Tax Court Memo Opinion Denying Refund under § 6512 Offers Excellent Examination Question for Tax Procedure Class (12/13/24)

In Applegarth v. Commissioner, T.C. Memo. 2024-107, GS here and T.C. Dkt Sheet here at entry # 68, the Court decided that although Applegarth overpaid his tax liabilities for the years, the Tax Court could not order the refund under its authority for ordering refunds, § 6512, because applicable time limits were not met and there is no equitable tolling for these time limits. These are familiar issues in tax procedure, with varying results depending upon the particular time limits involved. Readers of this blog and fans of tax procedure already know the issues involved, although the results may vary. More importantly, from my perspective as an old tax procedure professor, the case presents the classic type of case that would frame the examinations I liked to give tax procedure students. I will address the teaching “lessons” at the end of the blog entry, but first I will go through the facts and resolution of the issues as presented in the case.

The facts are simple, at least relatively so for tax procedure cases. I copy and paste the FINDINGS OF FACT section (Slip Op. 3-4, footnote omitted): 

          Applegarth resided in Florida when he filed the Petitions in these cases.

          On April 15, 2015, the IRS granted Applegarth an extension to file his 2014 income tax return until October 15, 2015.

          On April 15, 2016, the IRS granted Applegarth an extension to file his 2015 income tax return until October 15, 2016.

          Over several years, beginning in 2014, Applegarth made payments towards his 2014 and 2015 tax obligations. He made all the payments either on or before the extended filing deadlines for the respective tax years.

          On June 24, 2019, Applegarth filed his 2014 tax return.

          On November 21, 2019, the IRS mailed the Notice of Deficiency to Applegarth.

          In March 2022 Applegarth sent an unsigned 2015 Form 1040, U.S. Individual Income Tax Return, to IRS counsel.

[*4]

Timeline of Events — 2014 Tax Year

Date	Description
Apr. 15, 2014	Applegarth made a payment of $49,000 for the 2014 tax year.
Apr. 19, 2014	Applegarth made a payment of $4,500 for the 2014 tax year.
Jan. 17, 2015	Applegarth made a payment of $19,500 for the 2014 tax year.
Oct. 15, 2015	Extended deadline for Applegarth to file 2014 tax return.
June 24, 2019	Applegarth filed his 2014 tax return alleging an overpayment for the year.
Nov. 21, 2019	IRS issued Notice of Deficiency for tax years 2014 and 2015.
Feb. 18, 2020	Applegarth timely filed Petition with Tax Court.

Ninth Circuit Denies Taxpayers a Refund for Failure to Satisfy § 6511 Timing Rules (8/15/24)

In Libitzky v. United States, 110 F.4th 1166 (9th Cir. 2024), CA9 here & GS here, the panel rejected the Libitzkys’ refund suit for failure to meet the refund suit limitations periods in § 6511, here. Many readers of this blog will likely already have some familiarity with the time limitations for refund suits and know that application of the time limitations can be complex. I cover the subject in the Federal Tax Procedure (2024 Practitioner Ed.), pp. 226-230 and Federal Tax Procedure (2024 Student Ed.), pp. 157-161, available free here. The only difference between the Practitioner Edition and the Student Edition is the former has footnotes and the latter does not. I have made significant revisions to these pages in my 2025 Working Draft (to be published in July or August 2025), particularly adding Example 8a inspired by Libitzky. The revisions as of the posting of this blog are in redline format here (Practitioner Edition). (Please note that a number of changes are nonsubstantive, such as changing April 15 of Year 02 to 4/15/02.

I have had considerable difficulty understanding the Libitzky opinion. The discussion I present here will likely reflect the difficulty. So, I have decided to first cover the applicable “law” as I understand it. I will then state key representative “facts” of Libitzky through Example 8a. That is the approach I take in the Book—to first present the law and then present various fact scenarios (Examples to discuss the complexities in the law). In presenting the law, I will copy and paste from the 2025 Practitioner Edition working draft retaining the redlines showing changes from the 2024 editions. I include only the portion related to Libitzky. I only include footnotes where they are needed for the discussion of Libitzky. (The numbering of the footnotes are not the same as in the Book.)

          There are two statutes of limitation on taxpayers claiming tax refunds.

          First, there is a statute of limitations for filing the claim for refund. A claim for refund must be filed within three years from the date the return was filed or two years from the date the tax was paid, whichever is later, and, if no return is filed, within two years from the date of payment. § 6511(a). This is sometimes called the refund claim limitation period. This statute of limitations has traditionally been read literally, requiring filing within the stated periods with no equitable relief; so read literally, the statute of limitations is said to be jurisdictional for the predicate condition in § 7422(a) to file a suit for refund. Also, if read literally, the statute means that a taxpayer can file a return claiming a refund 40 years late and qualify under this first rule. I hope readers will instinctively say something must be missing here, for statutes of limitations do not normally allow such lengthy lapses before the claim must be pursued. The answer to that concern is in the second rule, a limitation on the amount of tax that can be refunded. n1  

    n1 Omohundro v. United States, 300 F.3d 1065, 1068-1069 (9th Cir. 2002)); Weisbart v. Treasury, (2d Cir. 2000); and Rev. Rul. 76-511, 1976-2 C.B. 428. The 40 years late example is inspired by Oropallo v. United States, 994 F.2d 25, 30 (1st Cir. 1993) (noting that the limitation might be “illusory” for late filed returns because a taxpayer could “file a tax return 40 years late and still have 3 additional years in which to file a claim for refund;” the Second Circuit in Weisbart said that “Nevertheless” this construction makes sense, noting that the purpose of § 6511(a) “is not to bar stale refund claims, but to ensure that a taxpayer give the IRS notice of such claims before suing in federal court.”) But see Libitzky v. United States, 110 F.4th 1166, 1172 (9th Cir. 2024) (stating that “both the limitation period [in § 6511(a) and the look-back period in § 6511(b) (discussed immediately below the text above)] are shorter and less generous for taxpayers who do not timely file their tax returns.” (Bold-face supplied by JAT)). In other words, the Libitzky Court would not accept the conclusion that a refund claim return filed, say, 4 or 40 years after the return due date (meaning that the return is not timely filed) can avoid the two-year limitations period in § 6511(a). My concern with that notion is the limitations periods in § 6511(a) are whichever is later which, as I read the syntax of § 6511(a) would permit the return claiming a refund filed after the two year period to qualify under the first rule (3-years from the time the return was filed), thus mooting the applicability of the 2-year period in § 6511(a). For reasons that I note below, however, Libitzky may have been correct under § 6511(b) because of its distinction between a refund claim and a filed return. See below Example 8a on p. 233.

Court Holds that Untimely Refund Claim by Amended Return Stating a Different Legal Basis Does Not Relate Back to Timely Refund Claim by Amended Return (2/20/24)

In American Guardian Holdings, Inc. v. United States (N.D. Ill. Case 23 C 1482 Memo Op. & Order 2/7/24), GS here and CL here, the district court held that that it had no jurisdiction over an untimely refund claim (by untimely amended return, Form 1120X) requesting a refund in the same amount as a prior timely refund claim (by timely amended return, Form 1120X) but stating a different legal basis than the timely refund claim. In the untimely refund claim, the taxpayer asked the court to “discard” the timely filed amended return. (The latter fact was not relevant to the holding.)

For clarity, the taxpayer filed the following documents: the original return; a timely refund claim  (by Form 1120X) seeking most of the tax paid; a timely refund claim (by Form 1120X) seeking all of the tax paid; and an untimely third amended return (by Form 1120X) seeking all of the tax paid. For analysis of the issue of whether the court had jurisdiction over the untimely amended return, the court compared the untimely third amended return to the timely second amended return. The issue was whether the claim in the untimely third amended return was a clarification of the claim made in the timely second amended return or stated a different basis.  I simplified in the original paragraph by mentioning only a timely filed refund claim and a subsequent untimely filed refund claim.

I discuss the general issue in the most recent edition of the Federal Tax Procedure (Practitioner Edition p. 236; Student Edition (without footnote p. 165)) as follows:

(d) Germaneness Doctrine.

          The germaneness doctrine may apply where the taxpayer:

          (1) files a formal claim within the limitations period making a specific claim; and (2) after the limitations period but, while the IRS still has jurisdiction over the claim, files a formal amendment raising a new legal theory -- not specifically raised in the original claim -- that is “germane” to the original claim, that is, it depends upon facts that the IRS examined or should have examined within the statutory period while determining the merits of the original claim. Unlike the waiver doctrine, the inquiry here is not whether the particular legal theory for recovery has been considered by the IRS during the limitations period but whether the underlying facts supporting that legal theory were discovered or should have been discovered by the IRS in considering the original claim during the limitations period. n1049

n1049  Computervision Corp. v. United States, 445 F.3d 1355, 1370 (Fed. Cir. 2006) (citing  Bemis Brothers Bag Co. v. United States, 289 U.S. 28, 53 S. Ct. 454 (1933) and United States v. Andrews, 302 U.S. 517, 524 (1938).  In Computervision, the Federal Circuit rejected the holding of two other courts that the more specific formal claim could be filed after the IRS has completed consideration of the inadequate original claim by granting the original claim, by denying the original claim, or by the taxpayer having filed a suit for refund without IRS formal action on the claim. The cases rejected in Computervision are:   Mutual Assurance Inc. v. United States, 56 F.3d 1353 (11th Cir. 1995); St. Joseph's Lead Co. v. United States, 299 F.2d 348 (2d Cir. 1962).

 In American Guardian, the Court discusses the germaneness doctrine as follows:

District Court Offers Good Discussion of Claim for Refund Time Requirements in § 6511(a) & (b) (8/17/21)

In Libitzky v. United States, 2021 U.S. Dist. LEXIS 148037 (N.D. Cal. 8/6/21), CL here, the Court offers a good discussion of the dual statutes of limitations for refunds in § 6511.  The opinion is well written, so I recommend it and merely offer the highlights in bullet points:

• The return must be filed within three years from the date the return was filed or two years from the date the tax was paid, whichever is later, and, if no return is filed, within two years from the date of payment.  § 6511(a).  Also, if read literally, the statute means that a taxpayer can file a return 40 years late and qualify under this first rule.  The Libitzkys met this requirement.
• If the first period is met so that the refund claim is timely, the IRS may only refund the amount of tax paid either (i) within three years plus the period of any extension, or (ii) within two years immediately preceding the date of the claim.  § 6511(b)(2).  The Libitzkys did not meet this requirement.
• Informal claim for refund may fix the problem.  The Libitzkys may prevail if they can invoke the informal claim for refund doctrine to make the claim timely under the second rule.  The Court said that it could not decide that issue on summary judgment, so it was to be tried.

I have revised a footnote in the Federal Tax Procedure (Practitioner Edition 2021) for the second limitation (p. 217 n. 1008:

It is said that the limitations period is jurisdictional.  Zeier v. United States Internal Revenue Service, 80 F.3d 1360, 1364 (9th Cir. 1996).  In a practical sense, I think this may mean that the statute is not subject to equitable tolling and that compliance with the limitations period may not be waived.  In cases where the limitations period has arguably expired, taxpayers may want to see if there is some basis for urging that a timely informal claim was filed.  Libitzky v. United States, 2021 U.S. Dist. LEXIS 148037 (N.D. Cal. 2021) (citing and quoting Stevens v. United States, No. 05-03967 SC, 2006 WL 1766794, at *3 n.3 (N.D. Cal. June 26, 2006) (“accepting that Section 6511(b)(2)(A) creates a jurisdictional bar to Plaintiff’s case, Plaintiff may clear that bar with proof that the estate submitted an adequate informal claim, the same thing it will need to prevail on the merits.”).

Statutes of Limitations on Refund Claims - Complexities (6/9/13)

The statutes of limitations on refunds are complex.  The key Code section is 6511, here.  The subsections implicated are (a) and (b)(2).  The rules are -- as I tried to simplify them in my Tax Procedure book -- as follows:

Just as there are statutes of limitation on assessment and collection taxes, there are also statutes of limitation on taxpayers claiming tax refunds from the Government.  There are two applicable rules.

First, there is a statute of limitations for filing the claim for refund.  A claim for refund must be filed within three years from the time the return was filed or two years from the date the tax was paid, whichever is later, and, if no return is filed, within two years from the date of payment.  § 6511(a).  Read literally, this means that a taxpayer can file a return 40 years late and qualify under this first rule. I hope readers will instinctively say something must be missing here, for statutes of limitations do not normally allow such lengthy lapses before the claim must be pursued.  The answer to that concern is in the second rule to which I now turn.\ 

Second, there is a statute of limitations on the amount of tax that can be refunded if the claim is timely under the first rule.  The IRS may only refund the amount of tax paid within three years plus the period of any extension and, if the foregoing rule does not apply, then it may only refund the tax paid within two years of the date of the claim.  § 6511(b)(2).

In my book, I use various examples to illustrate the application and interface of these limitations periods.  I won't go through all of them now, but will address some that relate to a recent IRS internal guidance, ECC 201321022 (5/2/13), here.  I provide the first four examples without the footnotes and then provide the fourth example with the footnote discussing ECC 201321022.

Example 1: The taxpayer files his Year 01 tax return on 4/15/02 and pays the indicated tax of $100.  In January of Year 05, the taxpayer discovers he overpaid the Year 01 tax by $50.  He may file a timely claim for refund any time on or prior to 4/15/05 and receive a full refund.  He satisfies both rules. 

Example 2: Assume the same facts, except for some reason, the taxpayer does not file the claim for refund until 6/01/05.  Both of the rules would prohibit the IRS from granting the claim.  First, he has not filed a claim for refund within the period provided in the first rule.  Second, the amount he seeks to have refunded was paid beyond the three year period before the filing of the claim, as provided in the second rule.

Ninth Circuit Denies an Untimely Claim for Refund (9/1/12)

In Reynoso v. United States, 692 F.3d 973, 2012 U.S. App. LEXIS 18208 (9th Cir. 2012), here, the Ninth Circuit applied the Section 6511, here, rules for statutes of limitations applying to refund to deny the taxpayer a claim for refund.  I don't think the Ninth Circuit broke new ground in the holdings.  See Oropallo v. United States, 994 F.2d 25, 30 (1st Cir. 1993).  I have,however, added the following examples to the examples in the text to show how the refund statute of limitations works:

Example 8.  Taxpayer prepays year 01 taxes in the amount of $100,000 by combination of estimated tax and withholding tax, but then fails to file the return timely on 4/15/02 and does not request an extension.  Those prepayments are deemed paid on 4/15/02.  The taxpayer thereafter files a delinquent year 01 original return on 7/15/05 on which he reports a tax liability of $50,000, claims credit for the prepaid tax of $100,000, and claims a resulting year 01 refund of $50,000.  The taxpayer meets the three year requirement of § 6511(a) because the claim for refund is filed contemporaneously with the return.  However, he flunks § 6511(b)(2)(A)’s look-back period requirement because the refund cannot exceed the taxes paid in the preceding three year period. Strangely, if the taxpayer had originally timely received an extension of the year 01 return which would have permitted him to file a timely year 01 return by 10/15/02, then the taxpayer will have met the § 6511(b)(2)(A) 3-year look-back requirement because extensions are counted even if not used. 

Example 9.  Same Example 8, except assume (i) the taxpayer does not apply for an extension, (ii) for some reason, the IRS treats the prepayment of $100,000 not as a payment of tax deemed paid on 4/15/02 but as a deposit or cash bond and (iii) the IRS applies the cash bond as a payment on 9/1/02.  The refund claim is then timely because the 7/15/05 filing is within 3 years of the date of payment.