On December 28th, 2021 the US Tax Court reviewed and decided whether “the taxpayer
has paid more than he owed, where such a determination is necessary for a
correct and complete determination of whether the proposed collection action
should proceed”. (per T.C. Memo. 2021-142 UNITED STATES TAX COURT
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 12876-18L. Filed December 28, 2021.)
The IRS filed a motion to dismiss and the petitioner objected. The US Tax Court granted the IRS motion.
Facts of the case:
Petitioner sent to the IRS a check for over $600,000 and signed that the money is “a cash bond
deposit” for petitioner’s TFRP liabilities for his tax periods” in question and designated any remaining funds to be applied to the Taxpayer’s (petitioner’s) income tax liability (Form 1040). The payment was deposited and the IRS concluded that the “petitioner has fully paid his TFRP liabilities” and no case should continue on the grounds of mootness. The petitioner objected by arguing that the check should be treated as a deposit rather than payment of tax and so the petitioner can still challenge the validity of the IRS’ liability assessment.
So, why did the IRS decide that it is in fact a payment and not simply a deposit to reduce the growing interest?
- the Tax Court is a court of limited jurisdiction,
- the review is limited to see whether the IRS’ proposed collection activity is appropriate,
- once the IRS say there is no unpaid liability, “a proceeding filed in this Court pursuant to section 6330 is moot”
- Section 6330 doesn’t give the US Tax Court jurisdiction to review and decide whether there is an overpayment of tax or there should be a refund.
- Petitioner had paid off his tax liability for the earlier quarters of the period in question, before making the “deposit” and conceded that the “deposit” is not a “deposit under section 6603”.
- Petitioner did not dispute that full payment of the tax assessed would moot the IRS collection process.
- The petitioner argues that the remittance is still a deposit “under the facts and circumstances” approach” per Rosenman v. United States, 323 U.S. 658 (1945), and Deaton v. Commissioner, T.C. Memo. 2005-1, aff’d, 440 F.3d 223 (5th Cir. 2006)
- The court found that the cases (supra) are different from this case, because the payments in those cases were made before the IRS assessed any tax liabilities.
The US Tax Court decided that since the petitioner’s tax liabilities were assessed before he made the remittance, “it constituted payment of those liabilities” per See Charles Leich & Co. v. United States, 329 F.2d
649, 652 (Ct. Cl. 1964). Also, since the IRS applied the deposit as payment of the assessed liabilities, the remittance constitutes the actual payment of the liabilities.
The US Tax Court held that an IRS’ application of petitioner’s remittance after the tax liabilities has been
assessed constituted a payment of that tax liability.