THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Thursday, January 18, 1996 TAG: 9601180475
SECTION: FRONT PAGE: A6 EDITION: FINAL
SOURCE: ASSOCIATED PRESS
DATELINE: WASHINGTON LENGTH: Medium: 58 lines
Tardy taxpayers could have more trouble getting refunds as the result of a new Supreme Court decision.
The justices, by a 7-2 vote Wednesday in a Virginia case, narrowed the time period in which some taxpayers can get back the extra money withheld from their salaries.
The ruling stems from a complicated part of federal tax law and a specific chronology of events. But the ruling potentially could snag millions of taxpayers.
The first element in the chronology is a taxpayer who files no return for more than two years after one was due. The second element is the government stepping in before the return is filed and telling the taxpayer, incorrectly, that even more money is owed.
The Internal Revenue Service estimates that about 10 million people fail to file tax returns each year, and that more than one-third of those nonfilers actually had too much money in federal taxes withheld.
A federal appeals court ruled that the U.S. Tax Court can award refunds in such cases. But writing for the nation's highest court Wednesday, Justice Sandra Day O'Connor said the appeals court was wrong.
Robert F. Lundy, a retired government economist from Lorton, Va., had more than $10,000 in federal taxes withheld from his salary in 1987 but he failed to file a timely tax return for that year.
In September 1990 - more than two years after Lundy's 1987 return was due - the Internal Revenue Service mailed him a notice saying he owed $13,800 more in taxes and penalties for 1987.
In fact, Lundy had paid about $2,400 too much in federal taxes for that year, and in late 1990 he took his case to the Tax Court.
Taxpayers faced with an IRS notice of deficiency can choose to pay the tax and file a claim for a refund. If the IRS denies the claim, those taxpayers can sue in federal court.
Taxpayers who do not want to pay, or cannot pay, the disputed tax up front can go against the IRS in the Tax Court. That's what Lundy did.
The IRS conceded that it had been wrong about Lundy's tax deficiency for 1987, but argued that federal tax law leaves the Tax Court powerless to order a refund because Lundy had waited more than two years before filing his return.
That's true, the IRS said, even though most taxpayers are told they have three years to file for refunds. And, the IRS conceded, Lundy would have been eligible for a refund had he sued in a federal trial court instead of the Tax Court. The Supreme Court ruled that the applicable time period for Lundy and others in his shoes is two, not three, years. Justices John Paul Stevens and Clarence Thomas dissented.
KEYWORDS: IRS SUPREME COURT RULING by CNB