Tax Notes Article by Nancy B. Firestone: Court of Federal Claims Denies Untimely Estate Tax Refund Claim

Tax Notes has published an article by Nancy B Firestone titled "Court of Federal Claims Denies Untimely Estate Tax Refund Claim."  Firestone's article publishes the text of the recently decided Court of Federal Claims case Boensel v. United States.  In that case, the court considered whether a remittance to the IRS in anticipation of an estate tax assessment was properly considered a deposit or a payment, and by extension whether the payor may seek a refund of the amount remitted more than three years after the date of remittance.

In determining whether the remittance made by Boensel to the IRS was properly considered a deposit or a payment of tax, the Court of Claims considered the Federal Circuit's interpretation of the U.S. Supreme Court case of Rosenman v. United States.  The Federal Circuit has developed a six prong facts and circumstances test used to distinguish a deposit from a payment including the following factors:

1. Whether the tax has been assessed by the IRS prior to the remittance: Here, the court found that the payment by Boensel prior to the assessment is a factor in favor of a finding that the remittance was a deposit.  The court considered the ruling in Charles Leigh and Co. v. United States as well as Huskins v. United States to determine that the absence of an assessment weighed in favor of a finding that a remittance was a deposit, but that the absence of an assessment is not determinative in this matter.
2. Whether the remittance is disorderly, meaning a remittance made without careful consideration of the potential tax liability (See Northern Natural Gas Co. v. United States): Here, the court determined that Boensel's payment was not disorderly because the payment was made in a good faith estimate of estate tax liability based upon a consideration of the known facts.  The court considered the ruling in Blatt v. United States which held that the taxpayer's lack of precision in the calculation of estimated taxes does not indicate that the remittance is not a payment of taxes.  Though Boensel did pay more tax than was due, the payment was merely an imprecise estimation of estate tax liability like the payment in Blatt and was not sufficiently disorderly to weigh in favor of a finding of a deposit over a payment of tax.
3. Whether the taxpayer is contesting the tax liability assessed: While the court agreed that there was not an assessment that Boensel could have formally contested, the court found that Boensel had the opportunity to indicate his intention to contest potential liability like the plaintiff in the Rosenman case.  In the eyes of the court, all taxpayers are apparently on notice of the requirement that assessments, whether actual or imaginary, must be contested to preserve the taxpayer's intent to make a deposit to the IRS.
4. Whether the taxpayer indicates that the remittance to the IRS is a deposit (See VanCanagan v. United States): Here, the court found that Boensel's labeling of the remittance to the IRS as a "payment" is not determinative that the remittance was a payment of tax as per the ruling in New York Life Ins. Co. v. United States.  However, the court also found that Boensel offered no evidence that he considered the remittance to be a deposit, and continued to treat the remittance as a payment of tax in later communications with the IRS.  The court considered these facts to weigh in favor of a finding that the remittance was in fact a payment of tax.
5. Whether the remittance is a deposit from the perspective of the IRS:  Here the parties agree that at all times the IRS did view the remittance as a payment of tax.  This is a factor of import in the court's analysis that Boensel and his team of advisors appear to have overlooked.
6. Whether the remittance was made when the payment was due and submitted with a request for an extension of time with which to file a return: The court considered the VanCanagan ruling in determining that Boensel's request for an extension concurrent with making the remittance to the IRS is a factor in favor of finding that the remittance was a payment. This conclusion was reached by the Court of Claims despite the fact that VanCanagan was a case about the payment of Federal Income Tax, rather than estate tax, and that unlike the VanCanagan case here the IRS was unable to produce the formal request for an extension made by Boensel with a completed form 4768.

The court also considered the import of Revenue Procedure 84-58 (Superseded by Rev. Proc. 2005-18) in determining that where a procedure exists to designate a remittance as a deposit, and the taxpayer fails to use it, that failure by the taxpayer is strong evidence that the remittance is in face a payment of tax.

Finally, having determined that the remittance was a payment of tax rather than a deposit, the court denied the taxpayer's claim for a refund as barred by section 6511(b)(2)(A).

See Nancy B. Firestone "Court of Federal Claims Denies Untimely Estate Tax Refund Claim," 2011 TNT 153-9 (Aug. 5, 2011).

Posted by Jason Tyler Young, Associate Editor, Wealth Strategies Journal