Tax Court - Jurisdiction to determine whether a refund of foreign tax is section 905(c) redetermination  

May 5: The U.S. Tax Court today held that it had jurisdiction to determine its jurisdiction in a case concerning a taxpayer’s claims for foreign tax credits—i.e., the court held it has jurisdiction to determine whether the UK taxes paid by the taxpayer were refunded in whole or in part within the meaning of section 905(c)(1)(C). Sotiropoulos v. Commissioner, 142 T.C. No. 15 (May 5, 2014)

Read the Tax Court’s opinion [PDF 77 KB]


The taxpayer, a U.S. citizen working in London, had UK tax withheld from her wages. She filed tax returns in both the UK and the United States, and on her U.S. returns, she claimed a foreign tax credit in an amount equal to the UK tax withheld.

On her UK returns, the taxpayer claimed “substantial deductions” related to investments in UK film partnerships and applied for refunds of the UK tax withheld by her employer.

The taxpayer received payments from the UK tax authorities resulting from her 2003-05 returns; however, the taxpayer contended that these payments were not “refunds” under section 905(c)(1)(C) in part because she asserted her entitlement to refunds remained under investigation by the UK authorities. The taxpayer did not file amended U.S. returns for 2003-05 to report the reduced foreign tax credits and did not notify the IRS of the payments from the UK tax authorities as required under section 905(c) when a foreign tax is refunded in whole or in part.

The IRS examined her returns and, at some point, was informed by the UK authorities of the taxpayer’s investment in the film partnerships, her claim for substantial deductions, and the request for UK refunds. The IRS determined that the taxpayer had received UK refunds ranging from over $413,000 in 2003, $292,000 in 2004, and $239,000 in 2005 and therefore disallowed the corresponding amounts in the foreign tax credits claimed by the taxpayer on her U.S. returns.

Rather than invoking section 905(c)(3), which allows the IRS to redetermine U.S. tax liability in the event of a foreign tax redetermination, the IRS issued a notice of deficiency, and the taxpayer petitioned the Tax Court for review. Subsequently, the IRS concluded that it erred in issuing the notice of deficiency because section 905(c) provides an exception to the rules in section 6213 permitting a taxpayer to contest a liability in the Tax Court prior to payment. The IRS then filed a request to dismiss the case on the grounds that the Tax Court lacked subject matter jurisdiction.

The Tax Court today held that it has jurisdiction to determine whether the UK taxes paid by the taxpayer were “refunded in whole or in part” and thus a foreign tax redetermiantion within the meaning of section 905(c)(1)(C). This determination is necessary to reach a conclusion as to whether an exception to the rules in section 6213 allowing a taxpayer to contest a deficiency prior to payment is present and, thus, whether the Tax Court has jurisdiction. In other words, the court held that it has jurisdiction to determine whether it has jurisdiction over the matter in dispute.

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