The Fourth Circuit recently upheld a Tax Court
decision that a deficiency notice beat the three-year
statute of limitations only because the taxpayer had
hand-delivered his returns to the wrong office.
The IRS is generally required by IRC § 6501(a) to
assess income tax deficiencies no later than three
years after the filing of an income tax return. In
1997, when the facts at issue in this case occurred,
section 6091(b)(1)(A) required individual taxpayers to
file their returns with the director of the district
office in which their legal residence or principal
place of business was located. In the case of tax
returns delivered by hand, Treas. Reg. §
1.6091-2(d)(1) required them to be filed with the
district director or any person who is the
administrative supervisor of an area, zone or office
which is a permanent post of duty within that IRS
district. (These provisions have since been amended to
require filing within the taxpayer’s IRS district to a
designated service center or a responsible person at a
local IRS office serving the taxpayer’s legal
residence or principal place of business. Hand
delivery must be to a person with responsibility to
receive hand-delivered returns at the same local
office.) The term “filed” was and is not defined in
the Code or regulations, but the courts have
considered returns filed only when they have been
delivered in the proper form to an individual and
location specified in the Code or regulations.
Excavation business owner and tax protester Fred W.
Allnutt Sr. of Ellicott City, Md., waged a
decades-long legal battle with the IRS that included
criminal charges against him of tax evasion and
conspiracy, of which he was acquitted in a jury trial
in 1997. He then submitted returns he had refused to
file for 15 previous years—1981 through 1995. On the
advice of his attorney, Allnutt signed the returns and
handdelivered them, along with a transmittal letter,
on Feb. 21, 1997, to what he later acknowledged was
the wrong place: the Baltimore District Counsel Office
of the IRS. Less than a half-hour later, as what he
thought was just a courtesy, he took photocopies of
those returns, which he signed over his photocopied
signature, to the Baltimore District Office of the
IRS, where the original returns should have been
hand-delivered. He addressed the envelope containing
the copies to the district director and asked
directions to his office, but wound up instead giving
it to an unidentified person without receiving any
receipt or record indicating the time and date. These
copies ended up at the Philadelphia Service Center of
the IRS with a postmark of May 9, 1997, while the
original returns were received at the Special
Procedures Office of the District Director on March
10, 1997. With neither set of returns did he pay the
full amount of tax the IRS would later contend he
owed: nearly $2 million, including penalties.
More than three years after Allnutt dropped off the
returns, the IRS mailed him a notice of deficiency.
However, the date of the notice, March 6, 2000, was
four days before the third anniversary of Allnutt’s
original returns being stamped as received and well
before that of the copies reaching Philadelphia, where
they had been processed as his returns. The notice
assessed taxes for 1987 through 1990 and 1992 through
1995. Allnutt petitioned the Tax Court for
relief, stating the assessment was not timely. The Tax
Court held the assessment was timely since Allnutt
never intended to file the photocopied returns, and
his originals weren’t properly filed until they
reached the correct office. Allnutt appealed the
decision to the Fourth Circuit. The Fourth
Circuit chose not to consider which of the two sets of
returns Allnutt intended to file. It instead found
that Allnutt had not “meticulously complied” with the
Code and regulations, since he did not deliver the
returns to the district director, that person’s
assistant, the director’s office or even to the
Taxpayer Services walk-in area in the building. The
IRS could have handled Allnutt’s returns more
efficiently, but statutes of limitations must be
strictly construed in the government’s favor, the
Fourth Circuit said. This case illustrates how
proper observance of the statute of limitations
requires strict compliance with procedural rules for
filing returns.
Allnutt v. Commissioner , 101
AFTR2d 2008-1836
By Charles J. Reichert , CPA,
professor of accounting, University of Wisconsin
–Superior.
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