T.C. Mem o. 2 01 4- 45

UNITED STAT ES TAX COURT

VINCENT A. W OLFINGTON AN D ALICIA M. W OLFINGTON, Peti ti on ers v.

COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 20 74 8- 11
. Fi le d M arch 18 , 20 14
.
Vin cen t A. W ol fin gt on an d Al ic iaM. W ol fin gt on , pro ses e. St ep hani e A. Sas arak , forres po nd en t.

MEMORANDUM FINDINGS OF FACT AND OPINION LAUBER, Ju dg e: W it h re sp ectto pe ti ti on ers ’ Fed eral in co m e ta x fo r 20 05
an d 2 00 6, t he Int ern al Rev en ue Serv ic e (IR S o r res po nd en t) i ss ue d ano ti ce o f de fic ie nc y

da te d J un e 7 , 20 11 , det erm in in g d efi ci en ci es an d a dd it io ns to tax in th e fo ll owi ng am ou nt s:- 2 -

[* 2] Add it io ns to tax Year Defi ci en cy Sec. 6 65 1( a)(1 ) Sec. 6 65 1( a)(2 ) Sec. 6 65 4( a) 20 05 $1 73 ,17 4 $2 4,2 58 $2 7,0 65 $4 ,05 3 20 06 21 0,1 17 27 ,77 1 30 ,85 7 5,3 85 As d is cu ss edm or e fu ll y

be lo w, th e p art ie s h av e st ip ul at edpe ti ti on ers ’
co rrec t t ax li ab il it y

for each y ear; on e res ul t o f th atst ip ul at io n i s t ha t p et it io ne rs no w hav e anov erp aym en t fo r 20 06 . The i ss ue s re m ai ni ng forde ci si onare (1 ) whe th er p et it io ne rs are l iabl e fo r ad di ti on s t o t ax un de r se ct io ns 66 51 (a)( 1) , 66 51 (a)( 2) , and66 54 (a) fo r 20 05 ; an d (2 ) whe th er p et it io ne rs m ay be all owe d a cred itag ai ns t t he ir 2 00 5 l iabi li ty for the ir 2 00 6 o ve rp aym en t. 1 FINDINGS OF FACT So m e o f th e fac ts ha ve be enst ip ul at edan d a re s o fo un d. Pe ti ti on ers are
m arri ed , andth ey

res id edin Flo rid a whe n the y fil edth ei r pe ti ti onwith t he Co urt. Befo re the y ears at i ss ue Mr. Wolf in gt on serve d a s C EO of Ca rey In te rn at io na l (C arey), a well -kno wn l im ou si ne co m pa ny. In20 04 he en de d h is

All st atut ory

refe ren ces are t o t he Int ern al Rev en ue Co de in effe ctforth e 1 y ears in is su e, an d a ll Ru le refe ren ces are t o the Tax C ou rt Rul es of P ract ic e an d Pro cedur e. All m on et ary am ou nt s ar e ro un de d t o t he ne ares t d ol la r.- 3 -

[* 3] em pl oym en t wi th Care y

an d was ele ct edch ai rm anof t he W or ldTrav el & Tou ris m Co un ci l, a Lo nd on -b as edtra de org an iz at io n. Fo r ta x year 20 04 pe ti ti on ers fil edanun ti m el y joi ntFed eral in co m e ta x return andrep orte d atax li ab il it y of $ 13 4,4 19 . Duri ng 20 05 an d 2 00 6 M r. W ol fin gt on rece iv edsev eran ce p aym en ts fro m Care y , whi ch withh el d F ed eral in co m e ta x fr om

th os e p aym en ts . Mr. W ol fin gt on ’s new jo b re qu ire d e xt en si ve in te rn at io na l t rav el bu t d idno t p ro vi de hi m th e supp ort s ta ff t o wh ic h h e h ad gr own accu st om ed . Mrs . W ol fin gt on was re co ve rin g fr om a si gn ifi can t i ll ne ss du rin g 2 00 5- 06
. In20 05 pe ti ti on ers so ldth e h ou se in whi ch th ey ha d l iv edform or e th an30 y ears . Duri ng th at30 -y ear p eri odpe ti ti on ers ha d m ad e num ero us ho m e im pr ov em en ts . Howev er, the y

ke ptno co nt em

po ran eo us reco rdof wh atth os e im pr ov em en ts co st . Pet it io ne rs kn ew th atth ey were re qu ire d t o fi le Fed eral in co m e ta x re tu rn s fo r 20 05 an d 2 00 6, an d t he y so ug htan d re cei ve d e xt en si on s o f ti m e to fil e. They
ne ve rth el es s fa il edto fil e returns by the du e d at es as e xt en de d. As a res ul t, the IRS p rep aredsubs ti tu te s fo r returns (SFRs ) fo r 20 05 an d 2 00 6 p ur su an t t o s ect io n 60 20 (b ). The IR S th enus edth e SFR s t o p rep are ano ti ce o f de fic ie nc y , whi ch it- 4 -

[* 4] is su edto pe ti ti on ers on Ju ne 7, 2 01 1. Pe ti ti on ers ti m el y pe ti ti on edth is Co urt
se ek in g re de te rm in at io n o f th e d efi ci en ci es . Thre e week s af

te r fi li ng th ei r pe ti ti on , pet it io ne rs m ai le d t o t he IRS Fo rm s 10 40 , U.S. Ind iv idua l In co m e Tax Return, fo r 20 05 an d 2 00 6. Be fo re re cei vi ng th es e returns on Octo be r 4, 2 01 1, t he IRS h adrece iv edno tax return o r cl ai m for refu ndfro m

pe ti ti on ers rel at in g t o 2 00 5 o r 20 06 . W it h thi s n ew in fo rm at io n, t he IRS d et erm in eda sm al le r de fic ie nc y for20 05 an d an o ve rp aym en t fo r 20 06
. The 2
ov erp aym en t was attrib ut ab le to th e fac t tha t t he am ou nt s C arey hadwithh el d fo r 20 06 ex ceed edth e rev is ed20 06 tax li ab il it y th atth e IRS de te rm in ed . Usin g t he in fo rm at io n re po rte d o n p et it io ne rs ’ la te -fi le d re tu rn s, t he IRS re cal cu la te d t he ir in co m e ta x l iabi li ti es as f ol lo ws:

Pet it io ne rs ob

jecte d t o t he us e o f th e te rm “ de fic ie nc y ” inth e st ip ul at io n o f 2 fact s b ecau se th e am ou nt s s ho wn as “ de fic ie nc ie s” were co m pu te d wi th ou t re ga rd to withh ol di ng cred it s. “ Defi ci en cy ” is a te rm of art i n t hi s co nt ex t. Sec ti on 62 11 (a)( 1) de fin es “ de fic ie nc y ” as th e co rrec t t ax fora y ear, m in us th e su m of “ th e am ou ntsh own as t ax by the tax pa y er upo n h is return” an d “ am ou nt s p rev io us ly as se ss ed .” Thu s, p et it io ne rs ’ wit hh ol di ng cred it s fo r 20 05 an d 2 00 6 d o n oten te r in to th e co m

pu ta ti on of t he rel ev an t “ de fic ie nc ie s.” Se e se c. 62 11 (b )(1 ). Had pe ti ti on ers fil edti m el y

tax returns for20 05 an d 2 00 6, t he re wo ul d h av e b een “ am ou nt [s ] sh own as t ax ” o n t ho se returns an d t he de fic ie nc ie s d et erm in edin th e 90 -d ay let te r wou ldha ve be enreduc edpro tan to . As itis , pet it io ne rs di d n otfil e returns be fo re the 90 -d ay let te r was is su ed , andth e d efi ci en ci es de te rm in eddo no t refl ectwithh ol di ng cred it s.- 5 -

[* 5]

T ax

Wi thh el d Liabil it y/

(over
paym ent ) Addi ti ons to ta x Year Def

ic ie ncy Sec . 665 1(a )( 1) Sec . 665 1(a )( 2) Sec . 665 4(a ) 2005 $137 ,433 $64, 916 $72, 517 $16, 316 $18, 129 $2,6 19 2006 37 ,326 86, 731 (4 9,40 5) - - - - - - - - - The ad di ti on s t o t ax setforthab ov e, pl us th e cre di tabi li ty of th e 2 00 6 o ve rp ay m en t, ar e th e rem ai ni ng is su es in di sp ut e. OPINION I. Bu rd enof P ro of Res po nd en t b ears th e b ur de n o f pr oduc ti on forth e ad di ti on s t o t ax . See s ec. 74 91 (c). On ce re sp on de ntm eet s h is bu rd enof p ro du ct io n, p et it io ne rs be ar the bu rd enof p ro of

, in cl ud in g t he bu rd enof p ro vi ng reas on ab le cau se forlat e pa ym en t o r la te fil in g. Se e Ru le 14 2( a); Hig be e v . Comm is si on er, 1 16 T.C. 43 8, 44 6- 44 7 (2 00 1) . A part y cla im in g e qu it ab le reco up m en t b ears th e b ur de n o f pr ov in g t ha t i t ap pl ie s. Est at e o f Mu el le r v. C omm is si on er, 1 01 T.C. 55 1, 5 56 (1 99 3)
. II. Add it io ns to Tax A. Sect io n 6 65 1( a)(1 )--F ai lu re To Fil e Sect io n 6 65 1( a)(1 ) pr ov id es foranad di ti on to tax when a ta xp ay er fa il s t o fil e a return t im el y , un le ss th e ta xp ay er p ro ve s tha t t he fai lu re was du e to reas on -- 6 -

[* 6] ab le cau se an d n otdu e to wil lfu l n eg le ct . Late fi li ng of areturn i s due to
reas on ab le cau se “ [i]f th e ta xp ay er ex erci se d o rd in ary bu si ne ss care an d p ru de nc e an d was ne ve rth el es s u nabl e to fil e th e return wi th in th e p res cri be d t im e.” Sec
. 30 1.6 65 1- 1( c)(1 ), Pro ced . & Adm in . Reg s. Fo r eac h m on thor f ract io n t he reo f fo r whi chsu ch fai lu re co nt in ue s, s ect io n 6 65 1( a)(1 ) ad ds 5% o f th e ta x re qu ire d t o b e sh own on su ch return, up t o am ax im um ad di ti on of 2 5%. The pa rti es st ip ul at edth atpe ti ti on ers di d n otfil e a t im el y return fo r 20 05 , bu t p et it io ne rs ass ertth atth ei r fai lu re was du e to reas on ab le cau se . At tri al pe ti
ti on ers adva nc edtwo ex pl an at io ns forth ei r fai lu re t o fi le ti m el y : (1 ) th ey di d n ot fil e a 2 00 5 re tu rnbe cau se th ey th ou gh t t he y

owedno tax , and(2) th ey di d n otfil e a 2 00 5 re tu rnon ti m e b ecau se th ey ne ed edad di ti on al ti m e to ga th er i nf orm at io n ab ou t the co stba si s o f th ei r ho m e, whi ch th ey so ldat aga in du rin g t ha t year. Neit he r ex pl an at io n s uf

fic es to de m on st rat e th e o rd in ary bu si ne ss care an d prud en ce t he reg ul at io ns requi re. Fi rs t, p et it io ne rs ’ be li ef tha t a r eturn fo r 20 05 , if p rep ared , wou ldsh ow n o pa ym en t due pro vi de s n o ju st ifi cat io n fo r ne gl ect in g t o p rep are a ndfil e th atreturn. Eve n i f pe ti ti on ers ’ ta x l iabi li ty for 2 00 5 h adbe enful ly sati sf ie d b y withh ol di ng at th e so ur ce, the y

wou ldst il l h av e b een requi redto fil e a return b ecau se th ei r gr os s- 7 -

[* 7] in co m e fo r 20 05 co m fo rtabl y ex ceed edth e th res ho ldforno nf il ers . A 3 ta xp ay er’s m is ta ke n b el ie f th athe or s he ne edno t fi le a return i s n otreas on ab le
cau se . Henn in gs env. Co m m is si on er, 2 6 T.C. 5 28 , 53 6 (1 95 6) , aff’d, 2 43 F.2d 95 4 (4 thCir . 19 57 ); Rug ge ri v . Comm is si on er, T.C. Mem o. 2 00 8- 30 0, 9 6 T.C.M
. (CCH) 51 1, 5 12 (20 08 ). Seco nd , pet it io ne rs ’ as se rti on th atth ey ne ed edfiv e ad di ti on al y ears to ga th er i nf orm at io n c on cern in g t he co stof t he ir h om e im pr ov em en ts is bo th un co nvi nc in g a ndm is gu id ed . If pe ti ti on ers co ul d n otacce ss th e rel ev an t re co rd s b y th e ex te nd ed20 05 fil in g d ead li ne , th ey sh ou ldha ve fil eda return t o the be stof t he ir ab il it y an d l at er fi le d a n a m en de d re tu rnto co rrec t an y erro rs . See Est at e o f Vrin io ti s v . Comm is si on er, 7 9 T.C. 2 98 , 31 1 (1 98 2) ; El ec. & Neo n, In c. v. Co m m is si on er, 5 6 T.C. 1 32 4, 1 34 2- 13 43 (19 71 ), aff’d wi th ou t p ub li sh edop in io n, 4 96 F.2 d 8 76 (5t h C ir. 1 97 4) . A pers on do es no t n eedtax ex pe rti se to reco gn iz e th is
co m m on sen se so lu ti on . Pet it io ne rs ’ acco un ta ntcred ib ly test ifi edth atpe ti ti on ers di d n otha ve , as o f Apr il 15 , 20 06 , all th e in fo rm at io n n eces sa ry to co m pu te th ei r 20 05 in co m e ta x
Fo r 20 05 m arri edco up le s fi li ng joi nt ly w ere r equi redto fil e a return i f bo th 3 ta xp ay ers were o ve r 65 an d t he ir c om bi ne d g ro ss in co m e ex ceed ed$1 8,4 00 . See se c. 60 12 (a)( 1) (A)(i v) . Lower t hr es ho ld s ap pl ie d fo r m arri edco up le s fi li ng joi nt ly if o ne or b ot h t ax pa y ers were u nd er the ag e o f 65 . See s ec. 6 01 2( a)(1 )(B)
.- 8 -

[* 8] li ab il it y . He th eref

or e se cu redanex te ns io n o f ti m e, un ti l Oct ob er 1 5, 2 00 6, to fil e th e 2 00 5 re tu rn . Butpe ti ti on ers di d n otsupp ly him with c os t-b as is in fo rm at io n c on cern in g t he 20 05 sal e o f th ei r ho m e unt il Marc h 2 01 1, m or e th an fiv e y ears aft er thi s s al e o ccu rred . Andth ey di d n otsubm ita fi na l ac co un ti ng of th ei r ho m e im

pr ov em en t co st s u nt il Octo be r 20 12 , alm os t s ev eny ears aft er thi s sa le oc cu rred . No am ou ntof i nt ern at io na l trav el ex cu se s d el ay s o f th is m ag ni tu de
. Mr. Wolf in gt on tes ti fie d t ha t h is wife ’s il ln es s was on e o f th e d is tra ct io ns who se cu m

ul at iv e eff

ectpre ve nt edpe ti ti on ers fro m ti m el y fil in g t he ir r eturn. Whi le we are s ym

pa th et ic to Mrs . W ol fin gt on ’s il ln es s, p et it io ne rs di d n otpro vi de
an y ev id en ce t ha t h er i ll ne ss , alo ne or c um ul at iv el y , hada di rectim pa cton pe ti ti on ers ’ ab il it y

to fil e th ei r 20 05 return a s re qu ire d. Pet it io ne rs ’ ap pa ren t i nd iff eren ce t owa rdth ei r in co m e ta x o bl ig at io ns was su gg es te d b y

Mr. Wolf

in gt onat t ria l wh enhe sai d: “ [O]ur b el ie f was th atth ere’d be no tax pe na lt y

an d t ha t the gu n- to -th e-h eadde ad li ne was n otser io us .” W e ho pe th atex pe rie nc e is a go odtea ch er. W e fi ndth atpe ti ti on ers lac ke d re as on ab le
cau se forfai li ng to fil e th ei r return t im el y an d a cco rd in gl y

su st ai n t he sec ti on 66 51 (a)( 1) ad di ti on to tax for20 05
.- 9 -

[* 9] B. Sect io n 6 65 1( a)(2 )--F ai lu re To Pay Sect io n 6 65 1( a)(2 ) pr ov id es foranad di ti on to tax when a ta xp ay er fa il s t o pa y th e ta x s ho wn o n areturn t im el y , un le ss th e ta xp ay er p ro ve s t ha t t he fai lu re was du e to reas on ab le cau se an d n otdu e to wil lfu l n eg le ct . A sub st itut e fo r return pr ep aredby the IRS p ur su an t t o s ect io n 6 02 0( b) is tre at edas t he “ return” fil edby th e ta xp ay er fo r pu rp os es of s ect io n 6 65 1( a)(2 ). See s ec. 6 65 1( g) . For e ach m on th
orfrac ti on th ereo f fo r whi ch a fai lu re t o p ay co nt in ue s, s ect io n 6 65 1( a)(2 ) ad ds 0.5 % of the tax requi redto be sh own on su ch return, up t o am ax im um ad di ti on of 25 %. The pa rti es ag ree t ha t p et it io ne rs di d n otfil e th ei r 20 05 return t im el y an d th atth e IRS pre pa redanSFR fo r 20 05 th atm etth e requi rem en ts of s ect io n 60 20 (b ). Howev er, p et it io ne rs ass ertth atth ei r fai lu re t o p ay was due to
reas on ab le cau se . The ex cu se s t he y off er fo r la te pa ym en t ar e th e sa m e ex cu se s th ey off eredforlat e fi li ng . As di sc us se d abo ve , th es e ex cu se s d o n otco ns ti tu te
reas on ab le cau se . W e acc or di ng ly sus ta in th e se ct io n 6 65 1( a)(2 ) ad di ti on to tax fo r 20 05
. C. Sect io n 6 65 4( a)-- Fai lu re To Pay Est im at edTax Sect io n 6 65 4( a) p ro vi de s fo r anad di ti on to tax when anin di vi du al un de rpa y s t he requi redest im at edtax . The es ti m at edtax du e is equa l t o t he les se r of (i)- 10 -

[* 10 ] 90 % of t he tax du e fo r th aty ear, or ( ii ) 10 0% o f th e ta x due forth e 4 pr eced in g year, if atax pa y er h as fil eda return fo r th e p rece di ng y ear. Se c. 66 54 (d )(1 )(B) . Tax wi th he ldat t he so ur ce i s co un te d a s a p aym en t i n d et erm in in g whe th er the tax pa y er h as pa idth e requi redest im at edtax . Sec. 6 65 4( g) (1 ). Rea so nabl e cau se is no t a d efen se to th e se ct io n 6 65 4( a) ad di ti on to tax . Gro ss ha nd le r v. C omm is si on er, 7 5 T.C. 1 , 21 (19 80 ). Pet it io ne rs ’ in co m e ta x l iabi li ty for 2 00 5 i s $ 13 7,4 33 , 90 % of wh ic h e qu al s $1 23 ,69 0. Pe ti ti on ers fil eda 20 04 return a ndha d a20 04 in co m e ta x l iabi li ty of $1 34 ,41 9. Pe ti ti on ers owedest im at edtax equa l t o the les se r of th es e am ou nt s, $1 23 ,69 0, b utth ey

pa idon ly $64 ,91 6 t hr ou gh withh ol di ng fro m Mr. Wolf

in gt on ’s wag es . W e acc or di ng ly sus ta in th e se ct io n 6 65 4( a) ad di ti on to tax for20 05
. III. Cred it ab il it y

of 2 00 6 Ov erp aym en t W e tu rnne xtto pe ti ti on ers ’ co nt en ti on th atth e st ip ul at edov erp aym en t o f $4 9,4 05 for20 06 sh ou ldbe cred it edag ai ns t t he de fic ie nc y an d a dd it io ns to tax th atwe ha ve su st ai ne d fo r 20 05 . Sect io n 6 51 1 o ut li ne s t he va rio us pe rio ds of
The requi redan nu al pa y

m en t i s 9 0% o f th e ta x s ho wn o n t he return, o r if 4 no return i s m ad e, 90 % of t he tax forsu chy ear. Se c. 66 54 (d )(1 )(B) (i) . Retu rn s subm it te d a fte r th e IRS ha s m ai le d ano ti ce o f de fic ie nc y fora pa rti cu la r y ear are no t co ns id ered“ fil ed ” fo r pu rp os es of s ect io n 6 65 4( d) (1 )(B) (i) . See Me nd es v. Co m m is si on er, 1 21 T.C. 30 8, 3 28 (20 03 ). Thu s p et it io ne rs di d n otfil e a return fo r 20 05 , andth e am ou ntis ba se d o n t he tax du e.- 11 -

[* 11 ] li m it at io n fo r fi li ng a cl ai m forrefu ndof o ve rp ai d t ax . In s itua ti on s wh ere (as he re) atax pa y er d oe s n otfil e a return, h e h as two y ears fro m th e ti m e th e ta x was pa idto fil e a ref

un d c la im . Sec. 6 51 1( a). Forcal en dar y ear t ax pa y ers , tax 5 de du ct edan d wi th he ldat the so ur ce i s d eem edpa idon Apri l 1 5 o f th e fo ll owi ng y ear. Se e se c. 65 13 (b )(1 ). No ref un d i s p erm it te d u nl es s a c la im forrefu ndis
m ad e wit hi n t he two -y ear p eri odof l im it at io n p res cri be d i n s ect io n 6 51 1( a). The on ly tax pe ti ti on ers pa idfor20 06 was t he am ou ntwithh el d fr om Mr. W ol fin gt on ’s wage s. Th is tax was d eem edpa idonApri l 1 5, 2 00 7. Se e se c. 65 13 (b )(1 ). Pet it io ne rs were t he refo re req ui redto m ak e a cl ai m for refu ndby Apr il 15 , 20 09 . Peti ti on ers di d n otm ak e a cl ai m forrefu ndun ti l af

te r th is su it
co m m en cedin 20 11 , andth ey di d n otpa y

an y am ou ntof t ax aft er the m ai li ng of th e n ot ic e o f de fic ie nc y . See s ec. 6 51 2( b) (3 )(A). Pet it io ne rs ’ cl ai m fora refu ndis th eref or e b arre d b y

st atut e. Bec au se a cred itis othe rwis e ti m e b arre d, p et it io ne rs askth e Co urt t o app ly th e d oc tri ne of e qu it ab le reco up m en t t o c red itth ei r 20 06 ov erp aym en t ag ai ns t
Sect io n 6 51 1( a) p res cri be s a l on ge r pe rio d o f li m it at io n- -th ree years- -wh en 5 a ta xp ay er fi le s a r eturn. A subs ti tu te forreturn i s n ota “ return” fil edby a ta xp ay er fo r pu rp os es of s ect io n 6 51 1. Heal er v . Comm is si on er, 1 15 T.C. 31 6, 32 2 (2 00 0) . Thu s t he two -y ear, ra th er than t hr ee-year, pe rio d o f li m it at io n app li es . Sec. 6 51 1( a). Pet it io ne rs ’ cl ai m fora refu ndwou ldbe un ti m el y ev enif t he y

ha d th e b en efi t o f th e lo ng er p eri odof l im it at io n.- 12 -

[* 12 ] th ei r 20 05 de fic ie nc y . Equ it ab le reco up m en t i s an affi rm at iv e d efen se th at al lo ws a t ax pa y er t o re du ce t he am ou ntof ade fic ie nc y by the am ou ntof ati m eba rredov erp aym en t. Me nard , Inc . v. Co m m is si on er, 1 30 T.C. 54 , 62 (20 08 ). Sect io n 6 21 4( b) gra nt s t he Co urt ju ris di ct io n t o c on si de r cl ai m s o f equi tabl e reco up m en t. The pa rty rais in g a n a ffi rm at iv e d efen se m us t s pe ci fic al ly ple adit , or el se itis waiv ed . See Ru le 39
. Pet it io ne rs di d n otpl eadequi tabl e rec oupm en t i n t he ir p et it io n, an d t he y ha ve no t m ov edto am en d t he ir p et it io n, s o t he y have waiv edth is de fen se . If pe ti ti on ers ha d m ov edto am en d t he ir p et it io n t o a ss ertth is de fen se , we wou ld ha ve de ni edth atm ot io n. Th e Co urt s ho ul d n otgra ntlea ve to am en d wh ere t he reque st in g p art y

can no t p rev ai l o n t he m eri ts , see Est at e o f Lee v . Comm is si on er, T.C. Mem o. 2 00 9- 30 3, 9 8 T.C.M . (CCH) 6 57 , 65 9 (2 00 9) , andpe ti ti on ers do no t ha ve a m eri to rio us cla im

forequi tabl e rec oupm en t. Equ it ab le reco up m en t i s an equi tabl e rem edy to pre ve ntin

jus ti ce “ whe re the Gov ern m en t h as tax eda si ng le tra ns act io n, i te m , or t ax ab le ev en t u nd er two i nc on si st en t t he or ie s.” Un it edSta te s v . Dalm , 49 4 U.S. 5 96 , 60 5 n .5 (1 99 0) . The p art y cl ai m in g t he be ne fitof a n e qu it ab le reco up m en t d efen se m us t p ro ve th atitap pl ie s. Men ard , Inc ., 13 0 T.C. at62 . To pr ev ai l o n acla im of e qu it ab le reco up m en t, the ta xp ay er m

us t d em on st rat e th at : (1 ) th e ti m e fo r refu ndor c red itof the- 13 -

[* 13 ] ov erp aym en t fo r whi ch reco up m en t i s s ou gh t h as ex pi red ; (2 ) th e ti m eba rredov erp aym en t ar os e o utof t he same tran sa ct io n, i te m , or t ax ab le ev en t as th e de fic ie nc y

be fo re the Co urt; an d (3 ) th e tr an sa ct io n, i te m , or t ax ab le ev en t h as be enin co ns is te nt ly sub

jecte d t o two t ax es . See Ro th en si es v. Ele c. St or ag e Bat te ry Co ., 32 9 U.S. 2 96 , 29 9- 30 0 (1 94 6) ; M en ard , Inc ., 13 0 T.C. at62 -6 3. Whi le th e ti m e fo r pe ti ti on ers to reque sta refu ndha s cl earl y expi red , th ey

ha ve no t sh own th atth e o th er el em en ts of e qu it ab le reco up m en t wo ul d app ly. Each tax y ear i s t he ori gi n o f a n ew ta x l iabi li ty, an d e ach y ear s ta nd s o n i ts
own . Aut o. Cl ub of M ic h. v . Comm is si on er, 3 53 U.S. 18 0 (1 95 7) ; Co m m is si on er v. Su nn en , 33 3 U.S. 5 91 , 59 8 (1 94 8) . Unl es s t he re i s a s ub st an ti ve tax ne xu s be twee n two t ax y ears , th e li ab il it y an d t he ov erp aym en t wi ll no t b e v ie wedas ari si ng fro m

th e sa m e tr an sa ct io n o r ta xabl e ev en t. See Est at e o f Bra ns on v. Co m m is si on er, 1 13 T.C. 6, 1 8 (1 99 9) (requi rin g a“ tra ns act io na l n ex us ” b etween di ffer en t t ax y ears in anequi tabl e rec oupm en t ca se ), aff’d, 2 64 F.3d90 4 (9 th Cir
. 20 01 ). Equ it ab le reco up m en t i s i nt en de d t o e nabl e co urts to vi ew a s in gl e tra ns act io n a s a wh ol e, no t t o a ll ow o ne tra ns act io n t o o ffs etan othe r. Elec. St or ag e Bat te ry

Co ., 32 9 U.S. at29 9. Pe ti ti on ers ha ve fai le d t o s ho w any

“ tra ns act io na l n ex us ” o r ot he r co nn ect io n b etween th ei r 20 05 an d 2 00 6 t ax y ears .- 14 -

[* 14 ] They the refo re ca nn otsh ow t ha t t he ir 2 00 6 o ve rp aym en t ar is es fro m th e sa m e tr an sa ct io n a s t he 20 05 li ab il it y . Pet it io ne rs ha ve li ke wis e fai le d t o s ho w th atan y tra ns act io n h as be en in co ns is te nt ly sub

jecte d t o two t ax es . See, e.g ., Esta te of Vi ttv. Un it edSta te s, 70 6 F .2d87 1, 8 75 (8t h C ir. 1 98 3) (sa m e tr an sa ct io n s ub ject t o b ot h ava li d andan in va li d e st at e ta x) ; Es ta te of B ran so n, 1 13 T.C. at 3 5 (i nc on si st en t t reat m en t o f
sa m e tr an sa ct io n fo r pu rp os es of i nc om e an d e st at e ta x) . As st at edab ov e, pe ti ti on ers ha ve no t s ho wn t he requi si te tra ns act io na l n ex us be twee n t he in co m e ta x o ve rp aym en t an d t he in co m e ta x l iabi li ty to es tabl is h t ha t t he y ha ve a si ng le tra ns act io n. An d t he IRS h as no t s ou gh t t o app ly any tax “ in co ns is te nt ly.” The st atut e o f li m it at io ns on refu nd s wo ul d b e m ean in gl es s i f equi tabl e reco up m en t en ab le d t ax pay ers to ha ve anin co m e ta x o ve rp aym en t fo r an y y ear cred it edag ai ns t an in co m e ta x d efi ci en cy foran y y ear. As th e Supr em e Co urt
wro te in Elec . Sto rag e Bat te ry Co ., 32 9 U.S. at30 1: It p ro babl y

wou ldbe all bu t i nt ol erab le * * * t o h av e an in co m e ta x s y st em

un de r whi ch th ere n ev er wo ul d c om e a d ay of f in al se tt le m en t an d wh ic h re qu ire d b oth t he tax pay er an d the Gov ern m en t to st an d re ady

for ev er an d aday

to pro du ce v ou ch ers , pro ve ev en ts , es tabl is h v al ue s an d re cal l d et ai ls of a ll th atgo es in to anin co m e ta x co nt es t. Hen ce a s ta tu te of l im it at io n i s an alm os t i nd is pe ns ab le el em en t o f fai rn es s as well as o f pr act ic al adm in is tra ti onof a n i nc om e ta x p ol ic y .- 15 -

[* 15 ] The d oc tri ne of e qu it ab le reco up m en t i s n otanin vi ta ti on to ig no re the st atut e o f li m it at io ns . Even if t he y ha d p ro pe rly ple ad edth is de fen se in th ei r pe ti ti on , pet it io ne rs wou ldhave no m eri to rio us cla im forequi tabl e rec oupm en t. To re fle ctth e fo reg oi ng ,
Deci si on wil l b e en te redun de r Ru le 15 5.