Income Tax Procedure ...

Credits or refunds of overpayments on the basis of such certificates of overassessment may not be allowed or made, however, after the expiration of the statutory period of limitation properly applicable unless prior to the expiration of such period a claim therefor on Form 843 has been filed by the taxpayer. The claim, together with appropriate supporting evidence, must be filed in the office of the collector for the district in which the tax was paid. Where an amount of tax in excess of that properly due has been paid by a withholding agent, the credit or refund of such excess amount shall be made to the withholding agent unless the amount of such tax was actually withheld by the withholding agent. (Art. 1302.)

Importance of filing claims.-Many of the additional assessments following examinations of taxpayers' returns are based upon erroneous conclusions drawn by examiners, which the courts would promptly reverse if the taxpayers brought suit. Suits at law are expensive and annoying and most people pay even when they feel sure of the injustice of the tax. The Board of Tax Appeals (see Chapters 9 to 15) to some extent relieves this situation, but it can pass upon cases only in the event a deficiency is involved and there are many issues on which, for that reason, it can not pass.

Until a case reaches the Board of Tax Appeals or the courts, it cannot always be said that the facts are passed on impartially. The right of taxpayers to question the interpretations of the Treasury is discussed in the following pages. Taxpayers should observe all legal formalities in respect of protective claims and otherwise so that they may secure the benefit of any future decisions which reverse past rulings of the Treasury. There should be no hesitation in pressing claims to a conclusion.

The necessity for filing claims is emphasized by a recent ruling of the General Counsel (V-42-2937; G C. M. 687) holding that unless a claim has been filed, penalties and interest erroneously collected may not be refunded or credited after the statute of limitations has expired, even though the tax has been refunded. (See page 138.) Those who refuse to acquaint themselves with the remedies and means for correcting erroneous assessments have only themselves to blame.

Credits

The use of claims for credit has been accompanied by so much confusion and abuse that the Commissioner has had to modify the procedure in such a manner as practically to eliminate such claims. Credits are, of course, allowed, but usually without claims being filed.

LAW. Section 284. (a) Where there has been an overpayment of any income, war-profits, or excess-profits tax imposed by this Act, the Act entitled "An Act to provide revenue, equalize duties, and encourage the industries of the United States, and for other purposes," approved August 5, 1909, the Act entitled "An Act to reduce tariff duties and to provide revenue for the Government, and for other purposes," approved October 3, 1913, the Revenue Act of 1916, the Revenue Act of 1917, the Revenue Act of 1918, the Revenue Act of 1921, or the Revenue Act of 1924, or any such Act as amended, the amount of such overpayment shall, except as provided in subdivision (d), be credited against any income, war-profits, or excess-profits tax or installment thereof then due from the taxpayer, and any balance of such excess shall be refunded immediately to the taxpayer.

LAW. Section 272. If the taxpayer has paid as an installment of the tax more than the amount determined to be the correct amount of such installment, the excess shall be credited against the unpaid installments, if any. If the amount already paid, whether or not on the basis of installments, exceeds the amount determined to be the correct amount of the tax, the excess shall be credited or refunded as provided in section 284.

Regulations 69 do not prescribe the requirements for making claims for credit. Art. 1302 prohibits their allowance unless made on form 843. It may be assumed that Art. 1304 governing claims for refund applies with like force to claims for credit. See page 132.

RULING. In no case will a taxpayer be permitted to stay the collection of income or profits taxes assessed on or after June 2, 1924, the date of the enactment of the Revenue Act of 1924, by the filing of a claim for credit. Under the present procedure, an overpayment of income or profits taxes, when allowed by the Commissioner, is made the basis of a certificate of overassessment, which is applied against any outstanding tax due from the taxpayer. This procedure obviates the necessity of claims for credit being filed.

In any case where a taxpayer presents a claim for credit to be applied against taxes assessed on or after June 2, 1924, the collector will inform him that such claim will not operate as a stay of the collection of the tax. Under no circumstances will a taxpayer be entitled to credit for an alleged overpayment of tax prior to the date of the allowance of such credit by the Commissioner. (C. B. IV-1, 75; Mim. 3279.)

Under this ruling the Commissioner, for all effective purposes, practically abolished claims for credit. When the Commissioner determines that a taxpayer has made an overpayment, a certificate of overassessment is sent to the Collector. If the Collector's records show that there is an outstanding claim against the taxpayer, the Collector credits the overpayment against such claim. If there are no charges against the taxpayer or if there is a credit balance in favor

of the taxpayer, a report is made to the Commissioner, and in due time the taxpayer receives a refund check.

Refunds

After a tax has been paid and a taxpayer believes that it was unlawfully or wrongfully assessed or collected he may make claim for refund (on form 843). Generally speaking, the government imposes no restrictions upon claims for refund other than the time limit for filing 2 and such claims are considered on their merits. This practice must not be confused with the procedure in case of suit against the government. When suit is brought the government interposes all the legal obstacles at its command. This is also true in proceedings before the U. S. Board of Tax Appeals.

REGULATION. Claims by the taxpayer for the refunding of taxes, interest, penalties, and additions to tax erroneously or illegally collected shall be made on Form 843. All facts relied upon in support of the claim should be clearly set forth in detail under oath. In the case of the taxpayer's death, certified copies of the letters of administration or letters testamentary or other similar evidence must be annexed to the claim to show the authority of the administrator or executor. The affidavit may be made by the agent of the person assessed, but in such case a power of attorney must accompany the claim. Checks in payment of claims allowed will be drawn in the names of the persons entitled to the money and will be sent directly to them.

The Commissioner has no authority to refund on equitable grounds penalties or other amounts legally collected.* (Art. 1304.)

2 The provisions of the law covering the statutory period in which claims for credit may be filed are the same as those covering claims for refund, and are discussed on page 133 et seq.

See Volume I, page 62 et seq.

For cases in which refund is made through collectors, see Income Tax Procedure, 1920, page 217.

The regulations do not require claims for refund to be accompanied by the collector's receipt or by the paid check showing payment of the tax.

Such claims, however, must be supported by satisfactory evidence, as described on pages 141 and 142.

Claims for refund and credit may not be assigned before allowance.

LAW. Section 3477. [Rev. Stat.] All transfers and assignments made of any claim upon the United States, or of any part or share thereof, or interest therein, whether absolute or conditional, and whatever may be the consideration therefor, and all powers of attorney, orders, or other authorities for receiving payment of any such claim, or of any part or share thereof, shall be absolutely null and void, unless they are freely made and executed in the presence of at least two attesting witnesses, after the allowance of such a claim, the ascertainment of the amount due, and the issuing of a warrant for the payment thereof. Such transfers, assignments, and powers of attorney, must recite the warrant for payment, and must be acknowledged by the person making them, before an officer having authority to take acknowledgment of deeds, and shall be certified by the officer; and it must appear by the certificate that the officer, at the time of the acknowledgment, read and fully explained the transfer, assignment, or warrant of attorney to the person acknowledging the same.

Special care should be observed in filing claims to see that they are made by the real party in interest. In the case of a corporation in liquidation provision should be made whereby authority shall be conferred upon someone to present and prosecute, on behalf of the corporation, any claims against the Government, which may arise. In the case of a reorganization, where there is no real change in interest, the author believes that the restriction is inoperative.

Time limits for filing claims for refund.

LAW. Section 284. (b) . . . . (1) No such credit or refund shall be allowed or made after three years from the time the tax was paid in the case of a tax imposed by this Act, nor after four years from the time the tax was paid in the case of a tax imposed by any prior Act, unless before the expiration of such period a claim therefor is filed by the taxpayer; and

(2) The amount of the credit or refund shall not exceed the portion of the tax paid during the three or four years, respectively, immediately preceding the filing of the claim, or if no claim was filed, then during the three or four years, respectively, immediately preceding the allowance of the credit or refund.

(g) If the taxpayer has, within five years from the time the return for the taxable year 1917 was due, filed a waiver of his right to have

the taxes due for such taxable year determined and assessed within five years after the return was filed, or if he has, on or before June 15, 1924, filed such a waiver in respect of the taxes due for the taxable year 1918, then such credit or refund relating to the taxes for the year in respect of which the waiver was filed shall be allowed or made if claim therefor is filed either on or before April 1, 1925, or within four years from the time the tax was paid. If the taxpayer has, on or before June 15, 1925, filed such a waiver in respect of the taxes due for the taxable year 1919, then such credit or refund relating to the taxes for the taxable year 1919 shall be allowed or made if claim therefor is filed either on or before April 1, 1926, or within four years from the time the tax was paid. If the taxpayer has, on or before June 15, 1926, filed such a waiver in respect of the taxes due for the taxable year 1920 or 1921, then such credit or refund relating to the taxes for the taxable year 1920 or 1921 shall be allowed or made if claim therefor is filed either on or before April 1, 1927, or within four years from the time the tax was paid. If any such waiver so filed has, before the expiration of the period thereof, been extended either by the filing of a new waiver or by the extension of the original waiver, then such credit or refund relating to the taxes for the year in respect of which the waiver was filed shall be allowed or made if claim therefor is filed either (1) within four years from the time the tax was paid, or (2) on or before April 1, 1926, in the case of credits or refunds relating to the taxes for the taxable years 1917 and 1918, or on or before April 1, 1927, in the case of credits or refunds relating to the taxes for the taxable year 1919, or on or before April 1, 1928, in the case of credits or refunds relating to the taxes for the taxable years 1920 and 1921. This subdivision shall not authorize a credit or refund prohibited by the provisions of subdivision (d).

(h) Except as provided in subdivision (d) this section shall not (1) bar from allowance a claim for credit or refund filed prior to the enactment of this Act which but for such enactment would have been allowable, or (2) bar from allowance a claim in respect of a tax for the taxable year 1919 or 1920 if such claim is filed before the expiration of five years after the date the return was due.

REGULATION. Section 284, except as provided in subdivision (d) thereof (see article 1305), does not (1) bar from allowance any claim for credit or refund filed prior to the enactment of the Revenue Act of 1926 which but for such enactment would have been allowable, or (2) bar from allowance a claim in respect of a tax for the taxable year 1919 or 1920 if such claim is filed before the expiration of five years after the date the return was due. (Art. 1306.)

In order to secure credits or refunds of taxes overpaid, taxpayers must in most cases, file their claims before the expiration of three years from the date the tax was paid.

1924 or prior laws the was paid. This limita

Where the tax was assessed under the period is four years from the date the tax tion has been literally applied by the courts. In Hayner v. U. S. (61 Ct. Cls. 1038), the Treasury had ruled December 24, 1923, that

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