Disallowance of Claim of Timely Filing

By Alfred T. Grillo, CPA, Consolidated Edison Inc.

A recent case decided in the New York State Division of Tax Appeals illustrates the importance of following through with taxpayers to ascertain that they have received the refunds they are entitled to, and are aware of when the statute of limitations will expire.

On August 27, 1999, taxpayers David and Joan Marsh received a letter from the Department of Taxation and Finance (DTF) indicating that information revealed they had income for 1994 but had not filed a tax return. On September 14, 1999, the taxpayers mailed the DTF a copy of their 1994 tax return, which had been prepared by their accountants on June 15, 1995, and which the clients signed on September 14, 1999. The return showed an overpayment of $9,673, which the taxpayers requested be refunded to them. On September 22, 2000, the DTF issued a Notice of Disallowance to the taxpayers advising them that the refund claim had been denied in full, as “the deadline for filing for a refund or credit expired three years from the date the return was due.”

The taxpayers were required to file a 1994 personal income tax return on or before April 17, 1995, and thus any claim for refund with respect to tax withheld from wages was required to be filed by April 17, 1998. The DTF argued that the taxpayer’s 1994 return, submitted on September 14, 1999, was filed well after the statute of limitations for refund had expired. The taxpayers maintained that they filed their return on or about June 15, 1995, a date clearly within the statute of limitations, and that the return submitted on September 14, 1999, was merely a copy of the return previously filed. At issue is the determination as to the date the taxpayers’ 1994 return was actually filed.

Reviewing the circumstances of the case would lead one to believe that the taxpayers had filed in 1995 as they claimed. Their accountants stated that they mailed the return to the clients to file in June of 1995. The taxpayers had a record of timely filing for both prior and subsequent years; they were due a substantial refund, and when they did not receive the refund they assumed that the DTF had applied it against an uncontested liability from 1992 and 1993. The DTF contended that it was unable to find any record of the return, even after several searches.

The law is clear in this proceeding. Tax Law section 687 provides that a claim for credit or refund of an overpayment of income tax shall be filed by the taxpayer within three years from the time the return was filed or two years from the time the tax was paid, whichever of such periods expires later. Because the taxpayers’ only payment of tax was tax withheld from wages, the taxes are deemed to have been paid by the taxpayers on April 15 of the following year. Accordingly, the petitioners were required by law to have filed a refund claim by April 17, 1998.

Tax Law section 691(a) provides that the U.S. postmark stamped on the envelope shall be deemed to be the date of delivery. If any document or payment is sent by U.S. registered mail, such registration shall be prima facie evidence that such document or payment was delivered to the tax commission, bureau, office, officer, or person to whom addressed. When the DTF fails to receive a document, the general rule is that proof of ordinary mailing is insufficient as a matter of law to prove timely filing.

Unfortunately for the taxpayers in this case, they were unable to prove that they filed their return for 1994 before the statute of limitations had expired, and the DTF’s disallowance was sustained. Though the result is not surprising, certain actions by the taxpayers could have avoided the disallowance of the claim. Of course, using registered or certified mail (return receipt) would have alerted the taxpayers that their return had not been delivered. Had they filed their 1994 New York return and had it been processed, they would have received Form 1099-G from New York State, so they could report the refund on their federal return (assuming they itemized in the prior year). The absence of Form 1099-G should have raised a question. Even if the refund had been offset against prior years’ taxes, they would have received the form.

Tax advisers should always question a situation where all refunds cannot be accounted for, and follow up when necessary.