Opinion ID: 1088711
Heading Depth: 1
Heading Rank: 2

Heading: Analogous Cases

Text: Taxes are to be assessed in exact proportion to the value of the property taxed. Although it has been stated that this valuation may be a percentage of the actual value, see State v. Birmingham So. Ry., supra, and the valuation process is not always accurate, see Hamilton v. Adkins, 250 Ala. 557, 35 So.2d 183 (1948), if that proportionate value is overstated, in the case of nonexistent or exempt property, and the taxes collected are beyond those owed, then refunds have been allowed. In Pacific Coast Co. v. Wells, 134 Cal. 471, [66 P. 657 (1901)], the taxpayer inadvertently overstated the amount of his solvent credits, and the assessor adopted the erroneous figure as the basis of the assessment. The Supreme Court treated the tax there as based pro tanto on nonexistent property and held the taxpayer entitled to a refund. Lockheed Aircraft Corp. v. County of Los Angeles, 207 Cal.App.2d 119, 126-27, 24 Cal.Rptr. 316, 321 (1962). In Lockheed, the court stated that the various refund decisions reflect the view of the courts that where it can be established that an assessment is based upon property which is exempt, outside the jurisdiction, or nonexistent, the taxpayer is entitled to judicial relief. 207 Cal.App.2d at 127, 24 Cal.Rptr. at 321. Therefore, an overpayment of tax should result in a tax refund. Such refunds are appropriate regardless of the malfeasance of the person seeking the refund. This was noted by Craig M. Boise in Playing with Monopoly Money: Phony Profits, Fraud Penalties and Equity, 90 Minn. L.Rev. 144, 147-48 (2005), which examines recent incidents of falsely inflated income of major U.S. corporations. [5] A Wall Street Journal article noted the same principle: [f]raud or not, the current tax code makes no distinctions. It is a basic tenet of tax law  both for individuals and corporations  that those who overpay are entitled to a refund. Rebecca Blumenstein, Dennis K. Berman, and Evan Perez, After Inflating Their Income, Companies Want IRS Refunds, The Wall Street Journal, May 3, 2003, at A1. Additionally, many articles have reported that HealthSouth, Enron Corporation, and WorldCom are seeking tax refunds from the Internal Revenue Service (the IRS). See, e.g., Associated Press, Judge orders Scrushy to pay back millions in HealthSouth bonuses, Bradenton Herald, Jan. 5, 2006, which stated: Combined with as much as $265 million in refunds the company is seeking from the federal government for taxes it paid on overstated income during the fraud, the court-ordered repayment could help shore up the finances of HealthSouth. Although taxpayers who fraudulently increase their income are entitled to a refund, we may have difficulty determining whether these taxpayers actually get a refund. The IRS requires confidentiality of federal income-tax returns. 26 U.S.C. § 6103. Nonetheless, some reports may come from the corporations themselves, as was the case for MCI, formerly WorldCom. MCI, formerly known as WorldCom Inc., has already collected nearly $300 million in overpayments from the I.R.S., a company spokeswoman said. The telecommunications giant's accounting irregularities total $11 billion. Anitha Reddy and Christopher Stern, Firms Want Refunds of Tax on Fake Profit; MCI Collects Almost $300 Million, The Washington Post, final ed. May 3, 2003, at E1. The State of Alabama should not deny refunds on nonexistent property when the IRS provides refunds of taxes paid on nonexistent income.