SC Administrative Law Court Decisions

Petitioner (Taxpayer) seeks an income tax refund for the 1995 tax year. Additionally, Taxpayer seeks to recover against Respondent, South Carolina Department of Revenue (DOR), costs she incurred in obtaining income tax refunds for tax years 1994 and 1996. DOR opposes Taxpayer's position and asserts that Taxpayer's refund claim was not timely filed and that the Administrative Law Judge Division (ALJD) does not have jurisdiction to award costs associated with the 1994 and 1996 refunds.

Upon review of the evidence and testimony submitted, Taxpayer's claim for a refund for tax year 1995 must be denied. Taxpayer's request for costs associated with the 1994 and 1996 refunds is dismissed for lack of jurisdiction.

1. Did Taxpayer timely file her request for an income tax refund for tax year 1995?

2. If no, can a refund be granted for tax year 1995 based on equitable considerations?

• Is DOR estopped from denying an income tax refund to Taxpayer for tax year 1995?



• Does the ALJD have jurisdiction to award costs incurred by Taxpayer in obtaining income tax refunds for tax years 1994 and 1996?

1. Positions of Parties

Taxpayer argues that her income tax refund request for tax year 1995 should be deemed timely. She bases her argument on several grounds. First, she maintains that she received her 1995 federal income tax refund and that she filed her federal refund claim at the same time she filed her request for the state refund. Taxpayer reasons that because the Internal Revenue Service granted her federal refund request, DOR must grant her state refund request. Second, Taxpayer maintains that she received a state income tax refund for tax year 1994 upon filing the claim three years after the return was due. Therefore, she reasons that she should receive a refund for tax year 1995. Third, Taxpayer maintains that she requested and received an extension to file her 1995 return. Fourth, Taxpayer maintains that she was not required to file a return for tax year 1995. Fifth, she states that S.C. Code Ann. § 12-8-2020 allows her three years from the date the tax was paid to file a refund request.

DOR disagrees. It argues that Taxpayer did not submit her refund request within the time limitations set forth in the controlling statute of S.C. Code Ann. § 12-54-85(F)(1) (Supp. 1995). DOR also argues that Taxpayer was required to file a return for tax year 1995 and that DOR received no extension request from Taxpayer. DOR further argues that the actions of the IRS are not binding on DOR. Additionally, DOR states a change in the law occurred after 1994, so that the limitations period for filing a refund request was shortened by one year; thus Taxpayer's reliance on what happened with regard to the 1994 tax year is of no significance for the 1995 tax year. Finally, DOR states that S.C. Code Ann. § 12-8-2020 is not controlling in this case because the provisions of Chapter 54 of Title 12 take precedence over all other related statutory provisions.

2. Findings of Fact

I find by a preponderance of the evidence the following facts:

In 1995, Taxpayer had taxable income in South Carolina, part of which was withheld for income tax purposes and remitted to DOR. ⁽¹⁾ Taxpayer did not file her 1995 South Carolina income tax return by the due date of April 15, 1996, and DOR received nothing from Taxpayer requesting any extensions of time in which to file the return.

On or about September 24, 1998, Taxpayer filed her 1995 South Carolina income tax return in which she indicated that she was due a refund in the amount of $140. On November 3, 1998, DOR denied Taxpayer's refund request on the basis that it was not timely filed.

On or about December 1, 1998, Taxpayer timely filed her protest of the refund denial. On September 22, 2000, DOR issued a Final Agency Determination denying the refund request. On December 8, 2000, DOR transmitted the case to the Administrative Law Judge Division after receiving Taxpayer's request for a contested case hearing.

3. Conclusions of Law

Based upon the preponderance of the evidence, I make the following conclusions of law:

a. Statutory limitations for refund request

The right to recover improperly paid taxes is statutory in nature. C.W. Matthews Contracting Co., Inc. v. South Carolina Tax Commission, 267 S.C. 548, 230 S.E.2d 223 (1976).

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).

In examining the Taxpayer's claim for a refund, the applicable statutory provision is S.C. Code Ann. § 12-60-470(A) (Supp. 1995). This statute provides:

A taxpayer may seek a refund of any 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. . . .

During the 1995 tax year, section 12-54-85(F)(1) provided that 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. It further provided that if no return was filed, a claim for refund must be filed within two years from the date of payment. S.C. Code Ann. § 12-54-85(F)(1) (Supp. 1995).

Thus, Taxpayer's refund request had to be submitted no later than three years from the date her return was filed, or two years from the date the taxes were paid, whichever is later. Unfortunately, Taxpayer's refund request fails to come within either of these limitations.

To avail herself of the three-year limitation period, the Taxpayer must have filed a timely return. ⁽²⁾ Various federal courts have interpreted Internal Revenue Code § 6511(a), which is nearly identical to S.C. Code Ann. § 12-54-85(F)(1), in this same manner. The requirement for a timely filed return is best explained in Arnzen v. I.R.S., 91-1 USTC paragraph 50,020, 1990 WL 260539 (W.D. Wash. 1990). In that case, 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).

Since the plaintiffs, by their own admission, failed to file a timely return, they had two years from the date the tax was paid in which to file their claim for a refund.

Any construction of section 12-54-85(F)(1) or IRC section 6511(a) contrary to the above would lead to an absurd result. ⁽³⁾ The nature of the absurdity is best expressed in Miller v. U.S., 38 F.3d 473 (9th Cir. 1994), where it is stated:

Section 6511 has as its purpose foreclosing untimely claims. If the clock were to run only from the filing of the return, no claim would ever be barred as long as the return was not filed. . . . To hold that any return no matter how delinquent, starts the three-year period would not only nullify part of Section 6511, but also reward taxpayers for delaying the filing of their returns.

In this case, Taxpayer's 1995 South Carolina income tax return was due on April 15, 1996. S.C. Code Ann. § 12-7-1640 (Supp. 1995). No extensions to file beyond this date were requested or granted. Taxpayer did not file her return until September 24, 1998. Since Taxpayer failed to file her 1995 return in a timely manner, she had two years from the date her taxes were paid in which to file a refund claim. That is, the two year limitation of section 12-54-85 would apply rather than the three year limitation.

To come within the two year limitation period of section 12-54-85, Taxpayer's refund request had to be submitted no later than two years from the date the taxes were paid. For purposes of section 12-54-85(F), Taxpayer's taxes were deemed paid on April 15, 1996. See S.C. Code Ann. § 12-54-85(F)(5)(b) (2000)("Any tax actually withheld at the source in respect of the recipient of income, is considered to have been paid by the recipient on the last day prescribed for filing his return for the taxable year, determined without regard to any extension of time for filing the return, with respect to which the taxpayer would be allowed a credit for the amount withheld."). ⁽⁴⁾

Therefore, Taxpayer's refund request had to be submitted no later than two years from April 15, 1996, or April 15, 1998. Because Taxpayer's refund claim was not filed until September 24, 1998, her refund claim does not fall within the two year limitation period.

In conclusion, Taxpayer has not brought herself within the terms of section 12-54-85(F)(1). Therefore, Taxpayer is not entitled to a refund of her state taxes for the 1995 tax year. While this result may be harsh, the right to apply for a refund is purely statutory; it is incumbent upon those seeking relief to proceed according to the statute affording such relief. Commonwealth of Virginia v. Cross, 196 Va. 375, 83 S.E.2d 722 (1954).

Although Taxpayer raises several reasons why her refund request should be deemed timely filed, I must agree with DOR that none of these reasons have merit. First, the evidence shows that Taxpayer did not file any request for an extension in which to file her 1995 state tax return. Second, despite her claim to the contrary, Taxpayer was required to file a 1995 return since she had taxable income for that year. See S.C. Code Ann. § 12-7-1510 (Supp. 1995). In any event, even if Taxpayer was not required to file a return and thus she did not file a return, the two year limitation period of section 12-54-85 would apply, since the three year limitation period applies only when a return is filed.

Third, the limitations period for 1994 refund claims was one year longer than the limitations period for 1995 refund claims. See S.C. Code Ann. § 12-54-85(F)(1) (Supp. 1995) (refund claims to be filed within three years of date return filed or within two years of date tax was paid); S.C. Code Ann. § 12-47-440 (Supp. 1994) (allowance of refund claims if submitted within three years of payment). Thus, Taxpayer's receipt of a refund for the 1994 tax year has no relevance to her refund claim for tax year 1995. Fourth, the actions of the Internal Revenue Service with regard to Taxpayer's federal tax refund are not binding with regard to the action taken by DOR on Taxpayer's state tax refund claim. The application of S.C. Code Ann. § 12-54-85 is a state issue, not a federal issue. In any event, the fact that the IRS allowed Taxpayer a 1995 refund does not necessarily imply that such a refund was proper.

b. No other controlling limitation period

Taxpayer argues that S.C. Code Ann. § 12-8-2020 allows her three years from the date the tax was paid to file a refund request. During the 1995 tax year, this statute, then section 12-9-380, provided that refunds for overpayment of tax withheld from the taxpayer's income "may be applied for by the taxpayer within three years from the date of the overpayment . . . ." S.C. Code Ann. § 12-9-380 (Supp. 1995). However, S.C. Code Ann. § 12-54-190 (Supp. 1995) provides that unless otherwise specified, the provisions of Chapter 54 of Title 12 take precedence over all other related statutory provisions. Therefore, to the extent that section 12-54-85 and 12-8-2020 both address the same situation, (here, Taxpayer's refund claim) section 12-54-85 is controlling.

Because section 12-54-85 takes precedence over section 12-8-2020 in this case, I find it unnecessary to address DOR's argument that section 12-8-2020 was repealed by implication.

1. Positions of Parties

Taxpayer argues that even if her refund request did not come within the applicable statutory limitation period, her tardiness should be excused and her 1995 refund granted. Taxpayer raises two grounds on which she bases this argument. First, Taxpayer maintains that she was neither aware of nor received notice of the revised time limitations in section 12-54-85(F)(1) (Supp. 1995). Taxpayer also states that she should be excused from the limitation period because of medical and financial problems.

DOR disagrees with Taxpayer's position and argues that the law does not provide for equitable exceptions to the limitation period in section 12-54-85(F)(1). DOR also argues that Taxpayer's ignorance of the applicable law does not excuse the tardiness of her refund request.

2. Findings of Fact

I find by a preponderance of the evidence the following facts:

Taxpayer experienced several health problems and other personal problems between 1992 and 1996. These problems interfered with Taxpayer's timely filing of her income tax returns.

3. Conclusions of Law

Based upon the preponderance of the evidence, I make the following conclusions of law:

a. No notice of revised limitation period

It is well established 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 (Ct. App. 1996). This rule of law is based on the reasoning that it would be impossible to administer the law if ignorance of its provisions were a defense thereto. Utermehle v. Norment, 197 U.S. 40 (1905). Therefore, the fact that Taxpayer was unaware that the limitation period for filing a refund claim had changed after 1994 does not excuse the untimely filing of her 1995 refund request.

b. Medical and financial problems

Nowhere in section 12-54-85(F) is there any indication that equitable factors are to be considered in its application. Further, any attempt to adopt such a policy would result in a situation that would, at best, be difficult to administer.

In enacting a refund statute, the General Assembly protected the rights of taxpayers against erroneous assessments. At the same time, in not providing exceptions for individuals for untimely refund claims, the legislature virtually ensured that DOR would not be inundated with thousands of requests for refunds after the expiration of the limitation period. ⁽⁵⁾

The U.S. Supreme Court has recognized the problem government would encounter if there were equitable exceptions to statutorily mandated time limits for requesting refunds of erroneously paid or assessed taxes:

To read an "equitable tolling" exception into § 6511 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.

United States v. Brockamp, 519 U.S. 347 (1997).

Therefore, Taxpayer's medical and financial problems and her lack of knowledge of the applicable time limitation cannot be considered in determining her entitlement, or lack of entitlement, to a refund. While this situation is unfortunate for Taxpayer, the ALJ must follow the law as it is written. Creech v. South Carolina Public Service Authority, 200 S.C. 127, 20 S.E.2d 645 (1942) ("The responsibility for the justice or wisdom of legislation rests with the Legislature, and it is the province of the courts to construe, not to make, the laws."). ⁽⁶⁾

C. Estoppel

1. Positions of Parties

Taxpayer argues that her refund claim should be allowed because DOR employees advised her that she had three years in which to file her claim. DOR disagrees and argues that any evidence of conversations between Taxpayer and DOR employees is unclear at best. DOR also argues that even if its employees gave Taxpayer erroneous information, the State cannot be estopped from the enforcement of the State's revenue laws.

2. Findings of Fact

I find by a preponderance of the evidence the following facts:

In April, September and November of 1998, Taxpayer contacted DOR employees to discuss filing her income tax returns for tax years 1994, 1995 and 1996. However, the evidence does not clearly indicate the full extent of Taxpayer's conversations with DOR employees.

3. Conclusions of Law

Based upon the preponderance of the evidence, I make the following conclusions of law:

It is well established that the doctrine of estoppel will not be applied to deprive the State of the due exercise of its police power or to thwart its application of public policy. S.C. Coastal Council v. Vogel, 292 S.C. 449, 357 S.E.2d 187 (Ct. App. 1987). A state agency cannot be estopped by the unauthorized or erroneous conduct or statements of its officers or agents which have been relied on by a third party to his detriment. Id.; see also Texaco, Inc. v. Wasson, 269 S.C. 255, 237 S.E.2d 75 (1977).

Therefore, even if Taxpayer could establish that DOR employees gave her erroneous information, this fact would not excuse Taxpayer from complying with the time limitations of section 12-54-85(F) or give DOR authority to exceed the refund powers granted it by the General Assembly.

D. Costs

Taxpayer argues that she should be reimbursed for travel and telephone expenses she incurred in seeking refunds for the 1994 and 1996 tax years pursuant to S.C. Code Ann. § 12-58-170. It is undisputed that Taxpayer eventually received refunds for these tax years. However, DOR argues that the ALJ does not have jurisdiction to entertain such a claim. I must agree with DOR.

Notably, the enactment of section 12-58-170 was effective for tax years after 1995. See S.C. Code Ann. § 12-58-170 (Supp. 1995). Therefore, Taxpayer's claim for 1994 expenses would not be authorized under this provision. In any event, the Administrative Law Judge Division does not have jurisdiction to entertain expense claims under S.C. Code Ann. § 12-58-170. This provision specifically authorizes a civil action for damages against the State of South Carolina in circuit court when any employee of the department wilfully, recklessly, and intentionally disregards department published procedures. ⁽⁷⁾ Moreover, in a contested refund claim under the Revenue Procedures Act, the Administrative Law Judge Division is prohibited from awarding expenses except for the service of process and the attendance of witnesses. See S.C. Code Ann. § 12-60-3350 (Supp. 1995).

Taxpayer's claim for a refund of income taxes for tax year 1995 is denied. Taxpayer's claim for expenses related to her 1994 and 1996 refunds is dismissed for lack of jurisdiction.

AND IT IS SO ORDERED

______________________

RAY N. STEVENS

Administrative Law Judge

Dated: July 5, 2001

Columbia, South Carolina

1. An individual who is not exempt from filing an income tax return under S.C. Code Ann. § 12-7-1510 (Supp. 1995) has taxable income. Based on the testimony of DOR employee Gary Grooms, I find that Taxpayer's 1995 income exceeded the amount which would exempt her from filing a return pursuant to S.C. Code Ann. § 12-7-1510 (Supp. 1995).

2. On at least three prior occasions, the Administrative Law Judge Division has held that the three year limitation period of Section 12-54-85(F)(1) is only applicable if a return has been timely filed. See Anonymous Taxpayer v. South Carolina Department of Revenue, Docket No. 00-ALJ-17-0336-CC; Anonymous Taxpayers v. South Carolina Department of Revenue, Docket No. 00-ALJ- 17-0524-CC; Anonymous Taxpayer v. South Carolina Department of Revenue, Docket No. 96-ALJ-17-0086-CC.

3. It is well settled that statutes should not be construed so as to lead to an absurd or meaningless result. E.g., Fraternal Order of Police v. South Carolina Department of Revenue, 332 S.C. 496, 506 S.E.2d 495 (1998).

4. Although this provision was not enacted until 1996, it is indicative of legislative intent at the time that section 12-54-85 was enacted in 1995. Stuckey v. South Carolina Budget and Control Board, 339 S.C. 397, 529 S.E.2d 706 (2000) (A subsequent statutory amendment may be interpreted as clarifying original legislative intent.).

5. There are no exceptions for individuals; however, there is one exception for corporations in very limited circumstances. See S.C. Code Ann. § 12-54-85(D) & (F)(1) (Supp. 1995).

6. Superseded by statute on other grounds, as stated in Williams v. Town of Hilton Head Island, 311 S.C. 417, 429 S.E.2d 802 (1993).

7. The Division has previously taken this position in Anonymous Taxpayers vs. South Carolina Department of Revenue, Docket No. 00-ALJ-17-0569-CC (April 17, 2001), 2001 WL 517492.