IRS Loses Motion to Dismiss Refund Suit of Nonresident Alien


IRS Loses Motion to Dismiss Refund Suit of Nonresident Alien

On August 7, 2014, The Court of Federal Claims denied IRS motion to dismiss a refund suit by a nonresident alien who mistakenly filed two years of original returns as a resident alien, then filed her refund claim before the claim deadline applicable to nonresident aliens, but not before the claim deadline for resident aliens.

In Montiel v United States, 114 AFTR 2d 2014-5155, the taxpayer, a citizen and resident of Mexico, filed Form 1040 for the 2007 tax year on March 16, 2008, and Form 1040 for the 2008 tax year on February 25, 2009. Subsequently, the taxpayer determined that she was a nonresident for federal tax purposes and should have filed Form 1040NR for both years. The taxpayer filed a Form 1040X along with a completed form 1040NR and a copy of her original Form 1040 on June 10, 2011, for the 2007 tax year, and on June 13, 2012, for the 2008 tax year. Both submissions reflected an overpayment of tax and a request for refund.

The IRS denied both requests as being untimely filed. According to the IRS, the taxpayer was required to file her amended forms by April 15, 2011, for the 2007 tax year, and April 15, 2012, for the 2008 tax year, these dates being within the three-year statute of limitations beginning on April 15th of each year, her deemed filing date as determined by Code Sec. 6513(a).

The taxpayer brought a refund suit to The Court of Federal Claims, alleging that the refunds were improperly denied by the IRS. In response, the IRS brought a motion to dismiss the suit for lack of jurisdiction. Taxpayers must file a timely refund claim with the IRS before starting a suit for refund or credit.

Under Code Sec. 6511(a), a claim for refund or overpayment of any tax with respect to which the taxpayer is required to file a return must be filed within three years after filing the return or two years after paying the tax, whichever period expires later. While citizens and resident individuals have until April 15th of the following year to file Form 1040, nonresidents have until June 15th to file form 1040NR (both dates exclude extensions of time to file). Therefore, the date in which the statute of limitations expires depends upon the residency status of the taxpayer.

In her complaint, the taxpayer alleged that she never qualified as a United States resident in either 2007 or 2008. She maintained that was a citizen and resident of Mexico, traveling in the United States on a B1/B2 visa for less than 60 days each year, and therefore contended that her tax deadline should have been based on her nonresidency status and not the Forms 1040 she filed. In the trial, the court corroborated the taxpayer’s claim that she was neither a lawful citizen or resident of the United States, nor did she meet the substantial presence test under Code Sec. 7701(b)(3) to be considered a U.S. resident individual.

Ultimately, the court determined that the IRS did not show that the taxpayer’s filing of returns on Form 1040 precluded her as a matter of law from submitting her requests for refund based on Form 1040NR within the time allowed for nonresident aliens. The court also felt that the IRS failed to differentiate the filing of a particular form (Form 1040) with the payment of a particular tax (that of the tax assessed based on the taxpayer’s residency status).

It should be worth noting that, although the IRS lost the motion to dismiss, the case will now go to trial to decide the outcome of the taxpayer’s refund claim.

If you have questions regarding your tax residency, filing obligations, or have questions about amending previously filed returns, please consult your tax advisor to learn about your available options.

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