T.C. Memo. 2002-78
UNITED STATES TAX COURT
LARRY J. SUMRALL AND PATRICIA A. SUMRALL, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11058-97. Filed March 28, 2002.
Held: Petitioners did not make informal claims
for refund entitling them to refunds attributable to
NOL carrybacks from 1992 to 1989 and 1990.
Steven A. Wilson, for petitioners.
Mark H. Howard, for respondent.
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MEMORANDUM FINDINGS OF FACT AND OPINION
HALPERN, Judge: By notices of deficiency dated February 24,
1997, respondent determined deficiencies in, additions to, and
penalties with respect to petitioners’ Federal income taxes for
their taxable (calendar) years 1987 through 1991 (the audit
years), as follows:
Additions to Tax and Penalties
Sec. Sec. Sec.
Year Deficiency 6654 6653(b)(1) 6663
1
1987 $46,346 $2,587 $36,140 --
1988 59,016 4,593 53,558 --
1989 12,444 1,535 -- $9,333
1990 67,887 5,393 -- 50,915
1991 9,371 1,104 -- 7,028
1
Plus 50% of the interest due on underpayment of $48,187
due to fraud. Sec. 6653(b)(1)(B).
Because of the complicated procedural history of this case,
we set forth in some detail the disposition of various issues
that the parties, themselves, have agreed to or disposed of. By
motion for leave to file amended answer, respondent informed the
Court that he had determined not to pursue the penalties
determined under sections 6653(b)(1) and 6663, for fraud. We
interpret that as a concession, and we accept it. By the amended
answer to amended petition, respondent admits that there are no
deficiencies in tax for 1989, 1990, and 1991, and, for 1987 and
1988, he claims additions to tax for delinquency under section
6651 and for negligence under section 6653(a). By a stipulation
of settled issues, petitioners concede the claimed addition to
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tax for failure to file a return under section 6651(a)(1) for
1987. On brief, respondent concedes the claimed addition to tax
for failure to pay under section 6651(a)(2) for 1987. At trial,
petitioners conceded the claimed additions to tax for 1988 for
both delinquency under section 6651 and negligence under section
6653. At trial, the parties stipulated that there are no
additions to tax under section 6654. On brief, with respect to
the deficiencies in tax for 1987 and 1988, petitioners propose
that we find that, but for certain claimed credits and refunds
still in issue, there are deficiencies in tax of $9,232 and
$40,329 for those years, respectively. Respondent agrees with
those proposed findings of fact, and we shall treat such
agreements as constituting a stipulation of settlement with
respect to those deficiencies, which we accept. The parties
agree that petitioners have raised as issues in this case
overpayments on account of (1) withholding and refundable credits
for 1989, 1990, and 1991, and (2) net operating loss (NOL)
carrybacks from 1991 and 1992. At trial, petitioners conceded
that there was no timely claim for any overpayment on account of
withholding and refundable credits for 1991. On brief,
respondent concedes that petitioners submitted timely refund
claims for overpayments for 1989 and 1990 (except with respect to
NOL carrybacks), and states that the necessary computations to
satisfy those claims can be made under Rule 155. We accept the
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parties’ various concessions and leave the computations to be
disposed of pursuant to Rule 155. The parties have stipulated
that petitioners are entitled to the following carryback
deductions on account of NOLs if they can establish that they
made timely claims for credit or refund (without distinction,
refund) of overpayments in tax attributable to those deductions:
Loss Year Carryback Year Carryback Deduction
1991 1988 $14,113
1992 1989 31,113
1992 1990 12,810
On brief, respondent concedes that petitioners made a timely
claim for a refund attributable to an NOL carryback to 1988 from
1991. We accept that concession. The only issue remaining for
decision is whether petitioners made timely claims for refunds
attributable to NOL carrybacks to 1989 and 1990 from 1992.
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure. Dollar amounts have been rounded to the nearest
dollar.
Petitioners bear the burden of proof. Rule 142(a).
FINDINGS OF FACT
Some facts have been stipulated and are so found. The
stipulations of fact, with attached exhibits, are incorporated
herein by this reference.
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Residence
At the time of the petition, petitioners resided in Reno,
Nevada.
Returns
Petitioners did not timely file Federal income tax returns
for any of the audit years (1987 through 1991) or for 1992 and
1993.
In early 1993, the Internal Revenue Service (IRS) initiated
a criminal tax investigation (the criminal investigation) of
petitioner husband (petitioner), with respect to the audit years.
On July 13, 1993, petitioners filed their Federal income tax
returns with respondent for the audit years. Those returns show
tax liabilities as follows:
Year Liability
1987 $1,841
1988 12,395
1989 10,251
1990 14,487
1991 9,942
Petitioners requested an extension of time to file their
Federal income tax return for 1992. Respondent approved the
request and extended the due date for the 1992 return to
October 15, 1993. Petitioners made a joint return of Federal
income tax for 1992 by filing a Form 1040, U.S. Individual Income
Tax Return (the 1992 return), with the Internal Revenue Service
Center in Ogden, Utah (the Ogden Service Center), on October 7,
1996. Among the attachments to the 1992 return is a single page,
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“Page 2", of Form 1045, Application for Tentative Refund (the
Form 1045 page 2). The Form 1045 page 2 is preprinted with a
schedule (Schedule A) on which (pursuant to instructions) is to
be computed an NOL. On the Form 1045 page 2, petitioners
computed an NOL of $13,336.
Petitioners filed their joint Federal income tax return for
1993 (the 1993 return) on October 7, 1996.
Dale K. Barker, Jr.
Dale K. Barker, Jr., is a certified public accountant, who
was retained by petitioners in March 1993. Mr. Barker was
retained, among other reasons, to prepare returns for the audit
years. Mr. Barker prepared those returns. He also prepared the
1992 and 1993 returns.
The Criminal Investigation
Rick Raven is employed by the IRS as a Special Agent. His
duties include the conduct of criminal investigations. In
January 1993, Special Agent Raven began the criminal
investigation. He was assisted in the criminal investigation by
Dick Stufflebeam, a Revenue Agent employed by the IRS. Special
Agent Raven collected information concerning petitioner’s income
and expenses for the audit years. He was not concerned with
whether any of petitioner’s tax liabilities for any of the years
under investigation could be reduced on account of NOL
carrybacks, since he believed that NOL carrybacks were not a
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defense to a criminal charge. As part of his investigation,
Revenue Agent Raven did not concern himself with petitioner’s tax
liability for 1992, since, as of the start of the criminal
investigation, no return for 1992 had yet become due.
During his investigation, Special Agent Raven interviewed
Mr. Barker on one or more occasions, accompanied on at least one
occasion by Mr. Stufflebeam. During the course of those
interviews, there was no discussion of NOLs.
By letter dated February 14, 1996 (the February 14 letter),
Mr. Barker provided certain information to Donald C. Hill,
criminal tax counsel for petitioner. Shortly after he received
the February 14 letter, Mr. Hill provided a copy to the U.S.
Attorney and employees of the IRS. The February 14 letter
contains no claim for any refund, overpayment, or NOL carryback.
It does state: “We may have some timing errors [in, according to
petitioner, “the returns for 1988 through 1990"] yet the tax
returns should be materially correct”.
As a result of his investigation, Special Agent Raven
recommended the prosecution of petitioner for crimes connected
with his 1988, 1989, and 1990 income tax liabilities. On
November 6, 1995, petitioner signed a plea agreement, agreeing to
plead guilty to one count of willfully failing to file an income
tax return for 1988, in violation of section 7203. Judgment was
entered on March 12, 1996.
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The Civil Investigation
At the conclusion of the criminal investigation, Revenue
Agent Stufflebeam became responsible for resolving petitioners’
civil tax liabilities for the audit years. In the process of
resolving those liabilities he received both written and oral
communications from Mr. Barker. Mr. Barker did not file with him
any claim for an NOL carryback from 1992.
By a letter dated May 1, 1996 (the May 1 letter), sent by
Mr. Barker to the Ogden Service Center, Mr. Barker advised the
IRS that he was preparing income tax returns for petitioners for
their 1991 through 1994 tax years, but that those returns were
“on hold to await the outcome of settlement with the Internal
Revenue Service out of the Reno area.” He states: “To finalize
these years there was required a settlement on the exact
inventory, and other critical capitalized amounts to present an
accurate return.”
On June 18, 1996, Revenue Agent Stufflebeam memorialized in
handwritten notes (the June 18 notes) a phone conversation that
had taken place that day between himself and Mr. Barker. As
memorialized in the June 18 notes: Mr. Barker stated that, based
on the cost of goods sold used in the criminal case against
petitioner, petitioners would have NOL carrybacks in later years.
Revenue Agent Stufflebeam told Mr. Barker that he could complete
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the audit in 60 to 90 days if he could get certain additional
requested documents and the returns for the later years.
During the course of Mr. Stufflebeam’s civil examination of
the audit years, he did not also examine the 1992 return. He did
not receive a copy of it from the Ogden Service Center when, on
October 7, 1996, it was filed there, nor was he provided a copy
of it by petitioner or Mr. Barker.
OPINION
I. Introduction
We must determine whether petitioners made timely claims for
refunds attributable to net operating loss (NOL) carrybacks from
1992 to 1989 and 1990. If they did, then the parties are in
agreement that the amounts of such carrybacks are $31,113 and
$12,810 to 1989 and 1990, respectively.
II. Code and Regulations
Section 172(a) allows an NOL deduction for a taxable year
equal to the aggregate of the NOL carryovers and carrybacks to
that year. Every taxpayer claiming an NOL deduction for any
taxable year must file with his return for such year a statement
computing the amount of the NOL deduction claimed and setting
forth certain pertinent information. Sec. 1.172-1(c), Income Tax
Regs. If the taxpayer is entitled in computing his NOL deduction
to a carryback that he is not able to ascertain at the time he
files his return, he must compute his NOL deduction without
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regard to such carryback. See sec. 1.172-1(d), Income Tax Regs.
When the taxpayer ascertains the NOL carryback, he may within the
applicable period of limitations file a claim for refund of the
overpayment, if any, resulting from the failure originally to
compute the NOL deduction for the taxable year with the inclusion
of the carryback. Id.
Section 301.6402-2(b)(1), Proced. & Admin Regs., sets forth
the following general requirements concerning the contents of a
claim for refund:
(b) Grounds set forth in claim. (1) No refund or
credit will be allowed after the expiration of the
statutory period of limitation applicable to the filing
of a claim therefor except upon one or more of the
grounds set forth in a claim filed before the
expiration of such period. The claim must set forth in
detail each ground upon which a credit or refund is
claimed and facts sufficient to apprise the
Commissioner of the exact basis thereof. * * *
An individual makes a claim for refund of an overpayment of
income taxes for a taxable year on a Form 1040X, Amended U.S.
Individual Income Tax Return (Form 1040X). See sec. 301.6402-
3(a)(2), Proced. & Admin. Regs. Alternatively, the taxpayer may
file an application under the provisions of section 6411 for a
tentative carryback adjustment attributable to an NOL. Sec.
1.172-1(d), Income Tax Regs. A tentative carryback adjustment
can result in a refund’s being paid within 90 days. Sec.
6411(b).
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An individual makes application for a tentative carryback
adjustment by filing Form 1045, Application for Tentative Refund
(Form 1045). Sec. 1.6411-1(b)(1), Income Tax Regs. As pertinent
to this case, section 6411(a) provides that an application for a
tentative carryback adjustment does not constitute a claim for
refund.
Section 6511(d)(2) provides the applicable period of
limitations to file a claim for refund of the overpayment
attributable to a NOL carryback. As pertinent to the facts
before us, such period ends 3 years after the due date (including
extensions) for filing the return for the taxable year (here,
1992) of the NOL. See sec. 6511(d)(2)(A).1
III. Discussion
A. Introduction
Petitioners requested, and were granted, an extension of
time to file their Federal income tax return for 1992 until
October 15, 1993. Because of such extension, they had until
October 15, 1996, to file claims for refunds attributable to NOL
carrybacks from 1992 to 1989 and 1990. Petitioners did not
1
Petitioners acknowledge that the time has passed for
them to avail themselves of a tentative carryback adjustment.
Application for such adjustment must be made on or after the date
of filing the tax return for the year of the NOL but no later
than 12 months from the end of such year. Sec. 6411(a); sec.
1.6411-1(c), Income Tax Regs. The 1992 Form 1040, with the
Form 1045 page 2 attached, was filed on Oct. 7, 1996, well past
the end of 1992.
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comply with sec. 301.6402-3(a)(2), Proced. & Admin. Regs., and
make such claims by filing Forms 1040X for 1989 and 1990.
Nevertheless, petitioners claim that they filed “timely, valid[,]
informal claims” to carry back their 1992 NOL to 1989 and 1990:
“Petitioners informal claims for * * * 1992 consist of oral and
written communications with Respondent, which placed Respondent
on notice that Petitioners were claiming net operating losses in
* * * 1992.” Respondent answers that petitioners’ oral and
written communications did not constitute adequate notice that
petitioners were requesting refunds and, thus, do not constitute
informal claims for refund.
B. Discussion
1. Informal Claims
It is well established that an informal claim for refund
(i.e., one that does not comply with the formal requirements of
the statute and regulations) will suffice as long as it requests
a refund and fairly advises respondent of the nature of the
taxpayer’s claim. United States v. Kales, 314 U.S. 186, 194
(1941). As we summarized in Turco v. Commissioner, T.C. Memo.
1997-564: There are no bright line rules as to what constitutes
an informal claim. Rather, each case must be decided on its own
particular set of facts. The relevant question is whether
respondent knew or should have known that a refund claim was
being made. Also, an informal claim must have some written
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component. E.g., Hollie v. Commissioner, 73 T.C. 1198, 1212
(1980); Jackson v. Commissioner, T.C. Memo. 2002-44.
2. Petitioners’s Argument
Petitioners ask us to assemble the following pieces into
informal claims for refund for 1989 and 1990: The Form 1045
page 2, attached to the 1992 return (filed October 7, 1996),
Mr. Barker’s June 18, 1996, telephone conversation with Revenue
Agent Stufflebeam (the June 18 conversation), memorialized in the
June 18 notes, and the provisions of section 172(b), specifying
the years to which an NOL is to be carried. Taken separately, or
together, however, such pieces do not constitute informal claims
for refund.
3. The Form 1045 Page 2
The instructions accompanying Form 1045 provide that it is
to be used by an individual to apply for a quick refund resulting
from an NOL carryback. The instructions state that the
application is not treated as a claim for credit or refund, which
claim, by an individual, is to be made by filing a Form 1040X.
The instructions further state that the form is to be filed with
the Internal Revenue Service Center for the place where the
taxpayer lives. The instructions warn: “Caution! Do not mail
Form 1045 with your * * * [year] income tax return.”
In New England Elec. Sys. v. United States, 32 Fed. Cl. 636,
641 (1995), the U.S. Court of Federal Claims stated that, in
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addition to a written component, an informal claim must have two
additional components: “First, an informal claim must provide
the Commissioner of the IRS with notice that the taxpayer is
asserting a right to a refund. Second, the claim must describe
the legal and factual basis for the refund.”
At best, the Form 1045 page 2 informs the Commissioner of
the possibility that petitioners have one or more claims for
refund (which possibility arises by operation of law if a
taxpayer has an NOL). See sec. 172(b)(1). The form does not,
however, assert the right to any refund, nor does it provide the
legal and factual basis for any refund, since it fails to specify
any refund year or the particulars in any refund year that would
entitle petitioners to a refund. By itself, the Form 1045 page 2
does not constitute an informal claim for refund, since it lacks
one or more of the components of an informal claim for refund.2
4. The June 18 Conversation
Nor do we believe that the Form 1045 page 2 perfected an
informal claim initiated by Mr. Barker during the June 18
conversation. Respondent proposes a finding with respect to the
June 18 conversation. Petitioners have no objection to that
2
Indeed, courts have held that the full Form 1045 does not
constitute an informal claim for refund, since it is insufficient
to put the Service on notice that a claim for refund is being
made. E.g., Kirsh v. United States, 131 F. Supp. 2d 389, 392
(S.D.N.Y. 2000); Kamens v. United States, 50 AFTR 2d 82-5567,
82-2 USTC par. 9540(W.D. Mo. 1982).
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finding, and we think it fairly reflects the testimony of Revenue
Agent Stufflebeam and Mr. Barker. The proposed finding is:
Mr. Barker said that based on the cost of goods sold
used in the criminal case for Mr. Sumrall, the
petitioners would have net operating loss carrybacks in
later years. Mr. Stufflebeam told Mr. Barker that he
could complete the audit in 60 to 90 days if he could
get the additional requested documents and the returns
for later years.
Put simply, we think that Mr. Barker told Revenue Agent
Stufflebeam that, based on information gathered during the
criminal investigation, petitioners expected to report losses for
subsequent years that would carry back and reduce petitioners’
income for one or more of the audit years. Petitioners may,
thus, have asserted a right to a refund. Nevertheless, Revenue
Agent Stufflebeam was examining petitioners’ returns for 1987
through 1991, petitioners had not yet filed their returns for
1992 and 1993 (or any amended returns for any year under
examination), and Revenue Agent Stufflebeam told Mr. Barker that
he would consider any carrybacks resulting from losses when he
received returns showing such losses.
To make an informal claim for refund, a taxpayer not only
must assert his right to a refund for a year, but he must
describe the legal and factual basis of the claim. New England
Elec. Sys. v. United States, supra. Petitioners have not shown
that they adequately described the factual basis of their claim
to Revenue Agent Stufflebeam. Revenue Agent Stufflebeam
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undoubtedly had knowledge of the years under examination, but
petitioners did not tell him that the subsequent year from which
a loss would carry back was 1992, or identify the year or years,
among those under examination to which the loss would be carried
back, or, more importantly, give him any particulars of that loss
other than that it was expected to be based on the cost of goods
sold used in the criminal case against petitioner. To constitute
a claim for refund, a taxpayer must give the Commissioner
adequate notice of the grounds, including the factual basis, for
the claim before the expiration of the period of limitations so
that the Commissioner can, if he wishes, initiate an examination
of the bona fides of the claim. See Estate of Mueller v.
Commissioner, 107 T.C. 189, 213 (Beghe, J., dissenting), affd.
153 F.3d 302 (6th Cir. 1998); see also Am. Radiator & Standard
Sanitary Corp. v. United States, 162 Ct. Cl. 106, 318 F.2d 915,
920 (1963).3 Petitioners did not, through the June 18
conversation, give respondent adequate notice that they had
claims for refund or of the grounds underlying such claims.
3
The facts of this are distinguishable from those of Am.
Radiator & Standard Sanitary Corp. v. United States, 162 Ct. Cl.
106, 318 F.2d 915, 921 (1963), in which the Court of Claims found
an informal claim for refund with respect to retroactive
inventory adjustments where the revenue agent had knowledge of
the taxpayer’s desire for a refund, the approximate total amount
of the refund expected, and the cost of the later year inventory
replacement giving rise to the earlier year adjustments and
refunds. The equivalent of that last component is missing in
this case.
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5. Revenue Agent Stufflebeam’s Request
Revenue Agent Stufflebeam asked for a copy of any loss year
return. Petitioners did not, however, give him a copy of the
1992 return, nor did he receive one from the Ogden Service
Center, where the original was filed on October 7, 1996.
Petitioners have not persuaded us that it was Revenue Agent
Stufflebeam’s duty to put someone on lookout for the 1992 return
at the Ogden Service Center or that it was someone’s duty at the
service center to separate the Form 1045 page 2 from the 1992
return and forward it to the revenue agent. In Kidde Indus.,
Inc. v. United States, 40 Fed. Cl. 42, 65-66 (1997), the U.S.
Court of Federal Claims found that it was not necessary for a
taxpayer to direct the information that constitutes an informal
claim to the precise IRS official who will consider that claim so
long as it is given to an official whose general responsibilities
and interactions with the taxpayer are sufficient to put the IRS
on notice of the pertinent claim. The facts of that case are
distinguishable from the facts before us. The 1992 return was
not directed to an official whose general responsibilities and
interactions with petitioners were sufficient to put the IRS on
notice of a refund claim.
6. Other Contacts
Finally, petitioners have not shown that, on or before
October 15, 1996 (the last day for making a claim for a refund
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attributable to an NOL carryback from 1992), they provided
information to any other official at the IRS so as to put
respondent on notice that petitioners had claims for refunds
attributable to carrybacks of the 1992 NOL. They did not provide
such information to Special Agent Raven, nor did they convey it
by the February 14 letter or otherwise.
C. Conclusion
Petitioners did not make informal claims for refunds
attributable to NOL carrybacks from 1992 to 1989 and 1990 before
the expiration on October 15, 1996, of the period for doing so.
IV. Conclusion
Petitioners are not entitled to NOL carrybacks in the
amounts of $31,113 and $12,810, to 1989 and 1990, respectively.
Decision will be entered
under Rule 155.