Federal Circuit - Interest on refund starts when forms verifying withholding tax credits are attached to Form 1120F 

February 18: The U.S. Court of Appeals for the Federal Circuit today affirmed a decision of the Court of Federal Claims, that the taxpayer was not entitled to additional interest on an overpayment of its 1999 income tax because the taxpayer’s original return failed to include Forms 8805 and 1042-S (containing information verifying withholding tax credits) and thus was not in “processible form” until these forms were attached to the resubmitted income tax return. Deutsche Bank AG v. United States, 2013-5062 (Fed. Cir. February 18, 2014)

Read the Federal Circuit’s decision [PDF 117 KB]

Background

The taxpayer filed its Form 1120F for 1999 on or before September 15, 2000 (i.e., within the six-month extension of time from the original due date of March 15, 2000), and reported an overpayment of $82.5 million which was requested to be applied against the 2000 tax year.


The taxpayer claimed withholding tax credits on Form 1120F for 1999. Form 1120F (as originally filed by the taxpayer) did not itemize the taxes withheld at different sources and did not include Form 8805 or Form 1042-S (i.e., information returns that report income tax withheld on behalf of the taxpayer).


The IRS sent the originally filed Form 1120F back to the taxpayer, and requested documentation for the claimed withholding tax credit.


The taxpayer had received one Form 8805 and six Forms 1042-S. The taxpayer resubmitted the original Form 1120F along with the Forms 8805 and 1042-S, and the IRS processed the resubmitted return.


In March 2002, the taxpayer filed an amended income tax return for 1999 (on Form 1120X), and claimed an additional refund of $59 million based on a valuation adjustment. The IRS issued the $59 million refund in November 2002 along with $5 million in overpayment interest for the period January 1, 2001, to November 14, 2002.


The taxpayer then requested additional interest for the period from March 15 to December 31, 2000. The IRS rejected this claim, asserting that because no interest on an overpayment accrues before a return is filed in “processible form,” the taxpayer was entitled to interest only from January 1, 2001 (i.e., the date when the IRS recorded the resubmitted return as being filed).


The taxpayer eventually filed suit in the federal claims court for additional interest on the $59 million overpayment. The parties stipulated that the resubmitted return (Form 1120F) was filed on December 4, 2000.


The claims court held that the original return was not in processible form until December 4, 2000, and the government agreed to pay interest from December 4 to December 31, 2000.


The taxpayer appealed, seeking additional interest for the period from March 15 to December 3, 2000.

Federal Circuit

The Federal Circuit today affirmed, finding that the taxpayer’s original return—filed without Forms 8805 and 1042-S—did not meet the requirements of section 6611(g) as being in “processible form.” Thus, the appeals court concluded that interest began to accrue on December 4, 2000 (the stipulated filing date of the resubmitted return containing Forms 8805 and 1042-S).


The Federal Circuit rejected the taxpayer’s claim that Forms 8805 and 1042-S are not “required attachments” because they were not required by statute or regulation.


The Federal Circuit also noted that while a return without a required attachment may be processible when the information on the missing attachment is readily available elsewhere in the return or when the information is irrelevant to mathematical verification, the original return in this case did not contain “sufficient information” to permit the mathematical verification of the tax liability.


The appeals court concluded that because the taxpayer did not file Forms 8805 and 1042-S with the original return, there was insufficient information about the withholding tax credits to allow for a mathematical verification of the total withholding credit claimed on the return. Therefore, because the missing information was “required information,” the original return did not satisfy the requirements for section 6611(g).




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