Nonfiler falls into gap in lookback period

By James A. Beavers, CPA, CGMA, J.D., LL.M.

Based on the date the IRS mailed her a notice of deficiency, the Tax Court held that a taxpayer was not entitled to a three-year lookback period under Sec. 6512(b)(3) for determining whether she was entitled to a refund of a tax overpayment.


Roberta Borenstein's federal income tax return for 2012 was originally due on April 15, 2013. She obtained a six-month extension of time to file that return, which made the due date for her 2012 return Oct. 15, 2013. She made estimated tax payments of $72,000 for 2012 and enclosed an additional payment of $40,000 with her extension request, so, as of April 15, 2013, her tax payments for 2012 totaled $112,000. Under Sec. 6513, she was deemed to have made these payments on April 15, 2013.

Borenstein did not file a 2012 return by Oct. 15, 2013. On June 19, 2015, the IRS sent her a timely notice of deficiency that determined a tax deficiency of $1,666,463. Most of the omitted income that caused the deficiency stemmed from gross proceeds from securities sales. In response to the notice, on Sept. 16, 2015, Borenstein filed a petition with the Tax Court.

Shortly before filing her petition, on Aug. 29, 2015, Borenstein filed a delinquent return for 2012 with the IRS Service Center in Philadelphia reporting an income tax liability of $79,559, which the IRS agreed was correct. Because she did not submit this return until after the IRS submitted the notice of deficiency, her deficiency for 2012 was $79,559.

The return Borenstein filed on Aug. 29, 2015, reported an overpayment of $38,447. Previous to filing that return, Borenstein had not submitted a claim for refund of any portion of this overpayment. Before Borenstein and the IRS submitted her case to the Tax Court for a decision, they stipulated that her overpayment for 2012 was $32,441.

In Tax Court, the IRS argued that Borenstein was not entitled under Secs. 6511(a) and (b)(2)(B) to a credit or refund of her overpayment because her tax payments were made outside the applicable "lookback" period keyed to the date on which the notice of deficiency was mailed. Borenstein argued that she was entitled to a refund of her tax overpayment for 2012 under the three-year lookback period specified in the final sentence of Sec. 6512(b)(3).

Statutory background

Under Sec. 6512(b)(1), in general, if the Tax Court finds the taxpayer has made an overpayment of tax, the court has jurisdiction to determine the amount of the overpayment. That amount is credited or refunded to the taxpayer when the court's decision becomes final.

However, under Sec. 6512(b)(3), the credit or refund may be limited. Under Sec. 6512(b)(3)(B), which applied to Borenstein, no refund is allowed unless the Tax Court determines as part of its decision that the portion of tax to be refunded was paid "within the period which would be applicable under section 6511(b)(2), (c), or (d), if on the date of the mailing of the notice of deficiency a claim had been filed (whether or not filed) stating the grounds upon which the Tax Court finds that there is an overpayment."

Sec. 6511(b)(2) provides two alternative lookback periods for determining the amount of the refund allowed: a three-year period and a two-year period. Sec. 6511(b)(2)(A) defines the applicable lookback period where a refund claim was filed "within 3 years from the time the return was filed." If Sec. 6511(b)(2)(A) does not apply, under Sec. 6511(b)(2)(B), the applicable lookback period is "2 years immediately preceding the filing of the claim." However, the final sentence of Sec. 6512(b)(3) also states:

In a case described in subparagraph (B) where the date of the mailing of the notice of deficiency is during the third year after the due date (with extensions) for filing the return of tax and no return was filed before such date, the applicable period under subsections (a) and (b)(2) of section 6511 shall be 3 years.

The Tax Court's decision

The Tax Court held that Borenstein was not entitled to a refund or credit of her overpayment for 2012. The court found that her situation fell within the scope of Sec. 6512(b)(3) when interpreted according to its plain meaning and that neither the legislative history of the statute nor the anti-absurdity canon of construction justified departing from the plain language interpretation.

The IRS's argument

The IRS argued that under a plain language interpretation of the final sentence of Sec. 6512(b)(3), the parenthetical phrase "with extensions" modifies "due date." Under this interpretation, the due date with extensions for Borenstein's return was Oct. 15, 2013. Because the IRS mailed the notice of deficiency on June 19, 2015, it was mailed during the second year after the due date with extensions for filing Borenstein's 2012 return, not the third year. Thus, the exception in the final sentence of Sec. 6512(b)(3), did not apply, and a refund to Borenstein was barred by the two-year lookback rule that applies to nonfilers. The Tax Court stated that although it had not previously interpreted the final sentence of Sec. 6512(b)(3) as applied to a fact pattern like Borenstein's, statements in its prior cases supported or were consistent with the IRS's position.

Borenstein's arguments

Borenstein attacked the IRS's position with a number of arguments, several based on the statute's text, one based on the legislative history, and another based on the anti-absurdity doctrine. The Tax Court, however, found fault with each argument.

Textual arguments: Like the IRS, Borenstein claimed that the plain language of the statute supported her position, but her plain language interpretation of it was quite different from the IRS's. She contended that in interpreting the language of the final sentence of Sec. 6512(b)(3), the Tax Court should base its interpretation on the parenthetical "(with extensions)" as it appears in the longer phrase, "during the third year after the due date (with extensions) for filing the return of tax." She first asserted that "with extensions" should be taken to modify "the third year," a noun phrase that appears earlier in the sentence. In that event, "the third year" would be determined by reference to the original due date for her return and would be prolonged to include the six-month extension period.

Alternatively, she asserted that "with extensions" should be taken to modify "3 years," the last two words in the sentence. In that event, Sec. 6512(b)(3) would afford taxpayers a maximum lookback period, not of three years, but of 3½ years. Under either of these interpretations, Borenstein would get a refund.

The Tax Court found that neither construction was plausible from the standpoint of normal English syntax and, in particular, they ran afoul of the "last antecedent" rule, under which a modifying phrase normally is read to modify the nearest antecedent. The court stated that this rule of construction was especially powerful where, as was the case in the final sentence of Sec. 6512(b)(3), the modifying phrase is embedded within a longer grammatical unit that has a familiar meaning or is a term of art.

Borenstein also argued that the final sentence of Sec. 6512(b)(3) should be read in conjunction with Sec. 6511(b)(2)(A), which refers to 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." Under this argument, as the Tax Court observed, the lookback period would be three years plus the extension period for filing the return.

The court rejected this interpretation for three reasons. First, it found that, similar to the first two interpretations proposed by Borenstein, it violated the last antecedent rule. Second, the court concluded that the significant difference in how the two statutory provisions were drafted undercut the rationale for reading the provisions in conjunction. Finally, the court found that adopting an interpretation that resulted in a 3½-year lookback period would be at odds with the legislative history, which contained no evidence that Congress intended that the lookback period be longer than three years.

Legislative history: Borenstein further argued that, if her textual argument failed, her position was supported by legislative history. As the Tax Court explained, where statutory text is ambiguous, a court may consult legislative history to assist it in interpreting a statute.

However, the Tax Court found that the text of the final sentence of Sec. 6512(b)(3) was not ambiguous. The court stated "[t]he phrase 'due date (with extensions) for filing the return of tax' does not have two possible meanings. Rather, we find it to have a single unambiguous meaning when construed in accordance with the ordinary language that Congress employed." The court also observed that Borenstein was trying to inject ambiguity into the statutory text by ignoring the rules of English syntax. In addition, after looking at the relevant legislative history, the court found that even if the language was ambiguous, the legislative history did not support Borenstein's interpretation.

Anti-absurdity doctrine: Finally, Borenstein argued that interpreting the final sentence of Sec. 6512(b)(3) according to the plain meaning of the text would produce an absurd result, which would violate the "anti-absurdity" canon of construction (see Church of the Holy Trinity, 143 U.S. 457, 460 (1892) ("If a literal construction of the words of a statute be absurd, the act must be so construed as to avoid the absurdity.")). The absurd result pointed to by Borenstein was that for taxpayers who obtained a filing extension but failed to file a return, whether the three-year lookback period would apply would be based on when the IRS sent the notice of deficiency, creating a gap in the lookback period for those taxpayers.

The court explained that the Supreme Court has held that to find that a result caused by a statute is absurd, the result must be "so gross as to shock the general moral or common sense" (Crooks v. Harrelson, 282 U.S. 55, 60 (1930)). While the Tax Court agreed that the final sentence of Sec. 6512(b)(3) did produce an odd result, based on this standard, it did not produce an absurd result. The court further noted that the Supreme Court has consistently held that in the absence of constitutional concerns, unless a statute has conflicting provisions or ambiguous language, a court should interpret it as written.


The Tax Court was inclined to view the result that Sec. 6512(b)(3) visited upon Borenstein as not some kind of grand injustice against her, but simply the result of inartful drafting by Congress. Therefore, it eschewed coming up with a workaround to the statute's language to allow her a refund, which arguably she deserved on the equities. As a rationale for not doing so, the Tax Court noted that the Supreme Court has stated that even if a court believes Congress's chosen words in a statute lead to a harsh outcome, it is a court's duty to give deference to the legislature.

Borenstein, 149 T.C. No. 10 (2017)

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