District Court Broadly Interprets Informal Claim Doctrine

Internal Revenue Code (Code) section 7803(a)(3)(C) provides that taxpayers have “the right to pay no more than the correct amount of tax.” However, there are two relevant considerations to this “right.” First, the Internal Revenue Service (IRS) must take the appropriate steps before it can assess and collect any amount of tax beyond that reported by the taxpayer. Second, taxpayers who believe they overpaid their tax must take affirmative steps to protect their rights to claim a refund before the period of limitations on seeking a refund expires. We recently provided an overview of these steps.

Taxpayers traditionally claim the right to an income tax refund (or credit) by filing a formal amended tax return using the appropriate form prescribed by the IRS (e.g., Form 1040X, Form 1120X, etc.) under IRS procedures and guidelines (e.g., Code section 6402 and the underlying regulations). However, in some situations, taxpayers can assert a valid refund claim through other means such as correspondence or other written communications with the IRS that is not made by filing a formal amended tax return. Courts have consistently recognized the validity of so-called “informal” refund claims and explained that such claims must have a written component that gives the IRS sufficient notice of the fact that the taxpayer believes they have overpaid their income tax and that a refund is due.

Likewise, the IRS acknowledges the propriety of the informal claim doctrine. However, the IRS’s position appears to be inconsistent as Internal Revenue Manual 25.6.1.10.2.6(3) (09-29-2015) references the judicially-created informal claim doctrine noted above, but Publication 5125, which discusses the IRS’s Large Business & International examination process, states that the claim must also be made under penalties of perjury. (See: Internal Revenue Manual 25.6.1.10.2.6.3 (09-29-2015).)

The recent district court decision in Johnson v. United States (No. 2:10-cv-01561-TLN-JDP (E.D. Cal., Sept. 30, 2021) addressed whether correspondence between taxpayers and the Taxpayer Advocate Service (TAS) can give rise to an informal claim. The taxpayers in that case reviewed copies of their tax account transcripts for several years and determined that funds offset by the IRS from tax years 2013 and 2014 and applied to earlier tax years were incorrect because there was no liability remaining in those earlier years. Specifically, the taxpayers argued that they were entitled to refunds for tax years 2009 and 2010 and relied on discussions and correspondence with TAS, including a faxed letter summarizing the timeline of the issues, to support their position that their refund claim was timely under the informal claim doctrine. The IRS argued that the informal claim doctrine did not apply because the letter did not include facts sufficient to apprise the IRS of the factual basis for the claims; the letter only referenced 2009 (and therefore was insufficient for 2010) and was not signed under penalties of perjury.

The district court sided with the taxpayers regarding the year 2009, finding that the letter constituted an informal claim under the judicially-created informal claim [...]

Continue Reading




Weekly IRS Roundup September 27 – October 1, 2021

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of September 27, 2021 – October 1, 2021. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

September 28, 2021: The IRS released a revenue procedure, adding Chile to the list of jurisdictions with which the United States has a relevant information exchange agreement in effect for reporting payments of deposit interest. The IRS also added two countries—the Dominican Republic and Singapore—to the list of jurisdictions with which the US Department of the Treasury (Treasury) and the IRS have determined it is appropriate to have an automatic exchange relationship with.

September 29, 2021: The IRS released draft instructions for supplemental income and loss (Schedule E of Form 1040) concerning the reporting of income or loss from rental real estate, royalties, partnerships, S corporations, estates, trusts and residual interests in real estate mortgage investment conduits (REMICs).

October 1, 2021: The Treasury and the IRS published corrections to final regulations (Treasury Decision 9922) that were published in the Federal Register on November 12, 2020. Treasury Decision 9922 provided guidance relating to the allocation and apportionment of deductions and creditable foreign taxes, the definition of financial services income, foreign tax redeterminations, availability of foreign tax credits under the transition tax, the application of the foreign tax credit limitation to consolidated groups, adjustments to hybrid deduction accounts to consider regarding certain inclusions in income by a US shareholder, conduit financing arrangements involving hybrid instruments and the treatment of certain payments under the global intangible low-taxed income provisions.

October 1, 2021: The Treasury and the IRS published a notice and request for comments concerning all forms used by tax-exempt organizations to determine that such organizations fulfill the operating conditions within the limitations of their tax exemption. The IRS provided a list of the relevant forms. Written comments are due on or before November 30, 2021.

October 1, 2021: The Treasury and the IRS published a notice and request for comments concerning the burden associated with US income tax return forms for individual taxpayers. The request covers Form 1040 and affiliated return forms that are used by individuals to report their income subject to tax and compute their correct tax liability. Written comments are due on or before December 3, 2021.

October 1, 2021: The IRS published a news release reminding US citizens, resident aliens and any domestic legal entity that the extension deadline to file their annual Report of Foreign Bank and Financial Accounts (FBAR) is October 15, 2021.

October 1, 2021: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Robbie Alipour in our Chicago office for this week’s roundup.




Weekly IRS Roundup September 20 – 24, 2021

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of September 20 – 24, 2021. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

September 22, 2021: The US Department of the Treasury (Treasury) and the IRS published final regulations under IRC § 301. The regulations update existing regulations under IRC § 301 to reflect statutory changes made by the Technical and Miscellaneous Revenue Act of 1988, which changes provide that the amount of a distribution of property made by a corporation to its shareholder is the fair market value of the distributed property. The regulations affect shareholders that receive a distribution of property from a corporation.

September 22, 2021: The IRS introduced a new webpage that provides information to taxpayers whose large refunds are subject to further review by the Joint Committee on Taxation.

September 22, 2021: The IRS released instructions for Form 1065, U.S. Return of Partnership Income, to reflect the addition of Schedules K-2 and K-3. The new schedules assist partnerships in providing partners with the information necessary for the partners to complete their returns with respect to the international tax provisions of the IRC. The IRS also released related instructions for Form 1120-S, U.S. Income Tax Return for an S Corporation, to reflect Schedules K-2 and K-3, which assist with reporting items of international tax relevance from the operation of an S corporation.

September 24, 2021: The Treasury Department and the IRS published final regulations under IRC under sections 250 and 951A addressing the calculation of qualified business asset investment for qualified improvement property under the alternative depreciation system. The regulations also deal with the transition rules relating to the impact on loss accounts of net operating loss carrybacks allowed by the Coronavirus Aid, Relief, and Economic Security Act. The final regulations affect United States shareholders of controlled foreign corporations, domestic corporations eligible for the section 250 deduction and taxpayers that claim credits or deductions for foreign income taxes.

September 24, 2021: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Robbie Alipour in our Chicago office for this week’s roundup.




Show Me the Money: IRS Introduces Webpage for Large Refunds Subject to JCT Review

When we previously wrote about the Joint Committee on Taxation’s (JCT) process for reviewing refund claims granted by the Internal Revenue Service (IRS), we explained that the IRS generally must submit proposed refunds in excess of $5 million for corporate taxpayers and $2 million for all other taxpayers to the JCT before any such refunds can be paid. However, getting through the JCT review process can be difficult and time-consuming in some situations—and sometimes taxpayers are left in the dark.

On September 22, 2021, the IRS announced the launch of its new webpage that provides information to taxpayers whose large refunds are subject to JCT review. Topics covered include general information about how a JCT review matter arises and how the IRS handles a JCT review case.

Practice Point: The IRS’s new webpage provides a helpful general overview of the JCT review process but does not provide any new information on it. A more detailed discussion of the JCT review process can be found in our prior post and in the JCT’s 2019 process overview.




Weekly IRS Roundup September 13 – 17, 2021

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of September 13, 2021 – September 17, 2021. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

September 13, 2021: The IRS issued a news release concerning resources available to help small businesses learn their employer tax responsibilities and to help their employees.

September 13, 2021: The IRS postponed various tax filing and payment deadlines for victims of Hurricane Ida in parts of Pennsylvania. Victims now have until January 3, 2022, to file various individual and business tax returns and make tax payments.

September 14, 2021: The US Department of the Treasury (Treasury) and the IRS published a notice and request for comments concerning the interest rates and appropriate foreign loss payment patterns for determining the qualified insurance income of certain controlled corporations under IRC § 954(f). Written comments should be received on or before November 15, 2021.

September 14, 2021: The IRS issued a news release reminding employers about a valuable tax credit available to them for hiring long-term unemployment recipients and other groups of workers facing significant employment barriers.

September 15, 2021: The Treasury and the IRS published a notice and request for comments concerning forms related to foreign account tax compliance act registration (FATCA), including Forms 8966, 8957, 8966-C, 8809-I and 8508-I. Written comments should be received on or before November 15, 2021.

September 16, 2021: The IRS issued a news release reminding taxpayers who asked for an extension to file their 2020 return that they should file on or before October 15, 2021, to avoid the penalty for filing late.

September 16, 2021: The IRS published a practice unit concerning the limitation of exchange gain or loss on payment or disposition of debt instrument.

September 16, 2021: The Treasury and the IRS published a notice and request for comments on Revenue Procedure 99-17 that prescribes the time and manner for dealers in commodities and traders in securities or commodities to elect to use the mark-to-market method of accounting under IRC § 475(e) or IRC § 475(f). Written comments should be received on or before November 15, 2021.

September 16, 2021: The Treasury and the IRS published a notice and request for comments on Revenue Procedure 2003-33, which provides qualifying taxpayers with an extension of time—pursuant to Treasury Regulations Section 301.9100-3—to file an election described in IRC § 338(a) or IRC § 338(h)(10) to treat the purchase of a corporation’s stock as an asset acquisition. Written comments should be received on or before November 15, 2021.

September 17, 2021: The Treasury and the IRS published a notice and request for comments on forms used by business entity taxpayers, including Forms 1065, 1066, 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120-S, [...]

Continue Reading




STAY CONNECTED

TOPICS

ARCHIVES