SC Administrative Law Court Decisions

This matter is before the Administrative Law Judge Division (ALJD) pursuant to the Petitioners' (Taxpayers) request for a contested case hearing under S.C. Code Ann. § 12-60-470(F) (2000). The issue presented is whether the South Carolina Department of Revenue's (Department) Final Agency Determination properly denied the Taxpayers' 1996 income tax refund claim because their claim was untimely submitted. A hearing on this matter was held at the offices of the ALJD on November 7, 2001.

Having observed the witnesses and exhibits presented at the hearing and closely passed upon their credibility, taking into consideration the burden of persuasion by the parties, I make the following Findings of Fact by a preponderance of the evidence:

1. Notice of the time, date, place, and subject matter of the hearing was properly given to the Taxpayers and the Department.

2. The Taxpayers are husband and wife. In 1996, the Taxpayers had taxable income, part of which was withheld and remitted to the Department for income tax purposes. Prior to the 1996 income tax year, the Taxpayers prepared their own South Carolina income tax returns. In preparing those returns, they correctly deducted disability retirement income received by the husband. However, during the 1996 tax year, the Taxpayer husband became seriously ill and could not prepare their 1996 state income tax return. As a result, the Taxpayers had a tax preparer prepare their return. In doing so, the tax preparer failed to deduct the husband's disability retirement income.

3. The Taxpayers timely submitted their 1996 return on February 19, 1997 and received a refund of $860.00.

4. Prior to April 15, 2000, the Taxpayers discovered the tax preparer's failure to deduct the husband's disability retirement income on their 1996 state tax return. The Taxpayers then notified the tax preparer of the mistake prior to April 15, 2000. The tax preparer, however, did not prepare an amended 1996 state tax return for the Taxpayers until June 1, 2000.

5. The Taxpayer wife filed their amended 1996 state tax return on June 1, 2000. That return claimed an additional refund of $888.00. I find, however, that the Taxpayers' refund claim request was untimely filed.

Based upon the above Findings of Fact, I conclude the following as a matter of law:

1. The ALJD has jurisdiction to hear this matter pursuant to S.C. Code Ann. § 12-60-470(F) (2000).

2. In South Carolina, the right to recover improperly paid taxes is statutory in nature. C.W. Matthews v. S.C. Tax Com'n, 267 S.C. 548, 230 S.E.2d 223 (1976). Accordingly, anyone seeking a refund of taxes must do so pursuant to the appropriate refund statute. Guaranty Bank & Trust v. South Carolina Tax Commission, 254 S.C. 82, 173 S.E.2d 367 (1970). Furthermore, "a refund of taxes is solely a matter of governmental grace, … and any person seeking such relief must bring himself clearly within the terms of the statute authorizing the same." Asmer v. Livingston, 225 S.C. 341, 82 S.E.2d 465 (1954).

3. S.C. Code Ann. § 12-60-470 (2000) sets forth the procedure for seeking state tax refunds in South Carolina. It grants the Department the authority to issue refunds provided the claims are submitted within the time limitations of S.C. Code Ann. § 12-54-85(F)(1) (2000). During the tax year in question, this statute provided as follows:

Except as provided in subsection (D) above, claims for credit or refund must be filed within three years of the time the return was filed, or two years from the date of payment, whichever is later. If no return was filed, a claim for refund must be filed within two years from the date of payment.

Section 12-54-85(F)(1) (Supp. 1995) (eff. Aug. 1, 1995), amended by Section 12-54-85(F)(1) (Supp. 1997) (substituting "timely filed return, including extensions," for "return," in the first sentence of subsection (F)(1)). In other words, Section 12-54-85(F)(1) requires that the Taxpayers must have filed their tax return timely in order to avail themselves of the three-year limitation period.

4. Section 12-54-85(F)(1) allows refund claims if such are filed within two years of the date the taxes were paid. Therefore, under the two-year limitation, the Taxpayers had two years from April 15, 1997 in which to file their refund claim; i.e., April 15, 1999. See Section 12-54-85(F)(5). The Taxpayers did not file their claim by this date, but rather filed on June 1, 2000. Thus, I conclude the Taxpayers have failed to come within the two-year time limitation of Section 12-54-85(F)(1).

5. Moreover, even if the Taxpayers were granted the three-year limitation period in which to file their tax return, the Taxpayers failed to come within the three-year time limitation of Section 12-54-85(F)(1). The Taxpayers' original 1996 income tax return was timely filed on February 19, 1997. As a result, pursuant to Section 12-54-85(F)(5), they had three years from April 15, 1997 in which to file their refund claim; i.e., April 15, 2000. The Taxpayers, however, did not file their claim by this date. Instead, they filed on June 1, 2000.

6. The Taxpayers have requested that the lateness of their claim be excused because neither they nor their tax preparer was aware of the law. This request cannot be granted. It is an old maxim that "ignorance of the law is no excuse." Barlow v. United States, 32 U.S. 404 (1833); Smothers v. U.S. Fidelity and Guar. Co., 322 S.C. 207, 470 S.E.2d 858 (1996). The application of that maxim is clear in this case because it would be impossible to administer the tax laws if a taxpayer could simply argue as a defense that they were ignorant of its provisions. See Utermehle v. Norment, 197 U.S. 40 (1905).

7. The Taxpayers have also requested that the lateness of their claim be excused because such was caused by severe medical problems. Although I wish that I could lawfully grant this request, reluctantly it cannot be granted. Although the Taxpayers' medical circumstances truly are misfortunate, Section 12-54-85(F)(1) provides for no hardship or equitable exceptions to its time limitations. (See United States v. Brockamp, 519 U.S. 347 (1997), wherein the United States Supreme Court recognized the problem governmental entities would encounter if there were equitable exceptions to statutory time limits on refund claims.)

Based upon the foregoing Findings of Fact and Conclusions of Law:

IT IS HEREBY ORDERED that the Department properly denied the Taxpayers' claim for a refund for the 1996 income tax year.

AND IT IS SO ORDERED.

Ralph King Anderson, III

Administrative Law Judge

February 13, 2002

Columbia, South Carolina