Without a comprehensive knowledge of federal tax law, it can be difficult for any taxpayer to determine if they're in the right when in a dispute with the Internal Revenue Service (IRS). Most people may simply give in to the tax-collecting body's demands when they receive a notification regarding unpaid amounts and fees, entirely unaware that the government entity's claim is may be unfounded or even illegal.
In this case, the United States of America filed suit against Harold Steinbrenner, co-owner of the New York Yankees. The Internal Revenue Service filed the action against Steinbrenner because he had filed an amended income tax return claiming a loss that resulted in a tax refund of $670,493. The IRS believed the Steinbrenner would have been entitled to the refund had his request been timely but objected to the validity of it claiming that the statute of limitations for Steinbrenner to request a refund, had passed.
The statute of limitations, in a claim for refund case is governed by Title 26, Section 6511(a) which states:
Claim for credit or refund of an overpayment of any tax imposed by this title in respect of which tax the taxpayer is required to file a return shall be filed by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within 2 years from the time the tax was paid. Claim for credit or refund of an overpayment of any tax imposed by this title which is required to be paid by means of a stamp shall be filed by the taxpayer within 3 years from the time the tax was paid.
In this case, the Steinbrenners’ paid the tax in June and October 2008 and filed the amended tax return (claiming the refund) in August 2009. Seemingly comfortably within the 2 year time period as provided for in Section 6511(a).
However, the IRS alleged that because the amended return related back to an adjustment to a partnership return (that therein flowed through to the individual return that was amended), it was entitled to pursue ‘special rule for claims with respect to partnership items.” The Special Rule, if applicable, requires that if a pertinent tax is “attributable to” a “partnership item,” the limitation of Section 6230(c)(2)(B)(i) applies, not Section 6511. Section 6230(c) (B)(i) requires that a claim for refund occur within “two years of the day on which the settlement is entered….” See Order
Judge Merryday then provides quite an elegant and informative interpretation of a difficult statute governing the ‘special rule’ the IRS believed it was entitled to employ.
Ultimately finding that the code section the IRS asserted was ‘Not the limitation applicable in this action because, in addition to other reasons, it is inapplicable on its face.’ Page 18 of Order.
Case studies such as this highlight the importance of being able to assert your rights in defending yourself in civil tax charges. It also highlights how complex tax statutes are written and how they can be manipulated by the government.
The last few months have seen a string of tax liens filed against various celebrities, often for fairly sizable amounts that definitely warranted the attention of the State of California's taxing agencies: Franchise Tax Board (FTB), Employment Development Department (EDD) and Board of Equalization (BOE). However, it's important to take note that even considerably smaller sums can invoke the ire of federal and state tax collecting agencies.
Kate Beckinsale resolves tax lien
This month, the State of California issued a tax lien against British-born actress Kate Beckinsale - best known for her recurring role in the Underworld film franchise. TMZ reports that Beckinsale failed to pay just over $1,000 in back taxes in 2012. With the starlet's estimated net worth of $16 million, this sum may seem paltry - particularly compared to the hundreds of thousands of dollars in back taxes that celebrities like Lindsay Lohan reportedly owe. However, it is undoubtedly closer to the sums that everyday Californians may end up accruing if they make an error when filing a tax return.
Beckinsale also serves as an example of the best way to resolve these tax issues - namely, by taking action as soon as possible. According to the source, a representative from the state contacted the media outlet and confirmed that Beckinsale paid the specified amount within days of receiving the tax lien, so the lien has now been released.
However, even though the lien has been released it will remain a negative on her credit score for 10 years. This is because credit reporting agencies receive notice of tax liens through public records information.
However, not every tax-related issue can be take care of quite so simply. If you live in California, and have been accused of a tax crime, notified of an IRS or FTB tax audit, or have received a tax bill for which you do not agree, an experienced tax attorney can help you resolve the situation. The tax attorneys and tax professionals at the tax law firm of Moskowitz LLP, in San Francisco are experienced and aggressive in defending individuals against tax allegations. We offer an initial legal consultation over the phone or in person and have helped hundreds of thousands of taxpayers. Let us help you.
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Disclaimer: Because of the generality of this blog post, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Prior results do not guarantee a similar outcome. Furthermore, in accordance with Treasury Regulation Circular 230, we inform you that any tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purposes of (i) avoiding tax related penalties under the Internal Revenue Code, or (ii.) promoting, marketing, or recommending to another party any tax related matter addressed herein.