Refund Claims for Estate Taxes — Follow the Rules

By Kathleen Ford Bay, Esq.  

Richards Rodriguez & Skeith LLP, Austin, TX

Dickow Est. v. U.S. 1 deals with a jurisdictional issue on whether or not the taxpayer had timely filed a request for a refund and whether equitable estoppel based on the IRS not informing the taxpayer that his second request for an extension of time to file the estate tax return had not been granted. The First Circuit Court of Appeals stated in its opinion that these issues were of "first impression" for it.

Under §6511(a), the taxpayer may file a claim for refund within three years of filing or two years of paying taxes. If the filing date is used, §6511(b) limits the refund to what was paid in the last three years. In Dickens, the estate tax return was due October 15, 2003. Before the due date (shortly before, on October 10, 2003), the taxpayer requested an extension of time to file and/or pay (using IRS Form 4768), and sent $945,000 toward taxes at that time. The IRS granted an automatic extension to file to April 15, 2004. The taxpayer filed shortly before April 15 (on March 23) another IRS Form 4768, with what the appellate court dubbed a "customized alteration," asking for yet another extension of time to file because a real estate appraisal had not been received and was needed to value the estate properly.

The taxpayer received a refund of approximately $338,000 after filing a return in September 2004. Then, after April 15, 2007 (three years after the automatic extension of time to file date), on September 10, 2007, the taxpayer requested another refund, which would have been about $237,000.

The IRS took the position that it lacked authority to grant a second extension and did not have any obligation to notify the taxpayer that there was no second extension. Thus, the taxpayer was not entitled to the additional refund.

That is right. Although the court found that the statute was ambiguous, the court also found that the regulations clearly indicate that only one extension would be allowed for filing an estate tax return, except where the taxpayer was outside the country or where "good cause" per what is explicitly recognized by the statute is shown.2 As stated in the opinion:3Such "good cause" extensions may be granted only to (1) an estate that did not file a request for an automatic extension prior to the due date for the estate tax return, (2) an estate that is required to file forms other than the estate tax return, or (3) an executor who is abroad and is requesting an additional extension beyond the six-month automatic extension. A taxpayer seeking a "good cause" extension within these categories must also file a Form 4768 with a "detailed explanation of why it is impossible or impractical to file a reasonably complete return by the due date." The regulations are clear that even requests for extensions within these categories are still in the IRS's discretion.

The IRS has no obligation to respond to the request on a customized alteration form for another extension of time. Even if there had been an obligation to respond, equitable estoppel simply does not apply.4 

Where the taxpayer has paid a large sum in taxes and is not sure if a refund will be due, caution the taxpayer to monitor the situation closely and err on the side of caution. Also, do not customize pre-printed IRS forms.

 For more information, in the Tax Management Portfolios, see Peyser, 627 T.M., Limitation Periods, Interest on Underpayments and Overpayments, and Peyser, 631 T.M., Refund Litigation, and in Tax Practice Series, see ¶3860, Statute of Limitations, and ¶3890, Refund Claims and Litigation. 

  1 2011-2 USTC ¶60,626 (1st Cir. 2011).

  2 See Regs. §20.6081-1(c).

  3 Citations omitted.

  4 See also U.S. v. Brockamp, 519 U.S. 347 (1997).