He entered $43,000 on line 16. He requested that $32,743 of this amount be refunded and the remaining $10,257 applied against his 2004 liability. The petitioner also attached a photocopy of the $43,000 check. The check has a blank memo line and does not have anything written on it to indicate that it was intended as a deposit. The IRS did not grant the petitioner’s request to treat the $43,000 remittance as a deposit.
The CDP Appeal
On October 31, 2017, the petitioner participated in a collection due process (CDP) hearing by phone with a settlement officer. During the CDP hearing, the petitioner contended that the $43,000 remittance should be applied against his unpaid tax liability for 2004 and the remainder refunded to him. The petitioner claimed that the check had been intended as a deposit in the nature of a cash bond, offering as evidence a photocopy of a “handwritten note dated April 15, 2002,” which he claimed had been mailed with the $43,000 check.
The settlement officer noted that respondent’s records indicated that the remittance had instead been a voluntary payment of tax, and he requested that the petitioner submit further documentation in support of his assertion by December 29, 2017. On December 4, 2017, the petitioner sent the settlement officer a letter stating that he had been unable to retrieve documentation from the accountant who had prepared his tax return for 2001, as the accountant had died.
Jurisdiction of Tax Court
The Tax Court’s jurisdiction in CDP cases generally does not permit it to consider matters regarding years that are not the subject of the collection action before it. The Tax Court may, however, consider facts and issues from other years to the extent they “are relevant in evaluating a claim that an unpaid tax has been paid.” Freije v. Commissioner, 125 T.C. 14, 27 (2005). An available credit from another year is a fact that may affect the taxpayer’s correct liability for the year that is the subject of the collection action. Weber v. Commissioner, 138 T.C. 348, 371-372 (2012).
The Tax Court has jurisdiction to consider whether a credit available from a non-determination year should be applied against a taxpayer’s liability for the year before the Tax Court only if the credit “indisputably exists.” Del-Co W. v. Commissioner, T.C. Memo. 2015-142, at *6. The “mere claim” of a credit “is not an ‘available credit,’” and such a claim “need not be resolved before the IRS can proceed with collection of the liability at issue.” Weber, 138 T.C. at 372.
When it has not already been determined that a credit is available, the Tax Court lacks jurisdiction to “make ‘available’ a credit that is currently not available because the IRS has disallowed it.” Id. at 368. The Tax Court found that the petitioner had a “mere claim of an overpayment” for 2001, and, accordingly, it lacked jurisdiction to decide his claim for refund for a year that is not before the court. See id. at 369.
A Few Notes on Refunds
A substitute for return prepared by the IRS pursuant to IRC § 6020(b)(1) does not constitute a return for purposes of IRC § 6511. See Healer v. Commissioner, 115 T.C. 316, 322 (2000). This is important because IRC § 6511(a) requires that a claim for credit or refund of an overpayment of any tax in respect of which the taxpayer is required to file a return be filed within three years from the time the return was filed or two years from the time the tax was paid, whichever period expires later.
If no return was filed by the taxpayer, within two years from the time the tax was paid. The three-year period of limitation is not triggered until the taxpayer files a return.
Petitioner filed his 2001 return on October 29, 2015. His last payment with respect to the 2001 liability was made in 2002. Thus, the three-year period of limitation for filing a claim was triggered when petitioner filed his 2001 return on October 29, 2015. The relevant lookback periods for petitioner’s claims for refund are the three years preceding October 29, 2015 (date of filing Form 1040), and the three years preceding February 2017 (date of filing Form 1040X). See IRC § 6511(b)(2)(A).
Petitioner did not make any payments with respect to 2001 within either of these periods of three years. The last payment petitioner made was the $43,000 check that he mailed on April 15, 2002, well outside either three-year lookback period.Add to favorites