Tax Court: Applying Prior Year Overpayments to Current Year Deficiency Not Our Call

Posted on Tue, Sep 02, 2014 ©2021 Drucker & Scaccetti

So, you made an overpayment on your cell phone, cable or credit card bill.  It stands to reason that the overpayment will be credited to the following month’s bill…and in most cases, it will. However, this is not the case when it comes to federal taxes.  In a recent decision, the Tax Court held that it didn't have jurisdiction to apply amounts that a taxpayer argued were prior-year overpayments, and refund checks from prior years that the taxpayer hadn't cashed, against the tax deficiency for the tax year that was at issue in the case.


The Case

Barbara Kupersmit made several payments to IRS in 2008 and 2009 that she labeled as estimate payments. In addition, the IRS issued two refund checks to Kupersmit in 2008 and 2010; she did not cash either of the two refund checks.  Kupersmit didn't file a 2010 return. The IRS filed a 2010 substitute for return on her behalf and issued her a notice of deficiency for 2010.  Kupersmit sued in Tax Court with respect to the 2010 deficiency. She argued that the 2008 and 2009 payments and the uncashed refund checks were overpayments that reduced or eliminated her tax liability for tax year 2010.


The Background

Under the Internal Revenue Code (IRC), in re-determining deficiencies of income tax liability for any tax year, the Tax Court must consider those facts with relation to the taxes for other years as may be necessary to re-determine correctly the amount of the deficiency for the tax year before it, but may not determine whether or not the tax for any other year or calendar quarter has been overpaid or underpaid. Therefore, in the Kupersmit case, the Court refused to apply amounts against her 2010 liability and rejected the taxpayer's argument.


The Tax Warrior Perspective

The Court said that the IRS had not determined a deficiency with respect to any year other than 2010. IRC section 6214(b) provides that, generally, the Tax Court may not decide whether an overpayment is present for any other year. As 2010 was the only year before the Court, it lacked jurisdiction to determine whether Kupersmit overpaid her taxes for any prior year, and it also lacked jurisdiction to apply any such overpayment against her 2010 deficiency. Furthermore, even if the 2008 and 2009 payments and uncashed refund checks were overpayments of tax due, the IRS has no obligation to apply payments from prior years to tax year 2010.


On the surface, this case may seem like Ms. Kupersmit got a raw deal.  But the Code clearly supports the Court’s action. There are two morals to this story.  The first, and most important, is to always file your tax return, even when you estimate a balance due, because if you do not, the IRS will file a return on your behalf, which may or may not be accurate.  The second and more specific moral of the story is to not assume overpayments or uncashed refund checks will automatically be applied to prior-year federal tax deficiencies or other outstanding tax liabilities. Talk to your tax advisor if you have tax overpayments that you wish to be applied to future years to ensure this is properly noted on your tax return.


The Tax Warriors® at Drucker & Scaccetti are a team of highly skilled advisors with decades of experience dealing with tax controversies and non-filer issues like the Kupersmit case. Contact us, confidentially, via the “Ask A Tax Warrior” button below to discuss your specific tax situation. We are always prepared to help you with any tax-related matter.

Topics: overpayment, prior year, current year, Tax, tax court

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