SC Administrative Law Court Decisions

This contested case is brought by Petitioners Bobby E. and Norma R. Danzie (Taxpayers) claiming a refund based upon their 2002 State Income Tax Return. Jurisdiction is granted to the Administrative Law Court (ALC) by S.C. Code Ann. § 12-60-470(F) (Supp. 2007). After timely notice to the parties, this matter was heard on April 16, 2008. The issue is whether the Taxpayer filed a timely request for a refund. Upon review of the evidence submitted and the testimony proffered, this court concludes that the Taxpayers’ claim for a refund was untimely filed and therefore must be denied.

FINDINGS OF FACT

Having carefully considered all testimony, exhibits and arguments presented at the hearing of this matter, and taking into account the credibility and accuracy of the evidence, I make the following findings of fact by a preponderance of evidence:

1. In 2002, the Taxpayers had taxable income, $2,938 of which was withheld for income tax purposes while Mrs. Danzie was employed at Fort Jackson, South Carolina, and remitted to the South Carolina Department of Revenue (Department). Mrs. Danzie worked in South Carolina, although the couple resided out of state in Georgia near Augusta at the time of filing.

2. The Taxpayers did not file their 2002 State Income Tax Return by the due date, April 15, 2003. Mrs. Danzie engaged an accountant in 2003. The filing of their 2002 tax return was delayed due to issues with someone else using their son’s social security number and other issues on their federal tax return. On December 13, 2006, the Taxpayers filed their 2002 State Income Tax Return, claiming a refund of $1,587. It is undisputed that the Taxpayers did not file any request for extension with the Department.

3. The Department issued a Final Agency Determination on June 18, 2007, that the Taxpayers’ 2002 refund claim must be rejected as untimely filed because it was filed beyond the three-year period provided in S.C. Code Ann. § 12-54-85(F) (Supp. 2007). The Taxpayers protested the Department's denial of the refund claim on July 3, 2007.

4. The Taxpayers contend they are entitled to the refund because Mrs. Danzie was transferred from Germany in military service in 2002 and it was their first time filing in the United States. As such, they could not claim losses until the matter had been settled with the IRS, after appropriately obtained extensions. Mr. Danzie argues that deadline problems were not encountered in the state of Georgia and that they did not realize they had to file and pay South Carolina income taxes when they resided in Georgia and Mrs. Danzie simply worked in South Carolina. Therefore, they were unaware of the necessity of filing requests for extension to preserve their refund claim. The Taxpayers contend that the lateness of their filing should be excused based on ignorance of the law. It is undisputed that the Taxpayers’ late filing was not deliberate.

CONCLUSIONS OF LAW

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

1. In examining the Taxpayers’ claim for a refund, the applicable statutory provision pertaining to the time limitation for refund claims is S.C. Code Ann. § 12-60-470(A) (Supp. 2007). This statutory provision provides:

A taxpayer may seek a refund of a state tax by filing a written claim for refund with the department. A claim for refund is timely filed if filed within the period specified in Section 12-54-85. . . .

S.C. Code Ann. § 12-54-85(F)(1) (Supp. 2007) provides as follows:

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

S.C. Code Ann. § 12-54-85(F)(1) (Supp. 2007). The statute was revised in 1997 to clarify that the return must be timely filed. The Taxpayers have not met the requirements of S.C. Code Ann. §12-54-85(F)(1) (Supp. 2007). To avail themselves of the three-year limitation period for a claim for refund, the Taxpayers must have filed a timely return. Thus, the three-year limitation period applies only to amended returns, not to delinquent returns.

2. A similar proposition may be found in the language of the Internal Revenue Code § 6511(a), which is almost identical to S.C. Code Ann. § 12-54-85(F)(1) (Supp. 2007). There is substantial federal case law interpreting section 6511(a), which is instructive in interpreting S.C. Code Ann. § 12-54-85(F)(1) (Supp. 2007). In the case of Arnzen v. I.R.S., 91-1 U.S.T.C. P50, 020, the taxpayers filed their 1984 federal income tax return in April 1988 requesting a refund of overpaid tax. The U.S. District Court held as follows:

Section 6511(a) must be read to refer to a "timely" filed return. Thus, if the taxpayer files a timely return, he has three years from the date the return was filed or two years from when the tax was paid in which to file a claim for a refund. If no return is timely filed, the second part of the sentence applies and the taxpayer has two years from the date the tax was paid to file a claim for refund. (citations omitted).

3. In the instant case, the Taxpayers should have filed their refund claim no later than April 15, 2005, in order to receive a refund of the amount claimed. That is, the two-year limitation of Section 12-54-85(F)(1) would apply, rather than the three-year limitation. Since the Taxpayers failed to timely file their return initially, they had two years from the date their taxes were “paid” in which to file a refund claim. S.C. Code Ann. § 12-54-85(F)(5)(a) (Supp. 2007) provides that:

Payment of any portion of the tax made before the last day prescribed for the payment of the tax is considered made on the last day. The last day prescribed for filing the return or paying the tax must be determined without regard to any extension of time.

Inasmuch as their 2002 taxes were deemed paid on April 15, 2003, the Taxpayers’ refund claim had to be submitted no later than April 15, 2005. The Taxpayers’ return and refund request was not filed until December 13, 2006.

4. Alternatively, the Taxpayers would have 180 days to request a refund resulting from adjustment of their federal income taxes and resultant taxable income under S.C. Code Ann. § 12-54-85 (D)(3) & (4) (Supp. 2007). Their federal taxes were partially refunded on June 5, 2006. Thus, the request for state tax refund on that basis would have to be submitted by December 5, 2006. It is undisputed that the Taxpayers’ request for refund was filed on December 13, 2006, eight days too late even under this alternate method. Arguably, the date would be even earlier under subsection (D)(4)(a)—when the IRS determined the refund was due. As Jan Crangle of the Department testified, even if the Taxpayers had met that deadline, they would be entitled only to that portion of their refund attributable to adjustments in their federal taxes and federal taxable income, not the entire refund.

5. Jan Crangle testified that there are no reciprocal provisions between Georgia and South Carolina, such that the filing of Georgia taxes would toll the South Carolina time limits. She also testified that there is no exemption for military personnel, except those serving in a combat zone, which in any event would not be applicable here. It is undisputed that Mrs. Danzie was not serving in a combat zone and would not benefit from this exemption. Rather, this case is subject to the ordinary refund time limits.

6. When considering a refund statute, this court is guided by settled rules of statutory construction. In South Carolina, the right to recover improperly paid taxes is statutory in nature. C.W. Matthews v. S.C. Tax Comm’n, 267 S.C. 548, 230 S.E.2d 223, 226 (1976). Accordingly, taxpayers claiming a refund of taxes must do so pursuant to the statute authorizing the refund. Guar. Bank & Trust v. S.C. Tax Comm’n, 254 S.C. 82, 173 S.E.2d 367, 370 (1970). In Asmer v. Livingston, 225 S.C. 341, 82 S.E.2d 465, 466 (1954), the South Carolina Supreme Court held that:

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. . . .

The Taxpayers have not met this burden and are not entitled to a refund pursuant to S.C. Code Ann. § 12-54-85(F)(1) (Supp. 2007). S.C. Code Ann. § 12-54-85 (Supp. 2007) does not provide for any exceptions for individuals. This result may be harsh, but the right to apply for a refund is purely statutory, and it is incumbent upon those seeking relief to proceed according to the statute affording such relief. Commonwealth of Va. v. Cross, 196 Va. 375, 83 S.E.2d 722 (1954).

7. “The legislature is responsible for enacting a statutory scheme of taxation but each taxpayer has certain definite responsibilities, also. Taxpayer responsibility is stressed in court decisions as well as in statutes.”^[1] The statutory requirements cannot be waived by the Department or this court. “[T]he jurisdictional requirement of a timely claim for refund stands paramount. The I.R.S. may not waive this requirement.”^[2]

8. Furthermore, reviewing courts have no legislative powers. A court’s responsibility is to determine and give effect to the intention of the legislature. “To do otherwise is to legislate, not interpret. The responsibility for the justice or wisdom of legislation rests exclusively with the legislature, whether or not we agree with the laws it enacts.” Smith v. Wallace, 295 S.C. 448, 452, 369 S.E.2d 657, 659 (Ct. App. 1988) (citations omitted). In enacting S.C. Code Ann. § 12-54-85 (Supp. 2007), the General Assembly protected the rights of taxpayers against erroneous assessments. At the same time, in not providing exceptions for untimely refund claims, the legislature virtually ensured that the Department would not be inundated with requests for refunds after the statutory period to create a workable tax administration.

9. The U.S. Supreme Court has expressly recognized the administrative problem government would encounter if there were equitable exceptions to statutorily mandated time limits for requesting refunds of erroneously paid or assessed taxes. Writing for the unanimous Court, Justice Breyer stated:

Tax law, after all, is not normally characterized by case-specific exceptions reflecting individualized equities. . . . [A]n “equitable tolling” exception. . . could create serious administrative problems by forcing the IRS to respond to, and perhaps litigate, large numbers of late claims, accompanied by requests for “equitable tolling” which, upon close inspection, might turn out to lack sufficient equitable justification. . . . The nature and potential magnitude of the administrative problem suggest that Congress decided to pay the price of occasional unfairness in individual cases (penalizing a taxpayer whose claim is unavoidably delayed) in order to maintain a more workable tax enforcement system. At the least it tells us that Congress would likely have wanted to decide explicitly whether, or just where and when, to expand the statute’s limitations periods, rather than delegate to the courts a generalized power to do so wherever a court concludes that equity so requires.

U.S. v. Brockamp, 519 U.S. 347, 351, 117 Sup. Ct. 849, 852 (1997). At the end of the cut-off period, the government has to be able to depend on its budgeted amount of money and bring closure to older claims. Timely claims for refund or requests for extension equitably provide relief for Taxpayers and afford the government notice that those claims are still outstanding to be paid. No timely claim for refund or extension was filed in the instant case.

10. While this situation is unfortunate for the Taxpayers and this court takes no joy in its decision, the State must be able to carry out its duties and bring closure to these matters. While I am sensitive to the concerns raised by the Taxpayers, I do not possess unfettered discretion such that I can, by judicial fiat, decide that the late filing should be allowed and the refund issued. Rather, in reaching a decision in this matter, I am constrained by the evidentiary record presented through the conduct of the trial in this case and by the applicable law. In particular, it must be emphasized that the South Carolina General Assembly has chosen to provide a very limited window for filing for state tax refunds. Under that statute, the conclusion is inescapable that there is no statutory exception to the filing deadlines for individual tax returns or other legal basis to grant the Taxpayers’ request for a refund.

ORDER

For the foregoing reasons, IT IS HEREBY ORDERED that the Taxpayers’ request for a refund of $1,587 is denied.

AND IT IS SO ORDERED.

____________________________________

April 21, 2008 JOHN D. GEATHERS

Columbia, South Carolina Administrative Law Judge

1205 Pendleton Street, Suite 224

Columbia, South Carolina 29201-3731