T.C. Memo. 2017-75

UNITED STATES TAX COURT

PANAGIOTA PAM SOTIROPOULOS, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 19884-12. Filed May 1, 2017.

Jeffrey L. Gould, for petitioner.

Scott A. Hovey, for respondent.

MEMORANDUM OPINION

LAUBER, Judge: Section 901(a) permits a U.S. citizen or resident to claim

a credit for income tax paid to a foreign country.

1

 If the foreign tax paid is later

1All statutory references are to the Internal Revenue Code (Code) in effect

for the tax years in issue, and all Rule references are to the Tax Court Rules of

Practice and Procedure. We round all monetary amounts to the nearest dollar.
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[*2] “refunded in whole or in part,” the taxpayer is required to notify the Secretary, “who shall redetermine the amount of the tax for the year or years affected.” 

Sec. 905(c)(1)(C). Any U.S. tax due as a result of the Secretary’s redetermination

is not subject to deficiency procedures but “shall be paid by the taxpayer on notice

and demand by the Secretary.” Sec. 905(c)(3); see sec. 6213(h)(2)(A). 

Petitioner is a U.S. citizen who lived and worked in the United Kingdom. 

On her Federal income tax returns for 2003-2005, she claimed foreign tax credits

based on the amounts of U.K. income tax withheld from her wages by her employer. Her U.K. income tax returns for the relevant periods, however, showed large

overpayments. She applied to have those overpayments returned to her, and the

U.K. Government duly rebated to her substantially all of the tax that had been

withheld from her wages. Petitioner contended that these sums had not been “refunded” because her ultimate entitlement to refunds remained under investigation

in the United Kingdom. She accordingly did not notify the Secretary (by filing

amended returns or otherwise) pursuant to section 905(c)(1).

Following examination of petitioner’s 2003-2005 returns, the Internal Revenue Service (IRS or respondent) issued her a notice of deficiency. In that notice

the IRS determined that the U.K. taxes she paid had been “refunded” and recomputed her foreign tax credits accordingly; the IRS also determined for each year an
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[*3] accuracy-related penalty under section 6662(a). After the case was docketed

in this Court, respondent moved to dismiss for lack of jurisdiction. He contended

in that motion that he had erred in issuing the notice of deficiency; that this case is

not subject to deficiency procedures; and that section 905(c) authorized him to

redetermine petitioner’s 2003-2005 tax and collect it from her upon notice and demand.

In Sotiropoulos v. Commissioner (Sotiropoulos I), 142 T.C. 269 (2014), we

held that this Court has jurisdiction to determine, at a minimum, whether section

905(c), the statutory provision alleged to divest us of jurisdiction, applies. We

thus held that we have jurisdiction to determine whether the U.K. taxes petitioner

paid were “refunded in whole or in part” within the meaning the statute. Respondent subsequently moved for partial summary judgment on this question. Concluding as we do that the U.K. taxes in question were indeed “refunded” to petitioner,

we will grant respondent’s motion, with the corollary that this case must be dismissed insofar as it concerns the foreign tax credit adjustments properly subject to

redetermination by the Secretary under section 905(c)(1).

Background

The parties filed a stipulation of facts that is incorporated by this reference. 

The following facts are derived from that stipulation, amplified as necessary by the
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[*4] parties’ pleadings, motion papers, and the exhibits and declarations attached

thereto. Petitioner resided in London, England, when she filed her petition.

Petitioner is a U.S. citizen who lived in London, England, during 2002-

2006.

2

 She was employed by the London office of Goldman Sachs at all relevant

times. As a U.K. resident working in the United Kingdom she was subject to U.K.

income tax. She received employee compensation from Goldman Sachs, which

withheld U.K. income tax from her wages. The withheld taxes, denominated “Pay

as you Earn” or “PAYE” taxes, constituted prepayments of U.K. income tax. 

During 2002-2006 petitioner made substantial investments in U.K. film

partnerships that used structured transactions to generate large purported deductions for U.K. tax purposes. For each year she filed a U.K. income tax return reflecting (among other things) her estimated share of the film partnerships’ deductions and losses. After receiving final information from the partnerships, she filed

amended U.K. returns revising those estimates.

Despite her U.K. residency, petitioner as a U.S. citizen was required to file

Federal income tax returns for the years at issue. For U.S. purposes she has al2For U.K. tax purposes petitioner reported on the basis of a fiscal year ending April 5. For purposes of determining her correct U.S. tax liabilities for 2003-

2005, therefore, the relevant U.K. tax years are her 2002-2006 fiscal years. 
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[*5] ways been a calendar year, cash basis taxpayer. She filed timely returns on

Forms 1040, U.S. Individual Income Tax Return, for 2003, 2004, and 2005. 

On each U.S. return petitioner elected to claim a foreign tax credit under

section 901(a). For each year she claimed a credit based on the amount of U.K.

income tax withheld from her wages by Goldman Sachs. For 2003, 2004, and

2005 she reported having paid, via wage withholding, U.K. income tax of

$283,910, $221,318, and $237,882, respectively.

3

 After computing various limitations on the allowable credits, she claimed on her 2003, 2004, and 2005 returns

foreign tax credits of $202,855, $134,420, and $162,182, respectively.

4

 She did

not report on her U.S. returns any losses or other items attributable to the U.K.

film partnerships.

Petitioner’s original and amended U.K. returns for the relevant years

showed large overpayments, attributable chiefly to losses from the U.K. film part3Respondent converted amounts paid in British pounds into dollars at what

respondent determined to be the applicable exchange rate. Although the correctness of respondent’s currency conversions is immaterial for purposes of deciding the instant motion for partial summary judgment, it could be relevant for computing any penalty ultimately determined to be due.

4Section 905(a) allows a cash basis taxpayer the option of claiming a foreign

tax credit, subject to certain limitations, “in the year in which the taxes of the

foreign country * * * accrued.” Petitioner did not exercise this option. Rather,

she claimed for each year a credit based on the PAYE taxes withheld in cash from

her wages by Goldman Sachs. 
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[*6] nerships. Petitioner applied to Her Majesty’s Revenue and Customs

(HMRC), the U.K. taxing authority, to have these overpayments returned to her. 

HMRC complied with her request and rebated to her substantially all of the U.K.

income tax that had been withheld from her wages.

Petitioner did not notify the IRS, by filing amended returns or otherwise,

that the U.K. taxes for which she had claimed credits had been “refunded in whole

or in part.” See sec. 905(c)(1)(C). The IRS nevertheless ascertained through information sharing that petitioner had invested in U.K. film partnerships; that she

had claimed substantial deductions attributable thereto; and that she had filed U.K.

returns requesting refunds. Upon examination of her 2003-2005 returns the IRS

determined that she had received U.K. income tax refunds of $413,126 in 2003,

$292,663 in 2004, and $239,202 in 2005. It therefore disallowed what it determined to be appropriate amounts of her claimed foreign tax credits. 

Rather than invoking section 905(c)(3) as authority for collecting the redetermined tax upon notice and demand, the IRS sent petitioner a notice of deficiency for 2003-2005. The reductions to petitioner’s foreign tax credits were the only

adjustments reflected in the notice of deficiency. That notice determined tax deficiencies and accuracy-related penalties as follows:
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[*7] Penalty

Year Deficiency sec. 6662(a)

2003 $135,250 $27,050

2004 127,366 25,473

2005 140,848 28,170

Petitioner timely petitioned this Court for redetermination of the deficiencies and penalties. Approximately one year after filing his answer, respondent

moved to dismiss this case for lack of jurisdiction insofar as it concerns the adjustments to petitioner’s foreign tax credits. Respondent submitted that he had erred

in issuing the notice of deficiency; that section 905(c) authorized him to redetermine the amount of petitioner’s 2003-2005 tax and collect it upon notice and demand; and that foreign tax credit adjustments of the sort involved here “are expressly removed from deficiency procedures” by a cross-reference from section

6213(h)(2)(A) to section 905(c).

In Sotiropoulos I we noted the well-settled rule that “[t]his Court always has

jurisdiction to determine whether it has jurisdiction.” 142 T.C. at 272 (citing

Cooper v. Commissioner, 135 T.C. 70, 73 (2010)). We concluded that we have

jurisdiction, at a minimum, “to decide whether the statutory provision alleged to

divest us of jurisdiction applies, i.e., whether the U.K. taxes paid by petitioner

have been ‘refunded in whole or in part’ within the meaning of section
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[*8] 905(c)(1)(C).” Id. at 279. We noted that this assumption of jurisdiction

would afford petitioner a prepayment forum for resolving “the central issue that

she raises on the merits, namely, that the amounts she received from U.K. taxing

authorities * * * were not ‘refunds.’” Id.

Discussion

A. Summary Judgment Standard

The purpose of summary judgment is to expedite litigation and avoid costly,

time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner, 90

T.C. 678, 681 (1988). The Court may grant summary judgment “upon all or any

part of the legal issues in controversy” when there is no genuine dispute as to any

material fact and a decision may be rendered as a matter of law. Rule 121(a) and

(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17 F.3d

965 (7th Cir. 1994). In deciding whether to grant summary judgment, we construe

factual materials and inferences drawn from them in the light most favorable to the

nonmoving party. Sundstrand Corp., 98 T.C. at 520. However, the nonmoving

party “may not rest upon the mere allegations or denials” of his pleadings but

instead “must set forth specific facts showing that there is a genuine dispute for

trial.” Rule 121(d); see Sundstrand Corp., 98 T.C. at 520.
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[*9] Respondent seeks partial summary judgment on the ground that the overpayments of U.K. income tax returned to petitioner were “refunded” within the

meaning of section 905(c)(1)(C). Petitioner acknowledges that she received these

payments; the question we must decide is how they should be characterized for

U.S. tax purposes. This is essentially a question of law. Petitioner has pointed to

no material dispute of fact affecting the disposition of this question, and we conclude that it may be adjudicated summarily.

5

B. Statutory Background

Subject to certain limitations, a U.S. citizen may elect to take a foreign tax

credit against her U.S. income tax liability for income taxes paid or accrued to a

foreign country or a U.S. possession. Sec. 901(a). Congress anticipated the difficulty of ascertaining, at the time the U.S. return is filed, the exact amount of for5Respondent states that the accuracy-related penalties determined in the notice of deficiency may fall under this Court’s jurisdiction and may involve disputed facts. However, respondent has expressed his intention to concede these penalties if the Court grants his motion for partial summary judgment and dismisses

the case insofar as it concerns the foreign tax credit adjustments. Respondent also

states that “the precise amounts of the refunded U.K. taxes and U.S. tax adjustments” may still be at issue but “should be resolvable under Tax Court Rule 155.” 

It is not clear that we have jurisdiction to determine the precise amounts of the

refunded taxes--section 905(c)(1) provides that “the Secretary * * * shall redetermine the amount of the tax”--or of the asserted penalties. But we need not

address these issues in ruling on respondent’s motion for partial summary judgment. Petitioner’s liability (if any) for penalties will be resolved in further proceedings after disposition of respondent’s motion for partial summary judgment.
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[*10] eign tax that will ultimately be allowable as a credit. It accordingly

provided, in what is now section 905(c), a special procedure for adjusting the -

credit when the taxpayer’s ultimate foreign tax liability varies from the amount

claimed. Section 905(c)(1) specifies three situations in which a U.S. taxpayer’s

foreign tax credit must be adjusted:

(A) accrued taxes when paid differ from the amounts claimed

as credits by the taxpayer,

(B) accrued taxes are not paid before the date 2 years after the

close of the taxable year to which such taxes relate, or

(C) any tax paid is refunded in whole or in part * * *

The regulations describe these three situations as involving a “foreign tax

redetermination.” Sec. 1.905-3T(c), Temporary Income Tax Regs., 53 Fed. Reg.

23614 (June 23, 1988).6 If a “foreign tax redetermination” as thus defined occurs,

section 905(c)(1) provides that “the taxpayer shall notify the Secretary, who shall

redetermine the amount of the tax for the year or years affected.” Because the

6The 1998 temporary regulations discussed in the text, secs. 1.905-3T and

1.905-4T, Temporary Income Tax Regs., 53 Fed. Reg. 23614, 23617 (June 23,

1988) were in effect through November 6, 2007. They were amended in November 2007, but the provisions discussed herein remained substantially the same after

that amendment. These provisions were set to expire on November 5, 2010. See

secs. 1.905-3T(f), 1.905-4T(f)(3), Temporary Income Tax Regs., 72 Fed. Reg.

62784, 62787 (Nov. 7, 2007). The provisions discussed in the text were in effect

at all times relevant to this case.
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[*11] IRS, absent notice from the taxpayer, generally will not know of revisions to

the taxpayer’s foreign tax liabilities, the Code has long required self-reporting of

such changes. See generally Pac. Metals Corp. v. Commissioner, 1 T.C. 1028,

1029, 1031 (1943) (discussing section 131(c) of the Revenue Act of 1936, a

predecessor of section 905(c)). Section 6689 provides a strong incentive for

taxpayers to comply with their self-reporting obligations under section 905(c)(1),

imposing an assessable penalty up to 25% of the deficiency for failure to provide

the notice required by section 905(c)(1) unless it is shown that such failure is due

to reasonable cause and not due to willful neglect.

With exceptions not relevant here, the taxpayer is supposed to notify the

Secretary by filing an amended return. Sec. 1.905-4T(b)(1), Temporary Income

Tax Regs., 53 Fed. Reg. 23617 (June 23, 1988). An individual taxpayer is instructed to include with her amended return a revised Form 1116, Foreign Tax

Credit, and information sufficient to enable the IRS to redetermine her U.S. tax

liability. See sec. 1.905-4T(b)(1), (3), (c), Temporary Income Tax Regs., supra.

Once the IRS redetermines the taxpayer’s liability in accordance with section 905(c)(1), “[t]he amount of tax (if any) due * * * shall be paid by the taxpayer

on notice and demand by the Secretary, and the amount of tax overpaid (if any)

shall be credited or refunded to the taxpayer.” Sec. 905(c)(3). A cross-reference
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[*12] from section 6213 confirms that the usual restrictions on assessment do not

apply to section 905(c) adjustments made by the Secretary. See sec. 6213(h)(2)

(“For assessments without regard to restrictions imposed by this section in the case

of--(A) Recovery of foreign income taxes, see section 905(c).”); sec. 1.905-

4T(b)(1), Temporary Income Tax Regs., supra (“Subchapter B of chapter 63 of the

Code (relating to deficiency procedures) shall not apply with respect to the

assessment of the amount due upon such redetermination.”). 

C. Analysis

Petitioner has stipulated that the foreign tax credits she claimed for 2003-

2005 corresponded to the U.K. income taxes withheld from her wages under the

PAYE system and remitted by her employer to HMRC. She has also stipulated

that substantially all of the tax thus paid was later returned to her by HMRC after

she reported overpayments on her U.K. returns. The question we must decide is

whether this sequence of events falls within the scenario specified in section

905(c)(1)(C), namely, where “any tax paid is refunded in whole or in part.” We

conclude that it does.

As a general rule, Federal tax provisions should be read to incorporate domestic tax concepts absent a clear congressional expression that foreign concepts

should control. Biddle v. Commissioner, 302 U.S. 573, 578-579 (1938). This
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[*13] canon of construction has “strong application” even in the foreign tax credit

context, where foreign levies may often be at issue. United States v. Goodyear

Tire & Rubber Co. & Affiliates, 493 U.S. 132, 145 (1989). In Goodyear, the

Supreme Court held that the term “accumulated profits,” as it appeared in former

section 902(c)(1)(A), governing the indirect foreign tax credit, “should be

calculated in accordance with domestic tax principles.” Id.

“Our starting point, as in all cases involving statutory interpretation, ‘must

be the language employed by Congress.’” Id. at 138 (quoting Reiter v. Sonotone

Corp., 442 U.S. 330, 337 (1979)). Words used in a statute are to be given their

ordinary meaning in the absence of persuasive reasons to the contrary. See, e.g.,

Burns v. Alcala, 420 U.S. 575, 580-581 (1975); Hewlett-Packard Co. v. Commissioner, 139 T.C. 255, 264 (2012).

Section 905(c)(1)(C) authorizes the Secretary to redetermine a taxpayer’s

foreign tax credit if the foreign tax paid “is refunded in whole or in part.” A “refund” is commonly defined to include “[t]he return of money to a person who

overpaid, such as a taxpayer who overestimated tax liability or whose employer

withheld too much tax from earnings.” Black’s Law Dictionary 1472 (10th ed.

2014); see also Paulson v. United States, 78 F.2d 97, 99 (10th Cir. 1935) (“Refund

means to pay back, return, restore, make restitution. That is the ordinary and pop-
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[*14] ular concept of the word.”). The amount returned to petitioner by HMRC

for each year, which represented U.K. income tax withheld by her employer in

excess of the tax shown as due on her U.K. return, falls easily within the ordinary

meaning of the word “refund.” 

The meaning of “refunded” in section 905(c)(1)(C) was explicitly addressed

by the trial court in Goodyear. See Goodyear Tire & Rubber Co. v. United States,

14 Cl. Ct. 23 (1987), rev’d on other grounds and remanded, 856 F.2d 170 (Fed.

Cir. 1988), rev’d and remanded, 493 U.S. 132 (1989). The taxpayer there, the U.S.

parent of a worldwide group (Goodyear), had claimed indirect foreign tax credits

for 1970 and 1971 based on U.K. taxes paid by its U.K. subsidiary. The U.K. subsidiary incurred losses in subsequent years and carried those losses back to 1970

and 1971; the U.K. subsidiary then applied for, and received in 1975 and 1976,

refunds of the U.K. tax it had paid for 1970 and 1971. Invoking section

905(c)(1)(C), the IRS redetermined Goodyear’s 1970-1971 foreign tax credits and

assessed the resulting deficiencies. The taxpayer paid the assessed taxes and,

following denial of its refund claim, filed a refund suit in the U.S. Court of Federal

Claims.

The issue addressed by the Supreme Court was whether the term “accumulated profits” in former section 902(c)(1)(A) should be calculated in accordance
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[*15] with domestic or foreign tax principles. At the trial level, however,

Goodyear raised a second and distinct legal issue: “whether the payments received by its foreign subsidiary from the British government during 1975 and

1976 were properly classified and treated as refunds for years 1970 and 1971

under section 905.” Goodyear, 14 Cl. Ct. at 24. The taxpayer argued that the term

“refund” as used in section 905(c)(1)(C) “applie[d] only to refunds of incorrect

foreign taxes.” In the case of a loss carryback, Goodyear noted, the foreign tax

initially reported and paid by the foreign subsidiary for the carryback year was

correct. That being so, Goodyear urged that “the subsequent event of a net

operating loss [should] not disturb an earlier credit granted for a foreign tax which

was correct when paid.” Id. at 31-32.

Finding section 905(c)(1)(C) to be “plain and unambiguous,” the court

squarely rejected this argument:

[W]hen statutory language is unambiguous * * * , words in the statute

are considered to be used in their ordinary and usual sense. * * * The

court agrees with defendant that the reason for the refund is immaterial. What is significant is that a tax refund was paid to, and received by, plaintiff’s subsidiary. The statutory term “refund” when

construed in its ordinary and usual sense includes repayment of tax

dollars stemming from a subsequent net operating loss. The court

would be hard-pressed to find any repayment of tax dollars to not be a

refund as the term is used. [Goodyear, 14 Cl. Ct. at 32.]
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[*16] In the instant case, petitioner indisputably received “repayment[s] of tax

dollars” from HMRC, and she agrees that she received these repayments “under a

claim of right.” Cf. N. Am. Oil Consol. v. Burnet, 286 U.S. 417, 424 (1932).7 But

she asserts that these repayments were not “refunds” because it was uncertain

whether she would ultimately be able to keep this money. HMRC characterized as

“tax shelters” the film partnerships in which she had invested, and litigation on

this subject is still pending in various U.K. courts. Petitioner avers that HMRC, in

the view of her tax advisers, is “likely to prevail in * * * [its] challenge to the deductions generated by the film partnerships” in which she had invested.

7Petitioner argues that the claim of right doctrine does not apply here because section 905(c) takes a “transactional approach” to determining the correct

foreign tax credit. In her view, section 905(c) represents an exception to the annual accounting principle because “there is no statute of limitations” on section

905(c)(1) redeterminations by the Secretary. See Pac. Metals Corp., 1 T.C. at

1030-31. Contrary to petitioner’s view, the annual accounting principle is fully

applicable here. Indeed, section 905(a) explicitly allows cash-basis taxpayers to

elect accrual basis accounting when claiming foreign tax credits. In any event,

petitioner cites no authority for the proposition that section 905(c) or the overall

foreign tax credit regime applies on a transactional basis rather than an annual

basis. Quite the contrary: Petitioner acknowledges (correctly) that the United

States eliminates double taxation through foreign tax credits “by applying them

globally and on an annual rather than a transactional basis.” We conclude that the

“claim of right” doctrine applies to the repayments of tax dollars that petitioner

received no less than it would apply to any other tax refund. 
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[*17] We accept petitioner’s averments as true, but they are irrelevant in determining whether the repayments of U.K. tax she received were “refunds.” For U.S.

tax purposes, the term “refund” does not connote finality or the final determination

of a tax liability. Every year millions of Americans file Forms 1040 showing an

overpayment and indicating the amount of the overpayment they want “refunded”

to them. In the absence of concerns about identity theft or other unusual circumstances, the IRS usually pays such refunds more or less automatically. Notwithstanding payment of such refunds, the IRS routinely examines such returns and, if

it concludes that the taxpayer incorrectly computed the tax, it may assess additional tax after exhausting deficiency procedures. In short, the fact that a taxpayer

may ultimately have to repay the money initially refunded to her does not mean

that she did not get a “refund.”

The overall structure of the foreign tax credit provisions likewise shows the

error of petitioner’s argument. As a cash basis taxpayer, petitioner is entitled to

claim a credit for foreign income taxes when paid. If her predictions prove correct

and HMRC later collects additional 2002-2006 U.K. tax from her, she will be entitled to claim a credit for those taxes for the year in which she pays them. If the

credits she claimed on her 2003-2005 returns were not reduced to reflect the U.K.
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[*18] tax that was previously refunded, she would in effect be allowed a double

credit for the same tax. 

Petitioner contends that rejection of her argument may result in “double

taxation,” contrary to the policies underlying the foreign tax credit and the U.S.-

U.K. income tax treaty. She bases this contention on the assertion that, if she is

required “to repay refunds previously received from H.M.R.C. * * * , and such

repayments are considered creditable foreign taxes * * * in the year of payment,

[her] personal circumstances are such that [she] would obtain no U.S. tax benefit

from such credits.”

Petitioner offers no explanation or factual support for this vague assertion,

but it is unpersuasive in any event. It often happens that taxpayers, because of

individual circumstances or passage of time, are unable to derive full benefit from

contingent tax assets they have booked or expect to receive, such as carryforwards

of foreign tax credits, net operating losses, passive losses, or investment interest. 

This does not demonstrate any structural defect in the Code and does not give rise

to “double taxation.” It simply reflects the facts that the future is unpredictable

and that taxable income must be determined on an annual basis.

8

8Petitioner contends that respondent’s motion for partial summary judgment

should be denied because “any failure of petitioner to notify the respondent of the

(continued...)
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[*19] In sum, we conclude that the repayments of U.K. income tax that petitioner

received during 2003-2005 represented previously paid foreign tax that was “refunded in whole or in part” within the meaning of section 905(c)(1)(C). To reflect

this determination,

An order will be issued granting

respondent’s motion for partial summary

judgment.

8

(...continued)

receipt of a refund * * * at the time the repayments were received was due to reasonable cause.” The existence vel non of “reasonable cause” may be relevant to

petitioner’s liability for the section 6662 accuracy-related penalty and/or the

penalty imposed “[i]f the taxpayer fails to notify the Secretary * * * of foreign tax

redetermination.” See sec. 6689(a) (imposing penalty of up to 25% unless failure

was “due to reasonable cause and not due to willful neglect”). But the existence of

reasonable cause is irrelevant in determining whether the repayments of U.K. tax

that petitioner received constituted “refunds” within the meaning of section

905(c)(1)(C). (Respondent did not move for summary judgment on the accuracyrelated penalty. As far as we know, the IRS has not determined a section 6689

penalty and (if it had) that penalty, as an assessable penalty, would appear to lie

outside our deficiency jurisdiction.)