Tax Court in Brief | Schwartz v. Comm’r | Collection Due Process; Credit Election Overpayment; Quintessential Tax Procedure

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The Tax Court in Brief – December 19th – December 23rd, 2022

Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

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Tax Litigation:  The Week of December 19th, 2022, through December 23rd, 2022

Schwartz v. Comm’r, T.C. Memo. 2022-125| December 21, 2022 | Vasquez, J. | Dkt. No. 17291-14L

Short Summary:  Eric Schwartz (“Schwartz”) and his spouse divorced.  Pursuant to those divorce proceedings, the state court required Schwartz and his spouse to make an estimated tax payment of $150,000 to the IRS to help cover their estimated tax liabilities for 2005.  Although Schwartz made the payment and filed an extension of time to file his 2005 tax return, he did not timely file his 2005 return because he believed that he could not do so by state court order.

At various times, Schwartz contacted the IRS to address the unfiled 2005 tax return.  On or about March 28, 2008, he mailed the IRS a form and correspondence indicating that he wanted to apply any overpayment of his 2005 taxes to his 2006 and 2007 tax years.  The IRS responded to the letter on May 7, 2008, noting that it would need additional time to review his claim and that he need not take any further action.  He did not receive any further correspondence from the IRS regarding the 2005 overpayment.

When the state court divorce matter concluded, Schwartz filed his 2005 tax return in October 2011.  On his 2005 return, he reported total tax of $45,282 and an estimated tax payment of $29,718.  On Line 74 of the 2005 return, he indicated that he wanted to apply the entire amount of the claimed refund against his 2006 estimated tax.  The IRS accepted the 2005 tax return but did not transfer the overpayment to 2006.  Rather, the IRS concluded that the credit overpayment request for 2006 was not timely.  Schwartz also filed later year tax returns claiming the credit overpayment flow through on those years.

The IRS issued final notices of intent to levy against Schwartz with respect to his 2006, 2007, 2010, 2011, and 2012 tax years.  Schwartz timely requested CDP hearings and asked Appeals to apply his 2005 overpayment against his liabilities for the years at issue.  Appeals concluded that Schwartz’s March 28, 2008, correspondence did not constitute an informal refund claim.  Appeals issued its Notice of Determination, sustaining the proposed levies, and Schwartz filed a timely petition with the Tax Court.

Key Issues

Primary Holdings:

Key Points of Law:

Insight: The Schwartz case is the quintessential tax procedure case.  It addresses the Tax Court’s jurisdiction in CDP situations and the complexities inherent in trying to satisfy the refund statute of limitations when filing an informal refund claim.  The Schwartz case also represents a big win for taxpayers in that it affirms taxpayers may properly utilize a credit elect from prior non-determination years to satisfy tax liabilities at issue in their CDP case.