Last Wednesday, Les blogged about the curious case of Montiel v. US, which highlighted the confusing area of statutes of limitations on refunds for non-resident aliens. In his post, he mentioned the Boeri case, which we highlighted in a SumOp months before, and Carl Smith referenced in a guest post on the Volpicelli “jurisdiction” case under Section 6532(c). Occasionally, we will draft a post, which will never get put up for one reason or another. When Boeri was denied cert by SCOTUS, we had a draft post on the case, but never posted. Given the mention, we thought it might be good to revive the post, and describe the procedural issues. The first revolves around one of our favorite topics, which is whether or not Section 6511(b) look back period, or other similar statutory requirements, is jurisdictional. The second issue is the deemed payment date of withholdings for non-resident aliens under Section 6511(b)(2)(A). Here is the post, slightly modified:
In December, the Supreme Court denied cert in Boeri v. United States, foreclosing any potential judicial remedy in an unfortunate tax case for Mr. Boeri. As discussed below, the Service was following the statute regarding payments and refund requests, and there was not an easy way for the courts to hold for Mr. Boeri, but the facts scream for some type of equitable relief. Although the case does not include any new law, it does present an opportunity to cover the impact of the strict construction of the look back rules under Section 6511, especially as they pertain to a foreigner who never worked or resided in the United States.
The facts of the case are as follows, and I have lifted much of this from the Federal Circuit Court of Appeals holding. Mr. Boeri was an Italian citizen who was never a citizen of the United States, never worked in the United States, and never was a resident of the United States. Mr. Boeri was employed by GTE and Verizon for over thirty five years (located in Italy, Brazil, Argentina, and the Dominican Republic). In 2003, Mr. Boeri accepted a voluntary buy out, and received close to $250,000 in two payments in March and August of 2004. In those distributions, Verizon withheld around $70,500 in US income tax withholdings, Social Security tax, and Medicare Tax. There is no dispute that Mr. Boeri was not originally liable for those taxes. In March of 2009, Mr. Boeri filed non-resident income tax returns for 2004, seeking a refund of the taxes withheld by Verizon…And you can imagine where this was headed.
The Service responded and indicated the refund request was not timely and should have been made within three years from April 15, 2005 pursuant to Section 6511(b)(2)(A), the so called look back rule. Section 6511(b) provides, in pertinent part:
(b)(1) No credit or refund shall be allowed or made after the expiration of the limitation prescribed in subsection (a) for the filing of a claim for credit or refund, unless a claim for credit or refund is filed by the taxpayer within such period…
(b)(2)(A) If the claim was filed by the taxpayer during the three year period prescribed in subsection (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 three years plus the period of any extension of time for filing the return…
(2)(B) If the claim was not filed within such three year period, the amount of the credit or refund shall not exceed the portion of the tax paid during the two years immediately preceding the filing of the claim.
Jack Townsend’s Federal Tax Procedure Blog has a great post on the look back rule, which can be found here. In addition, Saltzman and Book discusses this in great detail in Chapter 11.05.
In Mr. Boeri’s case, Appeals upheld the determination, and he filed suit in the Court of Federal Claims, where he argued that the three year period does not apply, as he was not seeing a refund of a tax overpayment, but instead the correction of an erroneous withholding. The Claims Court denied the request, indicating the three year period under Section 6511(b)(2)(A) did apply, and the refund request was not made within the period. The Claims Court did note the non-jurisdictional nature of the three year period. It noted that the Supreme Court refers to this as a “look back”, and it is not a statutory limitation, but rather a substantive limitation on the amount of recovery, and the Claims Court stated this was not “jurisdictional in nature” and did “not preclude the court from hearing [the] claim.”
Before I touch on that aspect of the case, the Court of Appeals spent a bit of time discussing when the withheld amounts would have been deemed to have been paid. There was some confusion over whether this was income tax withholding on FDAP to foreigners covered by the rules of 6513(b)(3) or this was tax withheld covered by 6513(b)(1). The appellate court held that the payments were covered by 6513(b)(3) and found that Boeri was out of luck:
6513(b)(3) applies to taxes withheld under chapter 3. Subsection (b)(3) deems taxes as paid on “the last day prescribed for filing the return under section 6012 for the taxable year . . . .” Section 6012 dictates “[p]ersons required to make returns of income.” Under the applicable regulations, Mr. Boeri was indeed required to file a 2004 tax return in order to claim a refund. See 26 C.F.R. § 1.6012-1(b)(2)(i) (stating that the regulation excepting a nonresident alien not engaged in trade or business with United States from filing a return does not apply “to a nonresident alien making a claim . . . for the refund of an overpayment of tax for the taxable year”).
The deadline for filing such a return is found in § 6072 (“Time for filing income tax returns”). The subsection applicable to Mr. Boeri, a nonresident alien, establishes a timely filing deadline of June 15th of the following calendar year. § 6072(c) (“Returns made by nonresident alien individuals (other than those whose wages are subject to withholding under chapter 24) . . . under section 6012 on the basis of a calendar year shall be filed on or before the 15th day of June following the close of the calendar year . . . .”). Applying the June 15th deadline to Mr. Boeri’s case, his taxes were deemed paid on June 15th, 2005. § 6513(b)(3). This still places the withheld taxes outside the 3-year look-back period, although now only by nine months.
In the end, it did not make a difference whether the payment was deemed made under 6513(b)(1) or (b)(3), since the appellate court noted that the claim was filed too late under either provision, as under either provision for a nonresident like Boeri the payment date would be June 15, 2005 and he filed his claim in March of 2009, well after June 15, 2008.
Mr. Boeri’s argument that this was not a withholding of tax was largely ignored. I have not pulled the briefs, but based on the Appeals Court holding, the majority opinion did not raise any equitable arguments, so it must not have found the arguments compelling if they were made.
At least one Judge in the Appeals Court thought the Court was being too rigid in its analysis. Judge Newman dissented, stating that literal readings of statutes that present flagrant injustices are often condemned. The dissent highlights the fact that the IRS transcripts describe the payment as a “refundable credit”, and that the IRS FAQs indicate notice should have been given to Mr. Boeri that he had wrongly had taxes withheld. This essentially becomes the basis of an equitable tolling argument, again highlighting the fact that the look back is not a jurisdictional limit. The dissent also looks to some well-seasoned (real old) case law equating the taxing authority to a “taking in violation of the 5th amendment”, and states that the Tucker Act’s six year limitation period applies. See Brushaber v. Union Pac. RR. Co., 240 US 1 (1916); Charles C. Steward Mach. Co. v. Davis, 301 US 548 (1937). The Tucker Act is a waiver of sovereign immunity in various types of cases, including government takings.
Mr. Boeri filed pro se, and I did not review the petitions, so I am unsure what he did or did not plead. I like the Tucker Act argument, that if the Service lacks any authority to withhold funds the normal look back does not apply (I did not research this, so it may not be that persuasive). My initial thoughts were to equitable arguments. This case, like so many others lately, explicitly stated that the look back (or administrative appeal requirements) was not jurisdictional; therefore, the case could be heard by the court and equitable arguments could be advanced. Equity would seem strongly in Mr. Boeri’s favor, if an appropriate argument could be made.
Equitable tolling would be the obvious argument to research and put forward, but the case law is not behind Mr. Boeri. The Federal Circuit has held that reading equitable tolling exceptions into tax refund cases, in light of the enumerated statutory exceptions, is inappropriate. See Dzuris v. United States, 232 F3d 911 (Fed Cir. 2000). Dzuris was relying on US v. Brockamp for this position, which was decided by the Supremes, and specifically held as much with regard to Section 6511(a). There is a good chance that other courts could extend this to Section 6511(b)(2). In Brockamp, the Supreme Court held the specificity with which Section 6511 handled the time period indicated there was no equitable tolling allowed. Brockamp involved financial disability, and in 1998 Congress responded by including a financial disability exception to the refund look back period. Apparently, Congress did want some level of equitable tolling.
It is very important to note that Brockamp was limited to Section 6511(a), and may extend to Section 6511(b)(2). For additional commentary on this point, I would direct readers to the comments Carlton Smith made on Les’ recent post. It does not necessarily apply to other time limits under the Code, and equitable tolling should be considered. For an additional summary of some recent tax and other cases where courts have reviewed equitable tolling arguments, I would direct readers to Carlton Smith’s 2012 Tax Notes article, “Cracks Appear in the Code’s ‘Jurisdictional’ Time Provisions.”