Opinion ID: 2995283
Heading Depth: 2
Heading Rank: 2

Heading: Remittance

Text: Dr. Malachinski sent the IRS a remittance of $20,400 in April 1984 in anticipation of income tax liability for 1980. Notably, at the time Dr. Malachinski made this payment, the IRS had not defined any tax liability for 1980. Although the taxes were under audit, no examination report proposing a deficiency had been prepared. Indeed, the deficiency was not determined until ten years later. In 1988, the IRS transferred the payment to Dr. Malachinski’s individual 1982 income tax account. The money, plus $902 in interest, was refunded by the IRS six months later. Dr. Malachinski argues that he did not request either the credit of the funds to his 1982 taxable year or the refund of that amount. He denies, moreover, that he ever received the refund; he speculates that Superson intercepted the check and forged his endorsement. Thus, even if he does not prevail on the statute of limitations defense, Dr. Malachinski asserts that he is entitled to a credit of $20,400 against the deficiency he now owes on his 1980 tax return. The tax court determined that it was without jurisdiction to determine whether Dr. Malachinski was entitled to a credit against the 1980 deficiency. The court reasoned that, when the payment was initially made, it was not a payment toward a 1980 liability and therefore ought to be considered a deposit rather than a payment to satisfy a particular tax liability. Later, the IRS applied the funds to Dr. Malachinski’s 1982 tax liability and, in the course of determining the extent of that 1982 liability, returned these funds as an overpayment. Because the tax court did not have jurisdiction over Dr. Malachinski’s 1982 tax liability in this action, the court could not review the correctness of the IRS’ disposition of the funds with respect to that year. Therefore, at the time it was asked to apply the funds to the 1980 tax liability, there were no funds within the court’s jurisdiction to apply to that liability.
In reviewing the determination of the tax court, we turn first to its initial determination that, at the time of their receipt by the IRS, the funds were a deposit rather than a payment on the 1980 taxes. In Moran v. United States, 63 F. 3d 663 (7th Cir. 1995), this circuit joined a significant number of other circuits in concluding that a court must look to the facts and circumstances of an individual case to determine whether a remittance is a deposit or a payment. See id. at 667-68. We held that for the purposes of deciding whether a remittance was a payment of tax, formal assessment is only one factor to be considered. Id. at 668 (quoting Ewing v. United States, 914 F.2d 499 (4th Cir. 1990), cert. denied, 500 U.S. 905 (1991)). Other factors to be considered include the taxpayer’s intent upon making the remittance, how the IRS treats the remittance upon receipt, and when the tax liability is defined. See Moran, 63 F.3d at 668. In Moran, we also took the view, without extended discussion, that we ought to assess these factors under a de novo standard of review. Further reflection has convinced us that a deferential standard is more appropriate. Recent years have seen a growth in our national jurisprudence on the appropriate standard of review for the application of legal principles to fact-specific questions. The Supreme Court has made it clear that plenary review is appropriate when a relevant legal principle can be given meaning and clarified only through the application of that rule to the circumstances of a particular case and when there are particularly important reasons for the courts to craft a defined set of rules that ensure that future determinations involving important rights are made accurately. See Ornelas v. United States, 517 U.S. 690, 697-98 (1996); see also Cooper Indus., Inc. v. Leatherman Tool Group, Inc., 121 S. Ct. 1678, 1685-88 (2001). However, absent such special considerations, a proper allocation of the roles of trial and appellate courts counsels that fact- specific questions not easily susceptible of useful generalization be reviewed deferentially by appellate courts. See Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 399-405 (1990); Pierce v. Underwood, 487 U.S. 552, 557-63 (1988). The application of the facts and circumstances test that we embraced in Moran indicated strongly that we ought to review the determination of the tax court on this question deferentially. On this point--the applicable stand-ard of review--our language to the contrary in Moran is overruled./5 Applying a deferential standard of review to the determination of the tax court in this case, we see no reason to disturb that court’s conclusion. The record adequately supports the conclusion that the tax court correctly determined the payment in this case, at the time it was made, was a deposit. As we already have noted, Dr. Malachinski’s payment was made in April 1984, well before any liability was defined. At that time, his 1980 tax return was being audited, but no report proposing a deficiency was prepared until 15 months later, and the deficiency was not determined until 10 years later. The amount of the remittance bore, in the words of the tax court, no perceptible relationship to the amount of the deficiency proposed in the examination report (more than $90,000). R.56 at 20. Dr. Malachinski, additionally, did not indicate that the remittance constituted a payment; rather, he recalled making it to halt the accrual of interest./6 Further, the IRS apparently treated the remittance as a cash bond. When it refunded the remittance, it included $902 in interest--a reflection of the accrual of interest for the six months the money was in the 1982 account and not for the total four and-a-half years the IRS had the money. The payment of interest only for the time that the money was posted to the 1982 account indicates that the IRS treated the payment as a cash bond for the year 1980./7
Although the tax court has jurisdiction to determine whether a deposit payment is applicable to a particular deficiency, see Hays v. Commissioner, 71 T.C.M. (CCH) 1754, 1757-58 (1996), here, the court was never asked to determine whether the deposit in question could be attributed to the 1980 tax year at any time prior to the IRS’ application of those funds to the 1982 tax account in 1988. Whether those funds were properly allocated to the 1982 tax account was a matter not properly before the tax court in this proceeding because the court did not have jurisdiction over the 1982 tax account. See I.R.C. sec. 6214(b). At first glance, section 6512(b) seemingly might provide a jurisdictional hook to permit the tax court to reach this question. That section states: [I]f the Tax Court finds that there is no deficiency and further finds that the taxpayer has made an overpayment of income tax for the same taxable year . . . in respect of which the Secretary determined the deficiency, or finds that there is a deficiency but that the taxpayer has made an overpayment of such tax, the Tax Court shall have jurisdiction to determine the amount of such overpayment, and such amount shall, when the decision of the Tax Court has become final, be credited or refunded to the taxpayer.