Procedure & Administration
The First Circuit held that the regulations under Sec. 6081, which allow an executor of an estate only one six-month extension of time to file an estate tax return, were a reasonable interpretation of the statute. Thus, the court further held that an application for a second extension made on an altered Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate Taxes, was not a valid extension.
Background
Margaret Dickow died on January 15, 2003. The federal tax return for her estate was due October 15, 2003, nine months after her death. On October 10, 2003, her husband, D. Charles Dickow (Dickow), as executor of the estate, mailed the IRS a completed Form 4768 with a check for $945,000 in payment of the estimated estate tax due. The IRS received the extension application and check on October 14, 2003, and under Regs. Sec. 20.6081-1(b), the estate’s filing deadline was automatically extended by six months to April 15, 2004.
On March 23, 2004, Dickow sent the IRS what he characterized as a second extension request: an alteration of a standardized Form 4768 in which he attempted to request an additional six-month extension of time to file the estate tax return. Dickow did not check any of the boxes on the form that identified which of several recognized grounds qualified him for a filing extension. He did, however, attach to the form a statement that he was requesting “an additional six month period of time to file [the federal estate tax return] . . . because, despite due diligence on [Dickow’s] part, he has not received an appraisal of a real estate asset which constitutes a large portion of the Estate.” In the section of the form titled “Extension of Time to Pay,” Dickow typed in “October 15, 2004” as his requested extension date.
The IRS received Dickow’s request for a second extension. The IRS denied the request but did not inform Dickow that it had done so. On September 30, 2004, Dickow mailed the estate’s federal tax return to the IRS. The IRS processed the return and on November 1 sent the estate the refund claimed on the return.
On September 10, 2007, Dickow sent the IRS an amended estate tax return in which he claimed that the estate was due an additional refund amount. On October 15, 2007, the IRS denied Dickow’s claim for the additional refund. In 2009, Dickow filed a refund suit in district court. The court rejected Dickow’s claim for refund ( Dickow , 740 F. Supp. 2d 231 (D. Mass. 2010)), and subsequently he appealed the case to the First Circuit.
The Law
Under Sec. 6511(a), a refund request must be “filed by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within 2 years from the time the tax was paid.” Under Sec. 6511(b)(2)(A), if the claim was filed by the taxpayer during the three-year period prescribed by Sec. 6511(a), the amount of the credit or refund shall not exceed “the portion of the tax paid within the period, immediately preceding the filing of the claim, equal to 3 years plus the period of any extension of time for filing the return.” Therefore, to determine the lookback period for a refund claim, the extension period for the return must first be determined. Sec. 6081(a), which governs extension periods for tax returns, states:
The Secretary may grant a reasonable extension of time for filing any return, declaration, statement, or other document required by this title or by regulations. Except in the case of taxpayers who are abroad, no such extension shall be for more than 6 months.
Regs. Sec. 20.6081-1 sets forth two categories of extensions for filing an estate tax return. The first, in Regs. Sec. 20.6081-1(b), allows a single automatic six-month extension upon the timely filing of a Form 4768 extension application. The second category, in Regs. Sec. 20.6081-1(c), identifies three types of extensions that may be granted “for good cause shown.” Such good-cause extensions may be granted only to:
- An estate that did not file a request for an automatic extension prior to the due date for the estate tax return;
- An estate that is required to file forms other than the estate tax return; or
- An executor who is abroad and is requesting an additional extension beyond the six-month automatic extension.
A taxpayer seeking a good-cause extension within these categories must also file a Form 4768 with a “detailed explanation of why it is impossible or impractical to file a reasonably complete return by the due date.” The regulations clearly state that even requests for extensions within these categories are still at the IRS’s discretion.
The First Circuit Decision
The First Circuit held that under the Sec. 6081 regulations, the IRS did not have authority to grant Dickow a second extension of time to file the estate tax return for his wife’s estate. Therefore, the lookback period in Sec. 6511(b)(2)(A) for filing a refund was three years and six months (three years, plus one six-month extension).
The court first considered whether the regulations were valid. Per the Supreme Court’s decision in Mayo Foundation for Medical Education and Research , 131 S. Ct. 704 (2011), the court found that it was required to analyze the regulations using the two-part test from Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc ., 467 U.S. 837 (1984). In this test, a court must first ask if in the statute Congress has addressed the precise question at issue. If it has not and the relevant statutory text is ambiguous, the court must determine whether the agency’s interpretation embodied in its regulation is a reasonable interpretation of the statute.
Looking at Sec. 6081 regarding the first test, the First Circuit found that the statute expressly stated only that a taxpayer could obtain a six-month extension; it did not specifically address whether a taxpayer could obtain more than one extension. Therefore, the court moved to the second test. It found that the IRS had met the reasonableness requirement, stating:
The IRS’s limitation on extensions offers a sensible solution to the agency’s administrative needs and is consistent with the statutory text. . . . The regulatory scheme as the IRS has promulgated it also provides clarity as to limits. It clearly sets forth rules based on identified categories of taxpayers. Thus, for example, the regulations allow further extensions beyond one six-month extension only to executors abroad who can show good cause. Such interpretive line drawing lies at the heart of Chevron deference. [ Dickow , slip op. at 13]
Having found that the regulation was valid, the court applied it to Dickow’s situation. Because only one six-month extension was allowed and Dickow had properly obtained that extension, the lookback period in Sec. 6511(b)(2)(A) was three years and six months. Dickow filed his amended claim for refund on September 10, 2007, so the lookback period extended to March 10, 2004. The estate tax payment in question was made in October 2003. Therefore, the payment was not within the lookback period, and the court held that it must dismiss Dickow’s claim.
Reflections
Dickow also claimed that the IRS could not refuse his refund claim under the theory of equitable estoppel. In particular, he argued that the IRS was estopped from doing so because it had misrepresented that the second extension had been granted by not telling him explicitly that it had been denied. The Ninth Circuit rejected this argument on the grounds that Dickow had not met the technical requirements for equitable estoppel (most notably that the IRS had not affirmatively misrepresented the state of the extension request). The court also noted that it was not reasonable for Dickow to rely on an altered standard government form or to not inquire whether his “invention” was successful.
Dickow, No. 10-2151 (1st Cir. 8/19/11)
