Circuit Court says taxpayer can keep a $600,000 erroneous refund

Article Abstract:

The Federal Circuit Court ruled that, due to the IRS' failure to follow the needed procedures in recovering erroneous refund, a taxpayer may keep the erroneous refund of $600,000. The Stanley, 81 AFTR2d 98-1307 case stemmed from the IRS issuance of a deficiency notice after the tax return timely filed by the taxpayer in 1982 was found to have incurred credits and deductions of $240,541, excluding interest and penalties. After the taxpayer paid a tax liability of $491,711 in settlement, the Tax Court found the amount to be in excess of its prescribed $194,592, entitling the taxpayer to a refund, for which the IRS later sent a refund check for $630,250. However, when the IRS later filed a petition for an erroneous refund, the Court ruled that the IRS, in failing to follow the necessary procedures, cannot recover the erroneous refund from the taxpayer.

Tax Law, Public Finance Activities

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IRS cannot recover erroneous refund with wrong power

Article Abstract:

The Tax Court found in the 'Raymond' case that the IRS inappropriately took advantage of its levy power to reclaim money that was mistakenly refunded to taxpayers. It discovered that the IRS did not use the recovery methods described by statute. The Service did not release a new deficiency notice, file a new assessment of liability or handle an erroneous refund action as prescribed under Sec. 7405. It instead employed the summary collection procedures described by Sec. 6502(a)(1) and used its levy power to retrieve a fraction of the erroneous refund. Moreover, it placed two liens on the property of the taxpayers. What the agency should have done was to recover the nonrebate, erroneous refunds by issuing a Sec. 7405 erroneous refund suit or by conducting a new assessment. The IRS was therefore required to return the money it levied.

Tax collection

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Circuits remain divided over the mailbox rule

Article Abstract:

Sec. 7502 provides that a document mailed prior to a filing deadline is considered received by the IRS on the postmark date. Moreover, registered mail can be used as proof of delivery to the agency. However, the Code is not clear as to whether the postmark date by evidence aside from a registered or certified mail receipt. The consequence of this is that contradictory positions are taken by circuit courts as to whether Sec. 7502 takes the place of the common law presumption that correctly mailed documents are gotten by the addressee within two or three days, or whether Sec. 7502 was supposed to act as a 'safe harbor' for mailing by registered or certified mail. Cases related to this issue are 'Carroll,' 'Wood,' 'Miller' and 'Deutsch.'

Laws, regulations and rules, Postal service

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