Opinion ID: 40585
Heading Depth: 3
Heading Rank: 3

Heading: Impact of Baral v. United States

Text: 20 We now hold that post- Baral, we are no longer bound by the Mercantile National Bank line of authority. In Baral, the Supreme Court explicitly rejected the taxpayer's argument that a tax cannot be paid until tax liability is assessed and thereby abrogated the Mercantile National Bank rule that a pre-assessment remittance is a deposit rather than a payment. Baral, 528 U.S. at 434, 437, 120 S.Ct. 1006 ([T]he Code directly contradicts the notion that payment may not occur before assessment.). 9 The unanimous Court construed the plain language of 26 U.S.C. § 6513(b)(1) and (2) as providing unequivocally that two types of remittances, wage withholdings and payments of estimated income tax, are to be deemed paid on the due date of the tax return for the tax year in question, not when formal assessment occurs. Baral, 528 U.S. at 434-36, 120 S.Ct. 1006. This treatment necessarily precludes the argument that all pre-assessment remittances are deposits, the position that this Court took prior to Baral and that the Deatons argue still prevails. 21 According to the Deatons, Baral only applies to remittances that fall under 26 U.S.C. § 6513(b), not to transmittals made with Form 4868, and their position is bolstered by the Court's final statement in Baral: 22 We need not address the proper treatment under § 6511 of remittances that, unlike withholding and estimated income tax, are not governed by a deemed paid provision akin to § 6513(b). Such remittances might include remittances of estimated estate tax, as in Rosenman, or remittances of any sort of tax by a taxpayer under audit in order to stop the running of interest and penalties. In the latter situation, the taxpayer will often desire treatment of the remittance as a deposit—even if this means forfeiting the right to interest on an overpayment—in order to preserve jurisdiction in the Tax Court, which depends on the existence of a deficiency, a deficiency that would be wiped out by treatment of the remittance as a payment. We note that the Service has promulgated procedures to govern classification of a remittance as a deposit or payment in this context. 23 Id. at 439 n. 2, 120 S.Ct. 1006 (citations omitted). However, this statement does not answer either (1) whether the Deatons' remittance is one that is governed by a `deemed paid' provision akin to § 6513(b) or (2) what the proper treatment is of remittances that are not governed by a `deemed paid' provision. The Deatons' position is that a remittance accompanying Form 4868 is not a remittance governed by a deemed paid provision and that remittances not governed by a deemed paid provision are subject to the facts-and-circumstances test established in Rosenman. 10 We take up this issue in subpart 4 below. 24 Post- Baral, ours is the only circuit to have addressed the deposit-payment distinction. In Harrigill v. United States, 410 F.3d 786 (5th Cir.2005), we addressed facts similar to the instant facts and held that the pre-assessment remittance at issue was a payment, not a deposit. Harrigill, like the Deatons, had filed a Form 4868 for the 1994 tax year and had submitted it with a remittance of the amount of tax she estimated to be due, which was later determined to be overstated. Id. at 787. Unlike the Deatons, however, Harrigill filed her tax return for 1994 within the limitations period, and the IRS duly credited her overpayment to her estimated taxes for the 1995 tax year, the return for which she had not yet filed. Id. at 787-88. When Harrigill later filed her 1995 return and found that she had again overestimated her tax liability, she sought to have the overpayment—which resulted from application of the first overpayment to her 1995 taxes—carried over as a credit for 1996. Id. at 788. The IRS denied Harrigill's request as time-barred, a decision we upheld. Id. at 788, 792. 25 In upholding the IRS's decision, we did not refute the parties' concession that Baral abrogated the Mercantile National Bank rule, id. at 790 n. 6, an abrogation we now expressly recognize, and we used a facts-and-circumstances approach to determine whether the credit applied to Harrigill's estimated taxes for 1995 was an estimated payment of estimated income tax under § 6513(b)(2) subject to Baral 's rule that payments of estimated income tax are deemed paid on the due date of the return without extension, id. at 791-92. We did not address whether Harrigill's original remittance accompanying her Form 4868 application was a deposit or a payment as a matter of law because we determined that an application of credit, rather than a Form 4868 remittance, was at issue. The instant case, however, clearly involves a Form 4868 remittance, and we must now address the question left unanswered in Harrigill: Is a remittance submitted with a Form 4868 application for an extension of time to file a payment as a matter of law? Or is it subject to the facts-and-circumstances test of Rosenman? After Baral, this is essentially an issue of first impression in this Circuit; Harden, our prior Form 4868 case, which was based on Mercantile National Bank, no longer controls.