Good Review of Points Previously Covered in Class (9/28/15)

Lua v. United States, 2015 U.S. Claims LEXIS 1235 (9/25/15), here, offers a good review of concepts we have studied in this case.

In Lua, upon completion of the audit, the unsophisticated taxpayers who did not have a representative signed a Form 4549 Income Tax Examination Changes.  This form has language "waiving their right to a notice of deficiency."  Section 6213(a), here, prohibits the IRS from assessing prior to issuing a notice of deficiency in income tax cases.  Section 6213(d) provides that a taxpayer may waive the right to receive a notice of deficiency, thus allowing an assessment without the notice of deficiency.  This waiver is often done on the Form 870, Waiver of Restrictions on Assessment, but also from the language quoted above, may be done on the Form 4549.  See Student Edition pp. 145-146 & 334-335.

Shortly after signing the waiver, the taxpayers engaged a tax professional.  The tax professional requested audit reconsideration in a telephone call to the agent and a day later confirmed the request in a letter to the group manager.

On November 26, 2007, the IRS assessed the deficiencies, but granted the request for audit reconsideration.  As a result of the audit reconsideration, the IRS ultimately reduced the amount of the deficiencies, but by that time the taxpayers had filed amended returns and, apparently protectively, payments substantially in excess of the amounts ultimately determined to be due.  It is a little fuzzy to me precisely what happened after the assessment, but it may not be critical for the points discussed below.  What appears to be in issue in this refund litigation is the amount paid up to the amount that was not abated in audit reconsideration -- in other words the amount determined due after audit reconsideration

1. Did the taxpayers waive the right to a notice of deficiency.

Yes.  The taxpayers did sign the Form 4549 which waives the notice of deficiency in clear language.  In this regard, the Court indicated in footnote 12 that the waiver had not been improperly induced.

2.  Did the taxpayers withdraw the waiver of the notice of deficiency.

No.  The taxpayers asked for audit reconsideration which is a separate procedure.  Audit reconsideration is addressed in the text.  See Student edition p. 452.


3.  Did the Government waive the issue in a trial status conference.

No.  The Court said that did not occur.

4.  Were the taxes paid after the assessment period had lapsed and thus were overpayments?

No.  Payments made after the assessment period are overpayments.  See Student Edition pp. 150-151.  However, the Court held that the taxpayers had paid the taxes during the assessment period because one year had been extended by Form 872, Consent to Extend, and the other year was subject to a six-year statute of limitations becasue of a 25% omission of gross income.  Section 6501(e)(1))(a)(i), here.  And, the Government did not waive these defenses to refund by failing to assert them in the answer because the position is not an affirmative defense.  It is the defendant's burden in bringing a refund suit to assert untimely payment or assessment.

5.  Were the payments deposits rather than tax payments.

This issue was apparently in play because, since the payments were made during the relevant assessment periods, the taxpayers are entitled to a refund of the payments only if the taxpayers can show that they did not owe the tax on the merits.  Apparently, since the tax in issue was the amount that had not been abated and thus were due on the merits, the taxpayer could prevail only if they were deposits rather payments.  We will look at this issue in more detail when we review the Principal Life decision toward the end of the class.  Suffice it to say that the remittances had not been designated as deposits as required by the Revenue Procedure, so the Court rejected this argument.