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Wednesday, February 26, 2014


Code §6611 provides that the IRS will pay interest on tax overpayments back to the due date if the overpayment is not refunded within 45 days of the refund claim (or within 45 days of the return due date for a timely filed return). However, as Deutsche Bank learned to its dismay, another Code requirement must be met before interest starts to run.

That requirement is under Code §6611(g), which requires that interest will not commence to run until the applicable return is filed “in processible form.” That section goes on to provide that to be processible, it must contain “sufficient required information (whether on the return or on required attachments) to permit the mathematical verification of tax liability shown on the return.”

Deutsche Bank timely filed its 1999 Form 1120-F. In filing the return it erroneously left off Form 8805 (relating to taxes withheld under Code Section 1446) and Forms 1042-S (relating to taxes withheld at the source). It later corrected the error, and after that sought a refund of over $59 million dollars with interest back to the original due date of the return. The IRS only paid interest after the error was corrected, and not back to the original due date of the return. It did this claiming that the return was not in processible form until the error was corrected and the Forms 8805 and 1042-S were submitted.

Both the Court of Federal Claims and the Court of Appeals for the Federal Circuit held that the IRS could not calculate the taxes due without those forms, and thus sided with the IRS that the return as originally files was not processible.

As part of its argument, Deutsche Bank claimed that the failure to attach forms that are not required by the statute and regulations should not disqualify a return from being processible. The courts disagreed.

Deutsche Bank also claimed that the IRS could verify the tax liability from what was filed, because the return itself showed the total credits due Deutsche Bank (the missing forms provided the breakdown of those total credits). This seems like a good argument to me – the taxes can be computed based on what was attached. However, both courts disagreed – they claimed the detail of the withheld tax was necessary to “recalculate and corroborate the mathematics and data reported.” The statute requires only “mathematical verification” – requiring “corroboration” appears to be a requirement beyond the statute. Isn’t that what audits are for?

Lastly, the courts were unpersuaded that since the IRS could obtain the required verification data either under audit or from other copies of these forms filed by payors, that Deutsche Bank should get the desired interest.

Deutsche Bank Ag v. U.S., (CA FC 02/18/2014), 113 AFTR 2d ¶ 2014-509

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