Opinion
3673-19
08-08-2022
DANIEL SERFATY, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER AND DECISION
L. Paige Marvel Judge
This case arises under our jurisdiction pursuant to section 6512 and is before the Court on respondent's motion for summary judgment, filed May 26, 2020. On June 18, 2020, petitioner filed his response in opposition to respondent's motion. Petitioner resided in Massachusetts when he petitioned this Court.
Unless otherwise indicated, all statutory references are to the Internal Revenue Code, Title 26 U.S.C, in effect at all relevant times, all regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure. Some monetary amounts have been rounded to the nearest dollar.
Respondent issued a notice of deficiency to petitioner for the 2014 taxable year on November 19, 2018. Petitioner timely petitioned this Court on February 19, 2019. Respondent concedes that there is no deficiency due but disagrees with petitioner's claim that he is entitled to a refund of a $110,000 remittance that he made with Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return (Form 4868), with respect to his 2014 taxable year.
Background
The following facts are drawn from the parties' pleadings and motion papers, including accompanying declarations and exhibits, and are not in dispute.
Petitioner is a chronic late or nonfiler of federal income tax returns. Throughout the 2014 taxable year, petitioner submitted quarterly payments of estimated tax totaling $535,000, deemed paid on April 15, 2015. Petitioner also had federal income tax withholding of $18,723, deemed paid on April 15, 2015. On April 15, 2015, petitioner, through his certified public accountant (CPA), submitted a Form 4868 extension request for the 2014 taxable year. Petitioner did not provide his CPA with any informational forms, such as a W-2 or Schedule K-1, to assist him in completing the extension request. Nonetheless, the extension request showed $440,274 as the estimate of petitioner's total tax liability for 2014 and $110,000 as the balance due. Petitioner remitted $110,000 with the extension request. Petitioner did not indicate in writing that the remittance was intended to be a deposit rather than a payment, and respondent applied the $110,000 as a payment toward petitioner's yet unquantified 2014 tax liability.
Petitioner's application for extension of time to file was granted, but petitioner did not file his 2014 tax return by the extended deadline. Respondent prepared a substitute for return for petitioner's 2014 taxable year and issued a notice of deficiency to him for the same on November 19, 2018. The notice determined a deficiency in income tax of $1,466,013, plus additions to tax totaling $385,301 for failure to file a return, failure to pay tax, and failure to pay estimated tax under sections 6651(a)(1), 6651(a)(2), and 6654, respectively. On February 19, 2019, petitioner timely petitioned this Court.
Meanwhile, on February 12, 2019, petitioner filed a Form 1040, U.S. Individual Income Tax Return, for the 2014 taxable year, reporting a tax liability of $549,115. Respondent assessed the amount reported by petitioner and agrees that there is no deficiency or addition to tax due from petitioner for the 2014 taxable year. On March 6, 2020, petitioner, through counsel, sent a letter to respondent arguing that the $110,000 petitioner remitted with his Form 4868 was a deposit and that he was entitled to have the full amount returned, since it reflected an overpayment. Respondent denied petitioner's request for refund because, in his view, the remittance was a payment, and petitioner is time-barred by section 6511 from claiming a refund of a tax payment.
Respondent concedes that petitioner does not owe any income tax deficiency for 2014, and the parties agree that petitioner overpaid his federal income tax liability for 2014. Although the parties agree that section 6511 bars a refund of some of the payments made by petitioner toward his 2014 federal income tax liability, the parties disagree about the character of the $110,000 remittance that petitioner made with the Form 4868. Respondent contends in his motion for summary judgment that a refund of the agreed overpayment of $110,000 is barred by sections 6511(b)(2)(B) and 6512(b)(3)(B) because it was a payment, not a deposit, as a matter of law. In so arguing, respondent seeks a ruling that any remittance made with a request for extension of time to file a return is a payment as a matter of law regardless of the facts and circumstances, a position that is contrary to the Court's existing precedent. See Risman v. Commissioner, 100 T.C. 191 (1993) (holding that a Form 4868 remittance is not a payment as a matter of law and that the character of the remittance is determined by examining the facts and circumstances). Alternatively, respondent argues that, applying the Court's facts and circumstances test, "there is no evidence that petitioner intended his remittance to be a deposit" and that he is entitled to summary judgment on that ground alone.
In petitioner's response to respondent's motion for summary judgment, petitioner contends that there is a genuine issue of material fact with respect to the characterization of the remittance that precludes the granting of respondent's summary judgment motion. Petitioner supports that contention with an affidavit of petitioner and an affidavit of George Hanscom, CPA, petitioner's accountant, that was attached to respondent's summary judgment motion. Petitioner also contends that respondent is not entitled to judgment as a matter of law.
Discussion
Summary adjudication is designed to expedite litigation and avoid unnecessary and expensive trials. Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). Under Rule 121(b), we may grant summary judgment "if the pleadings, answers to interrogatories, depositions, admissions, and any other acceptable materials, together with the affidavits or declarations, if any, show that there is no genuine dispute as to any material fact and that a decision may be rendered as a matter of law." See Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994). In resolving a motion for summary judgment, we view the facts and draw inferences therefrom in the light most favorable to the nonmoving party. Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985). The nonmoving party, however, may not rest on mere allegations or denials but must set forth specific facts showing that there is a genuine dispute for trial. Rule 121(d); see Sundstrand Corp., 98 T.C. at 520.
Petitioner contends that there are two factual disputes for trial: (1) petitioner disputes that his quarterly estimated tax payments were made on April 15, 2015, though he does not deny that they are deemed paid on that date and (2) he disputes respondent's contention that the March 6, 2020, letter contains an admission that the Form 4868 contained an estimate of tax. The former dispute is clearly immaterial, and the latter is not a dispute of fact but a dispute of interpretation, and one which bears exclusively on the resolution of a question of law that we need not reach, as explained below.
Respondent argues that petitioner's Form 4868 remittance was a payment, not a deposit, and that the time for claiming a refund or credit for the overpayment has expired. Specifically, respondent argues alternatively that (1) due to the weight of authority from the U.S. Courts of Appeals, we should overturn our ruling in Risman, 100 T.C. 191, and hold that Form 4868 remittances are payments as a matter of law under section 6513(b) and (2) petitioner's remittance was a payment under the facts and circumstances test applied in Risman. Under either theory, section 6511(b)(2) would limit the amount payable in respect of petitioner's refund request to zero. Petitioner contends that his Form 4868 remittance was a random remittance and, therefore, must be viewed as a deposit rather than a payment. As a result, petitioner argues, he is entitled to the return of the excess deposit.
Section 6511(a) provides that a claim for refund or credit of an overpayment of any tax for which a return is required generally must be filed within three years of the date that the return was filed. Where a return is filed, section 6511(b)(2)(A) provides a lookback rule restricting the amount of refund or credit to the portion that was paid during the three years, plus any extensions for time to file the return, immediately preceding the filing of the claim. This means that if petitioner's April 15, 2015, remittance was a payment, the latest date he could have possibly filed a return for purposes of claiming a refund of the remittance was October 15, 2018.
Section 6511(a) also permits the claim for credit or refund to be filed within two years from the time the tax was paid if (1) this time period expires later than three years after the return was filed or (2) no return is filed. These provisions do not affect our decision. See infra n. 3.
Respondent argues that, pursuant to sections 6512(b)(3)(B) and 6511(b)(2)(B), a shorter two-year lookback window applies to petitioner because he had not filed his 2014 tax return prior to the issuance of the notice of deficiency. However, we need not decide this issue because, if the Form 4868 remittance was a payment, then petitioner's claim is time-barred even applying the longer three-year plus extensions lookback rule. Conversely, if petitioner's Form 4868 remittance was a deposit, then his claim for refund is timely under either rule.
Not all remittances to the Commissioner, however, are "payments" of tax. See Rosenman v. United States, 323 U.S. 658 (1945); see also § 6603(a). In Rosenman, the Supreme Court decided under the lookback rule in effect at the time-the predecessor to today's section 6511(b)(2)-that the remittance at issue, which was made in connection with a request for extension of time to file an estate tax return, was a deposit in the nature of a cash bond. Id. at 662. The remittance, which the Commissioner initially placed in a suspense account instead of applying it as a payment, only attained payment status once it was applied in satisfaction of the subsequently assessed tax. Id. Of significance is the fact that the remittance was accompanied by a letter from the executors of the estate that stated in part: "This payment is made under protest and duress, and solely for the purpose of avoiding penalties and interest, since it is contended by the executors that not all of this sum is legally or lawfully due." Id. at 659-60.
Most courts, including this Court, have generally interpreted Rosenman as endorsing a facts-and-circumstances approach in determining whether a remittance is a payment or a deposit, at least in circumstances under which the Code did not require otherwise. E.g., Ertman v. United States, 165 F.3d 204, 207 (2d Cir. 1999); Ott v. United States, 141 F.3d 1306, 1308 (9th Cir. 1998); Fortugno v. Commissioner, 353 F.2d 429, 434-35 (3d Cir. 1965), aff'g 41 T.C. 316 (1963); Risman, 100 T.C. at 197-98. A minority, however, has interpreted Rosenman as establishing a general rule that a remittance in respect of tax only becomes a payment for the purposes of section 6511 when the Commissioner assesses the tax in question. See United States v. Dubuque Packing Co., 233 F.2d 453, 460 (8th Cir. 1956); Thomas v. Mercantile Nat'l Bank, 204 F.2d 943, 944 (5th Cir. 1953). In Baral v. United States, 528 U.S. 431, 437-38 (2000), the Supreme Court rejected the minority position as being at odds with the statutory language of section 6513(b)(1) and (2). Id. at 437-38. The Court was clear in Baral that it was not overruling Rosenman and specifically noted that although it was holding that remittances of withholding and estimated income tax were deemed payments for purposes of section 6511, its decision did not address the proper treatment under section 6511 of remittances that, unlike withholding and estimated income tax, are not governed by a "deemed paid" provision akin to section 6513(b). Id. at 439 n.2. Thus, the facts-and-circumstances approach to distinguishing payments and deposits is still applied for remittances that are not described in section 6513(b). See VanCanagan v. United States, 231 F.3d 1349, 1352-53 (Fed. Cir. 2000); Deaton v. Commissioner, T.C. Memo. 2005-1, slip op. at 11, aff'd, 440 F.3d 223 (5th Cir. 2006).
Section 6513(b)(2) provides that, for purposes of sections 6511 and 6512, payments of estimated income tax in respect of a taxable year are deemed paid on the deadline (determined without regard to extensions) for filing that year's tax return. Section 6513(b)(1) contains an analogous rule for income tax withholding. Taken together, these provisions essentially provide that prepayments of income tax that are required to be made throughout the taxable year-whether in the form of withholding or of estimated payments-will not be treated as paid until the return and payment of tax for that taxable year become due.
Respondent argues that Form 4868 remittances are remittances of estimated tax within the meaning of section 6513(b) and are payments as a matter of law. Although we considered and rejected that argument in Risman respondent urges us to reconsider it due to the weight of authority from the U.S. Courts of Appeals. It is true that some circuits have adopted respondent's position. Dantzler v. United States, 183 F.3d 1247, 1252 (11th Cir. 1999); Ertman v. United States, 165 F.3d at 208; Ott v. United States, 141 F.3d at 1309; Gabelman v. Commissioner, 86 F.3d 609, 611-13 (6th Cir. 1996), aff'g T.C. Memo. 1993-592; Weigand v. United States, 760 F.2d 1072, 1074 (10th Cir. 1985). However, the Court of Appeals for the First Circuit, the court to which an appeal in this case would lie absent an agreement between the parties, is not among them. David v. United States, 132 F.3d 30 (1st Cir. 1997) (unpublished table opinion). In addition, other courts, though acknowledging this authority, have found that deciding that Form 4868 remittances are payments as a matter of law is unnecessary under essentially identical circumstances as the ones presented here. Deaton v. Commissioner, 440 F.3d at 232 ("We hesitate to adopt a per se rule in a case in which the record clearly indicates that the taxpayers' remittance was a payment, not a deposit, and we therefore decline to do so."), aff'g T.C. Memo. 2005-1; VanCanagan v. United States, 231 F.3d at 1354; see also Deaton v. Commissioner, T.C. Memo. 2005-1, slip op. at 17-18 (stating that reconsideration of Risman must wait until it would affect the outcome in a case and rejecting respondent's "technical argument that, due to the repeal of the additional statutory language we examined in Risman, our analysis therein is no longer viable"). Because we are not bound to find that Form 4868 remittances are payments as a matter of law and can resolve this motion by applying the facts and circumstances analysis of Risman and Rosenman, we conclude that reconsideration of Risman's holding is not warranted.
Unless the parties otherwise agree in writing, decisions of the Tax Court are appealable to the Court of Appeals for the circuit in which petitioner resided when he filed his petition. § 7482(b).
A taxpayer's intent to have his remittance treated as a deposit is established by all of the relevant facts and circumstances. Risman, 100 T.C. at 197. A disorderly or random remittance-one made by a taxpayer "arbitrarily, without regard to an orderly, apparent, or reasonably possible ultimate tax liability, and that is made prior to any determination by [the Commissioner] of the taxpayer's tax liability"-will generally be regarded as a deposit. Id. at 198 (citing N. Nat. Gas Co. v. United States, 354 F.2d 310, 315 (Ct. Cl. 1965)). By contrast, a remittance is not random and is generally considered a payment when the taxpayer makes the remittance voluntarily based on a bona fide estimate of an uncontested tax liability. N. Nat. Gas Co. v. United States, 354 F.2d at 315. In order to obtain an extension of time to file, a taxpayer must show "the full amount properly estimated as tax" on his Form 4868 application. Treas. Reg. § 1.6081-4(b)(4). Although a taxpayer is not required to make a payment of the amount estimated in order to obtain an extension of time to file, cf. Treas. Reg. § 1.6081-4(b), an extension of time to file does not operate as an extension of time to pay. Treas. Reg. § 1.6081-4(c).
Petitioner, through his accountant, made a voluntary remittance of an amount that he represented on his Form 4868 to be his estimated income tax liability for 2014, and he did so without making any statement indicating that the remittance was intended to be a deposit with respect to his 2014 federal income tax liability. See § 6603. Under these facts, we have no trouble concluding that the remittance was not random. The mere fact that petitioner's estimate was inaccurate does not change that. Indeed, demanding precise calculations of tax on Forms 4868 would obviate the need for taxpayers to request such extensions.
Remittances that are not random may nonetheless be deposits, but there must be some objective manifestation of the taxpayer's intent for the remittance to be treated as a deposit at the time of the remittance. See David v. United States, 132 F.3d 30; see also VanCanagan v. United States, 231 F.3d at 1353 (analyzing (1) whether taxpayers stated or indicated that a payment was a deposit or that they were preserving their rights to a tax contest, (2) whether taxpayers attempted to use IRS procedure to make a deposit, and (3) whether the IRS viewed the remittance as a deposit or placed it in a separate account). For example, in both Rosenman and Risman, where the remittances at issue were determined to be deposits, the taxpayers provided written statements (either together with the remittance or during the period in which they would not be time-barred from claiming a refund or credit) to the Commissioner evidencing their intent. Rosenman v. United States, 323 U.S. at 659-60; Risman, 100 T.C. at 193-94. Also, in each of those cases, the Commissioner treated the remittances as deposits by placing them in non-interest- bearing suspense accounts, rather than applying them as payments. Rosenman v. United States, 323 U.S. at 660; Risman, 100 T.C. at 193. Additionally, although no regulations have been promulgated under section 6603 to provide definitive guidance on the exclusive means by which a taxpayer may make a deposit, guidance from the Commissioner indicates that a taxpayer intending to make a deposit may do so by attaching a written statement to that effect to his remittance. Rev. Proc. 2005-18, 2005-13 I.R.B. 798.
In Risman, neither party could produce the original Form 4868 or a copy of it, but the taxpayers confirmed their understanding that the remittance that accompanied it was a deposit in a letter sent to the Commissioner approximately 13 months after the taxpayers filed their Form 4868, still well within time period before which section 6511 would bar a refund claim. Risman, 100 T.C. at 193-94.
There is nothing in the motion record that raises a factual issue as to petitioner's intent at the time he sent his remittance with the Form 4868 or that indicates that, on the date petitioner's Form 4868 remittance was made, petitioner intended the remittance to be anything other than what it purported to be: a payment of petitioner's anticipated 2014 tax liability. Petitioner did not submit any written statement with his remittance indicating that he intended for it to be a deposit, nor did he communicate any dispute about his estimated liability. Upon receipt, respondent immediately applied the remittance as payment toward petitioner's 2014 federal income tax and continuously treated the remittance as a payment thereafter. The first time petitioner attempted to designate the remittance as a deposit was in the March 6, 2020, letter from petitioner's counsel. The attempted recharacterization of the remittance more than 5 years after the fact by petitioner's counsel does not evidence any intent at the time the remittance was made, and it does not raise a genuine factual dispute for trial. See VanCanagan v. United States, 231 F.3d at 1354; David v. United States, 132 F.3d 30.
Because the material facts are not legitimately in dispute and respondent is entitled to judgment as a matter of law, it is hereby
ORDERED that respondent's motion for summary judgment, filed May 26, 2020 is granted. It is further
ORDERED AND DECIDED that there is no deficiency in income tax due from, nor overpayment due to, petitioner for the taxable year 2014;
That there is no addition to tax due from petitioner for the taxable year 2014, under the provisions of §§ 6651(a)(1) or 6651(a)(2); and
That there is no addition to tax due from petitioner for the taxable year 2014, under the provisions of § 6654.