Procedure & Administration
The Federal Circuit upheld the IRS’s denial of a request for refund of erroneously withheld taxes because the taxpayer filed his claim for a refund well after the end of the three-year lookback period in Sec. 6511(b)(2)(A).
Mario Boeri is a citizen of Italy who has never lived or worked in the United States. He was employed outside the United States by Verizon Corp. and its predecessor, GTE, for 36 years. In November 2003, he chose to participate in Verizon’s Management Voluntary Separation Plan and was awarded a gross separation payment of $247,177 in 2004. Over two distributions in March and August 2004, Verizon withheld a total of $70,559, including U.S. income tax, Social Security tax, and Medicare tax, even though Boeri had no apparent U.S. tax liability because he never lived or worked in the United States.
Boeri was aware of the erroneous withholding from sometime in 2004. In March 2009, after consulting with a CPA, he filed a nonresident alien income tax return for the 2004 tax year, seeking a refund from the IRS of all the taxes withheld by Verizon. The IRS denied his request for a refund on the grounds that, under Sec. 6511(b)(2)(A), Boeri should have requested it within three years of April 15, 2005 (the date that the IRS deemed the taxes were paid under Sec. 6513(b)(1)). The IRS Appeals Office denied his administrative appeal of this determination in July 2011.
Boeri then appealed the determination to the Claims Court, stating that the three-year period did not apply because he was not seeking a refund of a tax overpayment, but correction of an erroneous withholding. He argued that under his circumstances, the request for a refund was not within the scope of the three-year lookback provision of Sec. 6511(b)(2)(A).
The Claims Court held that Boeri could not recover the withheld funds because his request was not made within the three-year period of Sec. 6511(b)(2)(A). The Claims Court then dismissed his suit for failure to state a claim upon which relief could be granted. The court stated that “Sections 6513(b)(1) and (c)(2) specify when advance payments of income tax and social security and Medicare taxes are deemed paid,” and that “[u]nder these provisions, the advanced payments paid by Verizon in 2004 for which [Boeri] seeks a refund are deemed paid on April 15, 2005.” Because Boeri did not seek a refund within three years of the “deemed paid” date calculated pursuant to Sec. 6513(b)(1), the court held that Sec. 6511(b)(2)(A) barred his claim for relief.
The Federal Circuit’s Decision
On appeal, the Federal Circuit held that Boeri was not entitled to a refund of the taxes erroneously withheld by Verizon. It agreed with the Claims Court’s analysis that his claim was not made within the applicable lookback period under Sec. 6511(b)(2)(A).
However, the court noted that there was some question whether Boeri’s taxes were withheld under chapter 24 (Collection of Income Tax at Source on Wages) or chapter 3 (Withholding of Tax on Nonresident Aliens and Foreign Corporations). If his taxes were withheld under chapter 3, then Sec. 6513(b)(1) would not apply in determining when the taxes were deemed paid. Therefore, the court considered when the taxes would have been deemed paid if they had been withheld under chapter 3.
The court found that the result would be the same. The court explained that while Sec. 6513(b)(1) is limited to taxes withheld under chapter 24, Sec. 6513(b)(3) applies to taxes withheld under chapter 3. Sec. 6513(b)(3) deems taxes as paid on “the last day prescribed for filing the return under section 6012 for the taxable year.” Under Regs. Sec. 1.6012-1(b)(2)(i), Boeri was required to file a 2004 tax return to claim a refund. Under Sec. 6072(c), a nonresident alien is required to file a return by June 15 of the following tax year. Therefore, the taxes withheld were deemed paid by June 15, 2005. Because this was more than three years before the date he filed his refund claim, the court found that Boeri would not have been entitled to a refund even if the taxes were withheld under chapter 3.
A strong dissenting opinion argued that the majority could have reached a just result (awarding Boeri the refund) “with a bit of thought.” The dissenting judge claimed that “the court strains to reach the unjust result, through casual statutory interpretation that mocks the reason of the law” (Newman, J., dissenting, slip op. at 1). He agreed with the plaintiff that this case does not involve a “tax overpayment” but a mistake—which even the IRS admitted was the case—and that Boeri should not be held to the return filing requirements of Regs. Sec. 1.6012-1(b)(2)(i) because they apply to nonresident aliens who have “income which is subject to taxation,” which Boeri did not have. He noted that the IRS failed to notify Boeri of the erroneous payment and pointed to the majority’s difficulty in determining whether the money was withheld under chapter 24 or chapter 3 and whether the deemed paid date was April 15 or June 15, to argue that the law cannot possibly have been applied correctly in this case.
However, the real heart of the dissent’s argument is that the court should have ignored the law as written to reach a desired result. While it is sad that Boeri lost money that was rightfully his, every time a taxpayer loses a refund due to a failure to timely file a refund claim it could be claimed that the taxpayer has been treated unjustly. Nevertheless, Congress has determined that a refund should be denied when a taxpayer does not file a refund claim within a certain period of time.
Boeri, No. 12-5102 (Fed. Cir. 7/31/13)