Tax Court Lacks Overpayment Jurisdiction in CDP Cases When Statute of Limitations is Up

Glen frost

Attorney at Law *

Certified Public Accountant **
Certified Financial Planner®
Master of Laws in Taxation
Every Tax Problem has a Solution

10480 Little Patuxent Pkwy, # 400
Columbia, MD 21044

Hablamos Español

On September 11, 2018, the Tax Court in McLane v. Commissioner ruled that the Tax Court lacked overpayment jurisdiction under Internal Revenue Code (IRC) §6512(b) where Petitioner failed to raise the refund issue within the time limits provided under IRC §6511. This is the first time the Tax Court has reconsidered and upheld its ruling in Greene-Thapedi v. Commissioner. Pending a different result in a Fourth Circuit appeal, taxpayers and their representatives must remain vigilant whenever non-frivolous refund claims present themselves and ask for such refund as soon as possible.

Facts in McLane

Petitioner filed his 2008 income tax return, reporting a tax liability of $2,426. Along with the return, Petitioner requested an installment agreement in order to pay off the 2008 liability with monthly payments of $100. From December of 2009 through October of 2010, Petitioner made payments per this agreement for nearly a year. He also made some additional payments towards the liability outside of the agreement between November of 2010 and September of 2012.

In February of 2013, the Internal Revenue Service (IRS) determined a deficiency for Petitioner’s 2008 income tax return; however, Petitioner did not receive the notice of deficiency. Once the Petitioner received a Notice of Federal Tax Lien (NFTL) for both 2006 and 2008, he timely requested a CDP hearing. After the hearing, the IRS sustained the NFTL. Petitioner responded by filing a “Petition for Lien Action Under Code Sections 6320(c) and 6330(d)” with the Tax Court. While Petitioner assigned no error regarding 2006, he maintained that the IRS failed to mail a notice of deficiency for 2008 and that IRS Appeals had not provided him with sufficient opportunity to substantiate expenses.

A supplemental hearing was held after the Tax Court’s remand of the case during which IRS Appeals considered Petitioner’s substantiation and permitted nearly half of the deductions Petitioner had claimed.

Subsequently, in Tax Court, Petitioner successfully substantiated business expenses such that the IRS conceded that Petitioner was actually entitled to more deductions than those he claimed on his return. Accordingly, the IRS agreed to abate the assessment of a deficiency for 2008 and release the corresponding lien.

With 2008 established as a year for which Petitioner owed nothing, he understandably wanted the money back that he had paid pursuant to the installment agreement along with any amounts he’d paid outside of the agreement. So, Petitioner asked the Tax Court to determine an overpayment of his 2008 income tax and order its refund.

Statutory Authority

Under IRC §6511, taxpayers must file refund claims within three years of filing a tax return or two years from the time they pay the tax—whichever is later.

Per IRC §6512(b)(1), the Tax Court has jurisdiction in a deficiency case to determine a taxpayer’s amount of overpayment of income tax. Upon such determination, the overpayment must then be refunded or credited to the taxpayer.

However, IRC §6512(b)(3) restricts the Tax Court’s jurisdiction to determine overpayment. First, the taxpayer must have already received a statutory notice of deficiency. Next, even if the taxpayer failed to file the refund claim, it must be shown that the taxpayer could have filed a timely claim on or before the mailing date of the statutory notice of deficiency. Finally, jurisdiction exists when a timely refund claim was filed before the statutory notice of deficiency was mailed and any of the following conditions are present:

1.) The credit or refund claim was not disallowed before the mailing date of the statutory notice of deficiency.

2.) A timely credit or refund claim could have been filed as of the statutory notice of deficiency’s mailing date.

3.) Before the statutory notice of deficiency was mailed, and during the time period allowed under IRC §6532, the taxpayer commenced suit for a credit or refund.

Ruling in McLane

The Tax Court ruled that, under IRC §6330(d)(1), it lacked jurisdiction to determine and order a refund of an overpayment of Petitioner’s 2008 income tax. The Tax Court considered the timing involved, emphasizing that, under IRC §6512(b)(3), its jurisdiction to order a credit or refund is limited “to only that portion of a tax paid after the mailing of a notice of deficiency or in regard to which a timely claim for refund was pending (or could have been filed) on the date of mailing of the notice of deficiency.” Thus, the Tax Court determined that Petitioner’s failure to raise the refund issue within the statute of limitations (SOL) prevented the Tax Court from having jurisdiction over the matter.

Unfortunately for the Petitioner, the Tax Court dismissed any attempt to distinguish between the challenges to the taxpayer’s amount of tax liability and the challenges related to alleged IRS procedural failures to collect. Rather, the Tax Court saw “no reason why the issuance of a notice of deficiency that petitioner never received should allow him to pursue a claim for refund that would otherwise have become time barred long before he manifested any awareness of it.”


Some practitioners thought a footnote in Greene-Thapedi may have left a door slightly open for finding jurisdiction under circumstances analogous to those in McLane—i.e., where the taxpayer never received a notice of deficiency. That footnote reads:

We do not mean to suggest that this Court is foreclosed from considering whether the taxpayer has paid more than was owed, where such a determination is necessary for a correct and complete determination of whether the proposed collection action should proceed. Conceivably, there could be a collection action review proceeding where (unlike the instant case) the proposed collection action is not moot and where pursuant to sec. 6330(c)(2)(B), the taxpayer is entitled to challenge “the existence or amount of the underlying tax liability”. In such a case, the validity of the proposed collection action might depend upon whether the taxpayer has any unpaid balance, which might implicate the question of whether the taxpayer has paid more than was owed.

It seems clear now that the Tax Court has closed that door. Again, pending a different result on appeal, taxpayers and their representatives must pursue non-frivolous refund claims as soon as possible.

If you have questions or concerns about tax refund or credits, contact Frost & Associates, LLC today.

Being Audited By The IRS?

Our tax attorneys explain audits and what you can do after receiving one.

Questions About IRS Tax Litigation?

Our tax litigation attorneys clearly explain the litigation process.

IRS Penalty Questions?

Find out what Maryland law has to say about IRS penalties.