BARAL v. UNITED STATES
David H. Baral made two remittances to the Internal Revenue Service towards his 1988 income tax, which was due on April 15, 1989. The first was a standard withholding from Baral's wages throughout 1988 by his employer. The second was an estimated income tax remitted in January 1989 by Baral himself. Baral received an extension until August 15, but did not file the return until June 1, 1993. On the return, Baral claimed a $1,175 overpayment and asked the IRS to apply this excess as a credit toward his outstanding tax obligations for the 1989 tax year. The IRS denied the requested credit citing 26 U. S. C. Section 6511, which states that "the amount of the credit or refund shall not exceed the portion of the tax paid within the period immediately preceding the filing of the claim, equal to 3 years plus the period of any extension of time for filing the return." According to the IRS, Baral had paid no portion of the overpaid tax between February 1, 1990 and June 1, 1993, and therefore he faced a ceiling of zero on any allowable refund or credit. Baral commenced suit for a refund in the Federal District Court, which granted the IRS summary judgment. In affirming, the Court of Appeals concluded that both remittances were paid on April 15, 1989.
Are remittances of withholding tax and estimated income tax paid on the due date of the taxpayer's income tax return?
Legal provision: Internal Revenue Code
Yes. Justice Clarence Thomas delivered the opinion of the unanimous Court, which held that remittances of withholding tax and estimated income tax are paid on the due date of a calendar year taxpayer's income tax return. The Court concluded that the ceiling on Baral's requested credit was zero, because, rather than being paid within the look-back period, between February 1, 1990 and June 1, 1993, both the withholding and the estimated taxes had been paid on April 15, 1989. The decision means that the three-year time limit for seeking a refund begins running when someone's withholding and estimated tax payments are made to the government. The deadline does not depend on when the person's income tax return is filed, the court said.
Argument of Walter J. Rockler
Chief Justice Rehnquist: We'll hear argument first this morning in No. 98-1667, David Baral v. the United States.
Mr. Rockler: Mr. Chief Justice, and may it please the Court:
This case involves a claim for overpayment of income tax for the calendar year 1988.
There is no question of the overpayment.
It occurred and is acknowledged.
The taxpayer's claim was filed June 1, 1993 on Mr. Baral's income tax return which was filed late.
Nevertheless, there is no dispute that the claim of overpayment was timely for code section 6511(a) purposes.
The question of a limitations bar to recovery arises under code section 6511(b), which provides that only payment of tax sought to be refunded, made within 3 years before the claim, may be recovered.
It's 3 years plus any extension of time granted to file a return.
Justice Scalia: 4 months here?
Mr. Rockler: 4 months in this case, yes.
If the starting date for limitations... if the starting date for limitations is April 15, 1989, the payments could not be recovered.
The starting date is June 1, 1993.
The statute of limitations does not apply.
The limitations period under section 6511(b) starts running from the date of payment of the income tax, not from the date that income tax liability arose or accrued.
In the Government's view and that of the court of appeals below, the payment of income tax was made April 15, 1989, the income tax return due date, although on that date, the amount of income tax liability had not been determined and was not known by anyone.
The Government and the court below assert that section 6513(b)... (b)(1) and (2)... makes the return due date the starting date for limitations, quote, as a matter of law.
In other words, they assert that deemed due date of the return was the date of payment of the income tax.
In our view this is a misreading of the statute.
The statute provides that the... the deemed date, the date of the return being due, is the date to which withholding taxes and estimated taxes are brought forward instead of their actual payment dates which occurred during the calendar year.
Justice O'Connor: But the statute reads as though estimated tax payments are prepaid income taxes.
They are deemed to be prepaid income taxes.
Mr. Rockler: No, I don't think the... I don't think the section says that, Justice O'Connor.
I think it's a... if I may refer to the section itself.
That is section 6513(b)(2).
Chief Justice Rehnquist: Where will we find that, Mr. Rockler, in the brief?
Mr. Rockler: It's at the end of both briefs.
In our principal brief, it's at page A-12, appendix page 12.
That says, any amount paid as estimated income tax for any taxable year... I repeat estimated income tax... shall be deemed to have been paid on the last day prescribed for filing the return under section 6012 for such taxable year, determined without regard to any extension.
The deemed date is the date of payment of the estimated tax.
Now, the court in considering this, at least those courts that have been adverse to our position, have without any focus simply assumed that the deemed date of payment of the estimated tax is the deemed date for payment of the income tax.
And those are two totally different things.
An estimate is just what it claims to be.
If I may digress for a moment and refer to the Rosenman case, which has been featured heavily in the briefs here.
In that case, the remittance was...
Justice Stevens: May... may I interrupt you, Mr. Rockler, for just a second?
Why would the Congress want to draw a distinction?
What is the significance of deeming a date for the payment of the estimated tax other than to establish the date of payment of the tax itself?
Mr. Rockler: No, no.
There... if I may say so, Justice Stevens, the statute which originally brought this into the code, the 1943 tax act, made the point that the deemed date was the deemed date, but not earlier than the deemed date.
In other words, that phrase appeared.
It got dropped in the '54 code.
But the significance I think is that you have cases not unusual at all, where taxpayers file a return early between December 31 and the due date of the return, and the... that... that filing of a return and bringing across the credits for withholding and estimated taxes against the income tax would start the statute of limitations running before the return date.
It also would start interest running before the return date.
And I think the real function was to limit the application of the statute to not earlier than a return filed on the due date...
Justice Ginsburg: But that language...
Mr. Rockler: and to... and to limit the payment of interest to that date.
Justice Ginsburg: Mr. Rockler, you... you recognize, Mr. Rockler, that that language was dropped.
And also starting from the '39 code, the word was may and then it... not earlier than, and now the word is shall be.
And the caption of 6513(b) is prepaid income tax.
So, at least the caption, although it may not have the force of law, at least the caption, prepaid income tax, and the word shall seem to tug against the position you're taking.
Mr. Rockler: As to the caption, first, I think that is a... a secondary or tertiary form of reading the... the statute.
I think the words of the statute itself are of more consequence.
But the word prepaid income tax can also be viewed as a synonym for advanced payment of income tax, in other words, can refer to a credit situation.
Let me refer the Court to section 6611 of the code, which is cited in the briefs.
It makes plain in two sections on interest...
Chief Justice Rehnquist: And where will we find this, Mr. Rockler?
Mr. Rockler: I think it's cited in the Government's brief.
It is cited.
I'm not sure it's reproduced in the briefs.
Chief Justice Rehnquist: If you were going to rely on it, I would have thought it would be a good idea to reproduce it.
Mr. Rockler: I regret, Your Honor... Mr. Chief Justice, that I don't think it is in the briefs.
But that has two subsections, one of which deals with late return filing.
It says, interest shall not be paid until the return is filed.
Then it has another subsection entitled advanced payments, withholding taxes, and estimated taxes, and that, in effect, deals with early payments and says interest won't be paid until the due date at the earliest.
In effect, it repeats what was said pretty much in the '43 act.
Now, one reason why we've referred to the '43 act is the Government has cited that act, I think without any great effect, as controlling with respect to the purpose for which this was adopted.
Incidentally, I may say, in response to Justice Ginsburg's comments, that the Habig case, which we have cited in the brief... that's 390 U.S. at page 225... deals with section 6513(a).
The sections immediately involved here are 6513(b).
But that also has a deemed due date as the date for the presumable starting point of the statute of limitations.
And in that case, the Court makes it very clear that that is designed for the purposes which I ascribed to 6513(b), namely not to start the statute before the return due date, not to start interest payments before the due date.
Justice Ginsburg: Mr. Rockler, the Habig case was about, was... was it not, filing a false tax return?
So, it seems to be quite far afield from this case.
Mr. Rockler: Oh, it is not... it is not directly on point for this case.
We... we cited that case primarily for the point that impossibility may override the application of the statute.
In that case, there was a criminal case and a statute of limitations of 6 years.
And the question was, did the statute start on the return due date or the actual filing of the return?
And the Court held it had to be the actual filing because the offense was to be found in the return filed.
How could you have a statute of limitations running before the offense occurred?
Similarly, in our situation, our position basically is, how can you have the payment of a tax when nobody knows what it is?
And I might remind the Court that long ago this Court held that to be the governing principle here.
That's... that's the Rosenman case, and the Rosenman case is very central to your consideration, I think, of this situation.
The Rosenman case was very close to this case in many respects.
There the taxpayer, a month or so before he filed a return, sent in a letter saying that he was paying an estimated tax, which is involved here as well, for the purpose of avoiding penalties and interest.
And the Court said at the time he remitted the estimate of estate tax there, he couldn't be paying the estate tax because nobody knew what the estate tax was at that time.
Chief Justice Rehnquist: But... but Rosenman too, Mr. Rockler, involved a rather express agreement by the Government, did it not, to kind of hold this in escrow?
Mr. Rockler: No.
Chief Justice Rehnquist: Certainly the Court said that in its opinion.
Mr. Rockler: No, I don't think the Court said it was an express agreement.
They said this was an operating agreement whereby the taxpayer paid in an estimate and the Government put it in the suspense account.
And we have exactly the same situation.
I refer the Court to the record in this case.
There is a certificate of assessments which shows that until such time as the return was filed and assessment was made, the withholding taxes and the estimated taxes were... were held in a suspense account as credits.
As a matter of fact, the code says that withholding taxes are only credits.
It doesn't say that they're the payment of income taxes.
Section 31 of the code says that the withheld taxes are credits to be used against the income tax.
Now, the Government has carefully avoided any discussion of the two governing regulations in this case.
Justice Scalia: Mr. Rockler, before you... before you get off Rosenman, there was... there was another feature in that case which... which no longer exists and is... is not a factor in the present case, and that is the Government there was... was trying to have its cake and eat it too.
It was asserting that for purposes of the statute of limitation, the... the filing... the filed date was determinative, but... but that no... but that interest would... would... well, let's see.
It was asserting that for purposes of... of the statute of limitation, the date on which it should have been filed was determinative, but that for purposes of whether interest runs, the date of actual filing was determinative so that you would not get any interest on the prepayment until the return was actually filed.
Now, that feature of the law has since been changed by... by statutory amendment so that you will get interest from the date that the... at least from the return due date.
Mr. Rockler: No, no.
Under the present law, you get interest from the date the return is actually filed.
You don't get interest from the return due date.
That just isn't so.
Justice Ginsburg: Well, that's to encourage you to file your return on time to say if you don't file it on time, then you won't get interest.
Mr. Rockler: Yes.
Justice Ginsburg: Isn't that the purpose?
Mr. Rockler: I... I think that is correct.
But taxpayers have no incentive to delay the filing of their returns.
There is no real risk of that, as we pointed out, particularly in the reply brief.
Justice Ginsburg: What was it...
Mr. Rockler: If they've overpaid, they are losing interest for whatever period of late filing they're engaged in.
If they've underpaid, they're subject to penalties and interest which continue to run during the period of delay.
So, there's no incentive on the part of taxpayers to file late.
There are only penalties attached to that.
And there's no advantage in litigation to filing late because the burden of proof and the burden of coming forward is going to be the taxpayer's in a refund suit.
Justice Ginsburg: Mr. Rockler, I'm concerned that the argument that you... you are making would be detrimental to many taxpayers, and let me give you this example.
Suppose... let's take the year 1988.
$ 100,000 in both estimated taxes and withholding were paid in, and then a return is filed in the year 1993, as here.
And the Commissioner determines that the taxpayer underpaid by $ 10,000.
Then on your theory, the taxpayer would owe interest on $ 110,000 rather than just $ 10,000 because he had never paid the tax.
Mr. Rockler: No.
I think in that case, on the hypothetical you gave, if... if there were accumulated withholding and estimated taxes, as in our case, there would not be any interest with respect to those amounts that accumulated as a suspense credit item.
If there were no payment whatever...
Justice Ginsburg: But they were not paid.
Mr. Rockler: If there were no payment whatever in any form, then you're right.
Justice Ginsburg: Well, you say it's payment for some purposes and not others?
Mr. Rockler: No, no.
It's not payment.
It's a credit.
The... the payment in the nature of a deposit, which is what Rosenman described the remittance as, does serve to mitigate against an interest charge against the taxpayer.
He doesn't get any... he doesn't get any benefits for the delay in filing, but he isn't penalized because the money is there available to the Government during that interval.
Chief Justice Rehnquist: But what... you say that quite confidently, but what statutory provision is it that says interest will run or not run in that situation?
Mr. Rockler: Section 6611.
Chief Justice Rehnquist: Which you don't cite in your brief.
Mr. Rockler: That... that is a section which neither the Government nor the taxpayer here attached to the briefs, I regret to say.
I would like to have...
Justice Scalia: Let... let me come back to... to Rosenman.
You're quite right.
The... the issue in the case was not an issue of timing, but it was an issue of whether... whether the... the prepayment was a prepayment of taxes.
If it was a prepayment of taxes, interest would be due.
If it was only a deposit, interest would not be due.
And the Government was claiming that interest was not due because it was not a prepayment of taxes for that purpose, but that it was a prepayment of taxes for the purposes of the statute of limitation.
It was taking an inconsistent position on that issue.
Now, that is not the situation here because the statute now makes it clear that even if it is not a prepayment of taxes, even if it is just... whatever it is, interest runs on it, on the overpayment amount.
Mr. Rockler: I... I think you're quite correct, Justice Scalia, in your observations with respect to what the case says.
I think Justice Frankfurter made that point very clearly.
He said you can't have payment for statute of limitations purpose, but not payment for interest purpose.
Justice Scalia: And we don't have that problem here.
Mr. Rockler: But the holding of that case is more basic than that observation.
The case really stands for the proposition... the Court made it expressly clear... that you cannot have the payment of a tax when you don't know what the tax is.
You can't apply a credit to an unknown item.
If I prepaid to a department store $ 100 because I think my wife is going to run up charges, I haven't paid any... any debt to the department store until such time as she runs up the charges.
If I'm a law firm and I receive a retainer, which is to be applied to time...
Justice Scalia: No, but the charges have been run up here.
I mean, you're liable for the tax not by reason of your filing the return.
You're liable for it by reason of your breathing in and out for a year...
And... and getting some income.
Mr. Rockler: You could say exactly the same thing for the estate taxes in the Rosenman case.
You could say when the decedent died, there was a distinct tax liability immediately.
That is not...
Justice Breyer: But in Rosenman...
Mr. Rockler: the position this Court took then.
This Court said until such time as the tax is known and asserted.
And it could be asserted in two ways.
It could be asserted by the taxpayer filing a return or self-assessing himself in a sense.
It could be determined by the Government asserting an amount.
They could file a return for him.
That's an available course for the Government.
Justice Breyer: Is... was there at the time of Rosenman...
Mr. Rockler: Pardon me?
Justice Breyer: At the time, did the statute specifically say... the language that we have... that an amount paid as an estimated tax shall be deemed to have been paid on such and such a date?
Mr. Rockler: No, no.
Justice Breyer: No, it didn't.
Mr. Rockler: That... that section was not applicable.
Justice Breyer: Well, so we have a new section and we have also the point Justice Scalia made.
And I wondered as well in Rosenman, although Frankfurter did use the word estimated taxes, I don't know that the payor thought of it that way because the payor said this payment is made under protest and duress, just to avoid penalties and interest, since it is contended by the executors that not all of this sum is legally or lawfully due.
And so, one might say given that they didn't think they owed it, it wasn't the payment of an estimated tax.
But here it is an effort to pay an estimated tax.
Mr. Rockler: Justice Breyer, I think the answer is that the transmittal letter of the taxpayer, according to the Court, said it was an estimate on Federal estate tax.
The Court I think is referring to the transmittal letter as protesting and also as trying to avoid penalties and interest.
Justice Kennedy: But... but as Justice Breyer's questions suggest, we're living in a post-Rosenman world, and after Rosenman, the Government made express provision in its revenue procedures so that if you paid a remittance as a deposit, you had to expressly say it was a deposit.
So, even if Rosenberg were wholly in your favor, it seems to me to have been altered by the revenue rulings after that point saying that you must make... make it very clear that this is a deposit.
And that wasn't done here.
Mr. Rockler: Justice Kennedy, if I may say so, both withholding taxes and an estimate do nothing but give rise to credits, and there are regulations in effect which say these credits are to be applied... future tense... when the return is filed, and they are set up against the income tax then known to be due.
Justice Kennedy: Well... well, then you're saying that the revenue procedure adopted in the wake of Rosenman was absolutely to no effect.
Mr. Rockler: No, I'm not saying it's to no effect to taxpayers who are aware of it.
A revenue procedure is not widely disseminated and not viewed necessarily as law.
There's a difference between a rev. proc. and a formally adopted Treasury regulation.
If the Government wants that to be the sole method by which anybody could remit a payment to be treated as a credit or a deposit, then why doesn't it adopt a regulation which says so?
We have regulations in this case, and the regulations are favorable to the taxpayer in this case.
And you will find a glaring omission of any reference to those regulations in the briefs by the Government.
I mean, those regulations provide that the tax is paid on the return.
The overpayment is determined on the return, and credits are applied on the return.
Justice Ginsburg: But, Mr. Rockler, the... the taxpayer, instead of filing this under the form for a deposit, signed a voucher that went along with his estimated tax payment that said he was tendering so much as an income tax payment.
That was the word used on the voucher, was it not?
Income tax payment?
Mr. Rockler: The... the voucher is a voucher for an estimated tax payment.
It's an estimated tax form.
Justice Ginsburg: Yes, but the words were I tender this as an income tax payment.
Mr. Rockler: The... the taxpayer as such is not the ultimate in sophistication on tax matters.
When he picks up a form which says estimated tax voucher, that's what he thinks he's paying, and he certainly is paying an estimate.
He doesn't know what the tax is at that point.
In this particular case, as the Court well knows, the taxpayer had no records and asked for them from the Government.
Ultimately he got them from the Government, but he got them 4 years later.
Until such time as he got the 1099's which showed his income receipts, until he got his prior year's return which showed his capital loss, he couldn't file a return.
He was absolutely blocked.
Now, he certainly wasn't paying a tax at that point.
Justice Ginsburg: Well, that was not... that was no fault of the Government, was it, Mr. Rockler, that he didn't retain...
Mr. Rockler: No, no.
Justice Ginsburg: his return?
Mr. Rockler: No.
I'm... I'm not asserting that by virtue of these facts he's equitably entitled irrespective of the statute.
I'm saying the statute doesn't apply.
The reason the statute doesn't apply is, to quote the essence of Rosenman, he didn't know what the tax was and neither did the Government.
Nobody knew what the tax was at that point on the deemed return date.
Justice Scalia: Mr. Rockler...
Mr. Rockler: I think what's involved here is a... is a serious misreading of 6513(b).
Justice Scalia: Mr. Rockler, you seem to be making a sort of a... I don't know... a philosophical argument that it is impossible to make a prepayment on a debt unless the precise amount of the debt is... is known, and... and that doesn't seem to me true.
Let's... let's assume I'm leaving on... I'm going to be out of the country for 2 months and... and I know that I have run up credit card charges, and that when the credit card bill comes, I won't be here to pay it, and so I'll be charged interest later.
Even though I don't know the... the precise amount of my indebtedness, I know that I am indebted to the credit company.
I could write a check and mail it off to them in advance of their submitting to me the precise bill for... for the last month, and that would be a perfectly valid prepayment of my debt.
Payment of my debt in advance of the date on which they assess me.
And it seems to me that's precisely what happens here.
There's no... there... there's no philosophical objection to it.
Mr. Rockler: No.
I think there's a difference between a credit and a bill, a... a stated bill with a specific amount.
I... my point of departure is this Court's decision in the Rosenman case.
That is what this Court said.
It said until such time as you know what the tax is, until it's been asserted, until it's been specified, you can't be paying it.
Now, in your credit case, it is true you will have on deposit with your potential creditor an amount, but you haven't paid any bill at that point because there isn't any bill, and you don't pay an income tax until you know what it is.
And that... that is exactly what Judge Harlan in the Lewyt case, which is cited by... by the Government in its brief, said about Rosenman.
This is Judge Harlan who was later Justice Harlan, Second Circuit.
And I'm quoting from 215 F. 2d 518, a Second Circuit case at 522-523.
A remittance which does not satisfy an asserted tax liability should not be treated as the payment of the tax.
That was his conclusion from Rosenman.
That's my conclusion from Rosenman.
How can you say that every credit constitutes a payment of a future bill?
Justice Ginsburg: Mr. Rockler, what... I'm not familiar with that case.
Did it arise under the '39 code or the '54 code?
Mr. Rockler: Since the case was decided in '54, it must have been the '39 code.
Justice Ginsburg: Right.
Mr. Rockler: Now...
Justice Ginsburg: but we have... we have a different code, and we have a different Government practice.
Whatever you have explained about credits, Justice Frankfurter did use the word escrow, that this was put in an escrow account.
So, it sounds like a special arrangement that the Government had made.
Mr. Rockler: No.
I don't think you can view the Rosenman case as peculiar to the '39 code.
The language of that case is broad language.
Now, the Government hasn't...
Justice Ginsburg: Yes, but the statute read may not shall in... in '39.
Mr. Rockler: The... the... that is correct, but in the '54 code, in the legislative committee reports that accompany it, there was no intent really to change anything except the deemed due date of returns.
That was extended by 1 month.
Under the '39 code, you had a 2 and a half month period for filing returns.
Under the '54 code, a 3 and a half month period.
There is nothing in the history of that statute, there's no... no discussion whatever of the changes which some draftsman inserted there and which I think got by unnoticed.
There was no intent to change anything except the due date.
So, I don't think the distinction is all that significant.
Moreover, getting... getting back to basics, the Rosenman case stands for the broader proposition, which I have asserted here and which I believe, namely you cannot pay a tax until you know what it is.
You can set up credits.
And there's no detriment to the Federal revenue or the revenue system by the position we're taking here.
It's the taxpayer who, filing late, suffers whatever penalties there are.
The Government doesn't suffer any penalties.
The Government doesn't lose track of taxpayers.
Nowadays we're in the computer age.
Argument of Kent L. Jones
Chief Justice Rehnquist: Thank you, Mr. Rockler.
Mr. Jones, we'll hear from you.
Mr. Jones: Mr. Chief Justice, and may it please the Court:
There really is a simple, straightforward, textual answer to the question presented in this case, and it only takes me about a minute to describe it.
Section 6511 of the code limits the amount of any refund to the amount of taxes paid during the 3 years prior to the filing of the refund claim.
The question in this case is simply when are remittances of estimated withholding taxes to be regarded as paid for the specific purpose of the refund limitations in section 6511, and the introductory clause of section 6513(b) expressly and concisely answers that question, for it says that remittances of estimated tax and withholding taxes shall, quote, for the purposes of section 6511, be regarded as paid on the date the return is due.
The history of this provision makes perfectly clear...
Chief Justice Rehnquist: That isn't quite the way the... the... at least the version of 6513(b)(2) that I have before me reads, where it says... would you... would you read the exact language again?
Mr. Jones: Well, the language that I was emphasizing is up there after prepaid income tax where it says, for purposes of section 6511.
Chief Justice Rehnquist: Ah, or 6512.
Mr. Jones: Right, and 6512 is the statute of limitations in Tax Court cases.
Chief Justice Rehnquist: Okay, and then... then... so, from there you dropped down to the text of...
Mr. Jones: Then I was summarizing the rest of the text.
(b)(1) says that you... that you use the... for withholding taxes, you treat those as paid on the date of the... that a return is due, and then (b)(2) says that for estimated taxes, you treat those on the date the return is due... as paid on the date the return is due.
Chief Justice Rehnquist: So, (1) and (2) distinguish between two different situations.
Mr. Jones: Both of which are involved in this case because we have in this case both withholding and estimated taxes, and so both (b)(1) and (b)(2) apply here.
And under both of those provisions, Congress said that for purposes of the refund limitations in section 6511, these kinds of payments are to be regarded as made... paid on the date the return is due.
Chief Justice Rehnquist: Now, you also said 6511...
Mr. Jones: Yes, sir.
Chief Justice Rehnquist: in your 1-minute summary.
Mr. Jones: That's right.
And that should be on the prior page.
Chief Justice Rehnquist: Now, what... what part of section 6511?
Mr. Jones: The... the particular part involved here is 6511(b)(2)(A), which begins to be quoted on appendix A-11 of the blue brief.
Chief Justice Rehnquist: Okay, and what... point to the specific language...
Mr. Jones: The specific language would be in the... if the claim was filed by the taxpayer during the 3-year period following the filing of the return, and that references us back up to 6511(a).
But if you filed within the 3-year period filing... following the return, then the amount that the... the amount of the credit or refund shall not exceed the portion of the tax paid within the period immediately preceding the filing of the claim equal to 3 years plus the period of any extension.
And so, I was summarizing this provision when I said that in... 6511(b)(2)(A) limits the amount of the refund or the taxes paid within the period of 3 years of... of the refund claim.
And then you look to 6513(b) which says for purposes of that section, withholding and estimated taxes are to be regarded as paid on the date the return is due.
The legislative history of this is perfectly clear.
We've cited it in our brief.
When Congress enacted these interrelated provisions, it did so for the very purpose of answering the question in this case, and it says that these payments are to be regarded as paid for purposes of the refund limitations on the date the returns are... are due.
Justice O'Connor: Mr. Jones, Mr. Rockler referred to regulations that he thought were supportive of his position.
Would you address the regulatory scheme?
Mr. Jones: Well, the only thing that he... he cites in the regulations are simply provisions that direct taxpayers as a general matter to make their refund claim on their return.
If they've made an overpayment... as we all know, the last line on the return is you put in the overpayment.
That satisfies the regulatory refund...
Justice Kennedy: Well, Mr. Rockler wasn't overly impressed with your revenue procedure, and he says there's a glaring omission because the regs don't pick this up.
Why don't you have a regulation?
That was his argument.
Mr. Jones: Well, this is a procedural rule, so I mean, it is a regulation in the... in the broad sense of the term.
It is a rule adopted by the Service to govern this procedural aspect of its work.
It's not a substantive regulation like a Treasury regulation that might interpret some substantive provision of the code, but it sets out procedures that the Service will follow in accepting deposits.
And... and I should emphasize that... maybe out of context, but the reason why we accept deposits is not discussed in any of these cases and it's kind of obscure.
The only reason why a taxpayer would ever want to make a deposit would be because he wanted to preserve his opportunity of going to Tax Court.
If he pays the tax, then there would be no deficiency to be noticed, and therefore no way for him to go into Tax Court to review the notice of deficiency.
Justice Breyer: How... how is it supposed to work if some taxpayer doesn't know that much about it, is in some complicated situation?
He files his return all right, but he isn't certainly about something.
So, he sends in a check for $ 10,000 and just says, gee, I... I don't have a clue what I'm supposed to do here.
Here are all the facts and sets them all out.
And he never hears from anybody for 5 years or so.
And finally, after about 5 years, he gets back a letter, oh, you don't owe anything.
And... and what's supposed to happen?
Mr. Jones: Well, if he... oh, you mean that he didn't even owe the $ 10,000.
Justice Breyer: Yes, right.
Mr. Jones: Well, that would certainly be an unfortunate situation.
I'm not sure that I can think of a situation like that ever happening, but...
Justice Breyer: Well, I don't know.
Mr. Jones: To try to parse through the... the hypothetical, if... if he made it as a payment, which I assume he did because he didn't...
Justice Breyer: He just... you know, he gets his tax... a very honest person.
He sends it in.
He says, I couldn't owe more than this.
I... I'm sure I don't owe more than $ 10,000.
I don't... can't... I... I never go near lawyers.
I expect you to help me.
Just, please, tell me what I owe.
I'll pay it.
Mr. Jones: I can answer your question.
He made a payment.
He made a payment that was applied against his taxes.
If he didn't need to make the payment, he made an overpayment.
If he made an overpayment, he should have filed a refund request in a timely manner.
Justice Breyer: Yes, but he didn't because he never heard from anybody for 5 years.
Mr. Jones: Well, I'm not sure what it was he needed to hear from us because...
Justice Breyer: Well, in other words, suppose 5 years goes by.
He never hears a word.
He sent in the $ 10,000, and then he gets a letter 5 years later, you didn't owe anything.
Mr. Jones: All taxpayers are on notice of the law, and the law in this respect says...
Justice Breyer: He's out of luck.
Justice Stevens: That's this case, isn't it?
Mr. Jones: On the bare facts that you described, yes, he's out of luck.
Justice Stevens: Isn't the hypothetical precisely the same as this case?
Mr. Jones: I mean, that's why there are statutes of limitations that are designed to cut off stale claims.
You've described what is a stale claim.
Justice Scalia: We have a self-assessment system.
This is a taxpayer who simply doesn't want to... doesn't want to self-assess.
Mr. Jones: That's exactly right.
Justice Scalia: And I guess you're not allowed to do that.
Mr. Jones: The whole concept of... of petitioner's position is alien to our system of taxation.
He says you can't pay a tax until it's been assessed.
We have a system of self-assessment.
Taxpayers are supposed to figure out their own tax liability and are supposed to pay it with the return at the time the return is due.
Section 6151 of the...
Justice Scalia: It may be worth $ 10,000 not to have to do that.
Mr. Jones: [Laughter]
Mr. Jones: Well, he should still file a return even if he doesn't owe us money because, I mean, both as a matter of exposing himself to penalties, but beyond that, I mean, we can't know... we can't go out and investigate everybody without any record.
We need a return to... at least as a point of departure, to figure out people's liabilities.
Justice Breyer: I'm simply pointing out it... it could be a really honest mistake situation.
The taxpayer has done everything possible, and perhaps the IRS is at fault if they don't respond promptly.
Now, I guess what you're saying is there's just no remedy, and I wonder if there... there is any.
Justice Scalia: And I agree...
Mr. Jones: People need to be diligent in protecting their rights.
I... I don't think...
Justice Souter: Well, you might also say that the taxpayer has not done everything he could possible.
Mr. Jones: That's right.
Justice Souter: He's supposed to file... he's supposed to file a return.
Mr. Jones: And he's supposed to file a return, and he's supposed to file a refund claim.
And... and in your hypothetical, his failure to comply with the law...
Justice Breyer: He did in my hypothetical.
Mr. Jones: His failure to comply with the law means that he's not entitled to a refund.
The... the court of appeals disposed of this case in... in a one-page opinion, and frankly, that... that was not an unrealistic approach because the text of the statute is clear.
Congress plainly has it within their right to deem what is paid for purposes of the limitations period, and they quite clearly did so and quite clearly intended to do so.
Now, what petitioner says is, well, his only textual argument is that, well, these are payments of estimated taxes and withholding taxes and that's somehow different from income taxes.
And... and that's plainly not correct.
As... as has already been pointed out, the title of... of this provision, when Congress enacted it, is prepaid income taxes.
And section 6315 of the code specifically describes estimated tax payments as payments on account of the income tax.
And section 6401(b) specifically says that if you have withholding... withholding credits, the only way... that are applied against your income tax, the only way you can recover them is if they have resulted in an overpayment of your income tax.
And the only way you can recover them is if you file a timely claim under 6511 for recovery of an overpayment of income tax.
Congress really worked pretty hard to make all these provisions work together, and they really do when you carefully pull them apart and look at how they work.
The... setting aside the text of the statute, petitioner then says, well, just as a matter of logic, you can't pay a tax before it's actually been finally determined and assessed.
Well, we're supposed to self-assess.
We're not supposed to wait for the Service to tell us what our obligations are.
In the Manning case, this Court pointed out that on the date the return is due, under section 6151 of the code, every taxpayer has a positive obligation to pay his tax without, in the words of the Court, an actual assessment of it.
An assessment is not a prerequisite to liability.
An assessment... interest accrues on a liability without assessment.
The United States may bring a suit to enforce a tax liability without assessment.
An assessment is simply, in the words of the code, an administrative record of the liability.
It is an administrative determination which, when made, authorizes additional enforcement devices such as liens and levies, and it gives us an additional 10 years to collect the tax.
But it's not a prerequisite to liability, and... and payments are routinely to be made before the tax is assessed under the code.
Justice Ginsburg: Mr. Jones, Mr. Rockler does get some comfort from the language in Rosenman that says that you don't pay it till it's determined how much it should be.
Mr. Jones: Rosenman really addressed a completely different subject.
First of all, let me point out, as I begin discussing Rosenman, that it did not address or consider the provisions at issue here, and so it doesn't consider and certainly doesn't override the clear textual determination that these types of remittances are paid as a matter of law on the date the return is due.
What Rosenman dealt with was something entirely different, an administrative practice that Congress has repudiated and that no longer applies.
In Rosenman, before the case arose, the Service had long taken the position that a remittance of tax from a taxpayer who in fact owed no liability would not be treated as a payment of tax but would be held in a suspense account on which no interest would accrue.
The reason the Service had done this back in the '20's and '30's was because of a concern they had about a potential abuse.
The potential abuse related to the fact that overpayment interest is more than the interest on ordinary Federal funds.
Right now it's 3 percent over the short-term Federal funds rate.
The Service didn't want the Treasury to be used as a bank that would allow taxpayers to simply... in the words of the Congress that discussed this, to simply throw the money at the Service and go... and collect this higher rate of interest.
So, to prevent the abuse, the Service had a prophylactic approach of saying all of these payments from taxpayers who don't owe us anything we're going to put in a suspense account.
Now, what the Court said in Rosenman was, well, if you treat these matters as non-payment...
Justice Scalia: Excuse me.
Before you go on any further, how did they know that the taxpayer didn't owe them anything?
Mr. Jones: They had no... no way in...
Justice Scalia: I mean, until there's...
Mr. Jones: The Service had nothing in their records to indicate what the liability would be for the taxpayer.
Justice Scalia: Okay.
So, it... the taxpayer could...
Mr. Jones: Oh, yes.
The taxpayer might have owed money, but if from the Service's perspective... this broad, prophylactic approach was, if from the Service's perspective there was no indication of what that liability was, they'd just suspense it.
They didn't want to... they didn't want to be used as a bank.
Justice Souter: Well, did the suspense account apply only to estate taxes or to income tax payments?
Mr. Jones: No.
This... this was generally applied to other types.
My assumption is it was to any type of tax obligation for which overpayment interest would have been available, which would...
Justice Souter: So, it would have...
Justice Kennedy: Your argument about not using the Government as a bank... it seems to me that's his explanation for 1613(b)(2), namely that you didn't want the... the date the estimated payment was made to serve as the date to begin the running of interest.
So, that kind of fits into his interpretation of the section.
Mr. Jones: No, because as I will explain to you next, Congress repudiated the Service's practice in the... in the Current Tax Payment Act of 1943.
In section 4(d) of that act, Congress said basically stop treating these matters as deposits.
Treat it as a payment even if the taxpayer has no liability.
In the legislative report on that bill at page 28 I think... it might be 48, but I think 28... the... the Congress discusses this and says the Service has overreacted to this potential abuse.
We don't think it's that big a problem.
But there might be a problem if some taxpayer threw money on the Treasury when they really did not, in good faith, have any belief that they had a liability.
And so, Congress worded this provision very carefully.
It's section 4(d) of the... of that act.
It's now section 6401(c) of the code.
And what it says is that a payment shall not be treated not as an overpayment merely because the taxpayer had no liability.
That protected the Service's right to say in a particular case, well, I'm not going to give you overpayment interest even though it's a payment.
I'm not going to give you overpayment interest because it's not a good faith overpayment.
You were throwing money at me.
But as the United States said in its brief in the Rosenman case, on the last two pages of its brief in the Rosenman case, under that new statute the payment transmitted in Rosenman would have been treated as a payment.
It was treated as a payment on which overpayment interest would accrue.
And, indeed, the strange argument the United States made in the Rosenman case was that the legislative determination that that was to be treated as a payment for purposes of overpayment interest somehow resolved an uncertainty that had existed in the past about whether those kinds of payments would be held as suspense or as payments for purposes of the limitations provisions.
Well, the Court, to be blunt, would have none of that.
In the Rosenman case, the Court said it will not do to treat these funds as a payment or not as a payment depending on whether the Government wins or loses.
And because the Government treated... at the time of the Rosenman case arose treated it as a deposit and not as a payment, that's... that's the way it should be treated.
Now, after Rosenman, after the new section 4(d) of the Current Tax Payment Act, those types of remittances are not held in special suspense accounts, are not held in deposits.
The only way we accept a deposit now is under the revenue procedure.
And under the revenue procedure, it is generally required that the taxpayer specifically designate at the time of the remittance that he is making a deposit and not a payment, and that protects everybody and everybody knows what's happening.
Justice Souter: Given the I think the Tax Payment Act of 1943, what's your authority to accept the deposit anymore under... under your revenue procedure?
Mr. Jones: I suppose it's... it was not statutory.
If the... if the taxpayer wants to... wants to reserve his right to get to Tax Court and make his deposit instead of making the payment, we can agree to that.
We can't compel it.
We can't, under... under the Current Tax Payment Act, we can't compel it.
Chief Justice Rehnquist: The Tax Payment Act sets more or less a default rule absent the Government's agreement to the contrary?
Mr. Jones: Well, I think the Tax Payment Act sets the rule, but I think that this is a situation that where the parties can vary it by agreement.
I don't... I don't know of a reason why we couldn't, although I have to confess it isn't perfectly clear to me why the Service is willing to participate in these types of agreements, but I think it's a historical thing.
And there may be one explanation.
Congress has provided that a payment of a tax made after the notice of deficiency has been issued and the... and the Tax Court case has begun that if you pay it after you've begun the Tax Court case, then you don't divest the court of jurisdiction.
It's only if you pay it before the case has begun that you do.
And so, these deposit agreements allow the taxpayer to... to get into Tax Court even by curtailing the interest before the notice of deficiency is issued.
Justice Souter: Mr. Jones, I just was going to... I understand your argument.
I understand also that his counter-argument isn't necessarily controlling with regard to what you say.
But it, nevertheless, is true, I think, that his reading of... of 6513(b)(2) would at least serve the function of preventing the Government being used as a bank by somebody who wanted to overpay his estimated payments.
Mr. Jones: It's consistent with that goal.
Chief Justice Rehnquist: That's really all I'm...
Mr. Jones: It certainly doesn't replace it, I mean.
The... the one other thing I wanted to say about the revenue procedure, which our brief doesn't address, and I want to make sure there's no confusion.
In paragraph 4.04 of the revenue procedure, if a taxpayer makes a remittance at a time when there's no identified liability and we don't know how to apply it... he doesn't designate the year or the tax to which the remittance would apply... we will temporarily treat it as a deposit.
We will promptly notify the taxpayer of this and request him to tell us how he wants us to designate it.
And so, in that one brief instance, there can be a deposit without an express designation.
There is a... a broad point that I want to mention, and that is if petitioner's argument were accepted, it would seriously disadvantage the vast majority of taxpayers who pay timely, who file timely returns, and who file timely claims for refund.
And that is because on petitioner's theory, payments of estimated taxes, of withholding, payments made with... with the return, and any payment made before the tax is assessed would simply be a deposit and would not be a payment on which overpayment interest would run.
Since under the code, the Service can take 3 years after the return is filed to make an assessment, petitioner's theory would mean that these taxpayers would lose their overpayment interest for that 3-year period.
Justice Ginsburg: When I put that case to Mr. Rockler, he said no, that's not what would happen.
Mr. Jones: Well, I... I didn't understand his answer, and I don't agree with it.
The overpayment interest runs... oh, I... I'm sorry.
Mr. Rockler was making the... the point that... that overpayment interest doesn't begin to run from the date of the return if you file a late return.
I didn't hear him to be making any other contention on that issue.
From the date... even if you filed... even in Mr. Rockler's situation, if you file a late return, you get... the Service could still have 3 years to assess, and his taxpayer would lose 3 years of interest even if... even from that overpayment... I mean, even from that special date that the interest begins to run.
For interest to run on an overpayment, there has to be an overpayment.
There can't be an overpayment if there's not a payment.
His theory it's a deposit, not a payment.
So, all... all the... I think in the Brockamp case, the Court noted that something like 90 million refunds are given every year.
Most of those are people who pay their taxes through withholding, through estimated taxes, or with their return.
And none of those taxpayers would get overpayment interest under this theory.
Justice Scalia: How come you're here on this side of the case?
It raises that question.
Mr. Jones: Pardon me?
Justice Scalia: I say it... it would seem to be in the interest of the Government to be on the other side of this case.
Mr. Jones: I think it's always in our interest to...
Justice Scalia: I've never seen this happen before.
Mr. Jones: [Laughter]
Mr. Jones: It's always in our interest to try to do what Congress intended, and I don't say that in anything other than in... in full meaning.
I mean, our job is simply to accomplish what Congress indicated we should accomplish and... and we're pointing out that what his... what Mr. Rockler's position would result in would be a drastic difference from what Congress intended, both in terms of determining when the... when the statute of limitations has run and in determining when overpayment interest accrues.
If... are there questions?
Chief Justice Rehnquist: I was going to just say... before Mr. Rockler's red light went on, I was going to ask him if there was no 54(b) issue in this case, I don't think.
Mr. Jones: [Laughter]
Mr. Jones: Thank you.
Chief Justice Rehnquist: Thank you, Mr. Jones.
The case is submitted.
Argument of Speaker
Mr. Jones: The opinion of the Court in No. 98-1667, Baral against the United States will be announced by Justice Thomas.
Argument of Justice Thomas
Mr. Thomas: This case comes to us on a writ of certiorari to the United States Court of Appeals for the District of Columbia Circuit.
Petitioner Baral is a taxpayer.
In 1988, petitioner’s employer withheld a portion of petitioner’s wages and remitted it to the Internal Revenue Service toward petitioner’s tax liability for the tax year 1988.
Petitioner remitted an additional amount to the IRS as estimated income tax.
Although, petitioner obtained an extension of time for filing his tax return until August 15, 1989, he missed his deadline and did not file the return until June 1, 1993.
On this return, he claimed that the two remittances exceeded his tax liability for the 1988 tax year and requested a credit toward his 1989 tax liability.
The IRS denied the requested credit concluding that petitioner’s claim exceeded the ceiling imposed by Internal Revenue Code Section 6511(b) which limits the amount of credit or refund of overpaid tax to the portion of the overpaid tax that was paid within the period immediately preceding the filing of the claim equal to three years plus any extension of time.
Here that period began on February 1, 1990 and ended on June 1, 1993.
The IRS determined that the two remittances have been paid on April 15, 1989, that is before and outside the period described by Section 6511(b).
Petitioner then brought suit in Federal District Court which ruled in favor of the IRS.
The Court of Appeals affirmed explaining that Code Section 6513 plainly establishes that remittances of a holding tax and estimated income tax are deemed paid for the purpose of Section 6511 on the due date of the taxpayer’s return for the relevant year.
Here that due date was April 15, 1989.
In an opinion filed with the Clerk, we affirm the judgment of the Court of Appeals as that court observe Section 6513 plainly indicates that the remittances at issue here are considered paid on April 15, 1989 so that they fall outside the period described by Section 6511.
Because neither these nor any other remittances towards the overpaid tax was paid within the relevant period, the ceiling on petitioner’s credit or refund is zero and the IRS was correct to deny the requested credit.
We reject petitioner’s contention that Section 6513 indicates only when remittances of withholding tax or estimated income tax are deemed paid and that Section 6513 says nothing about when income tax was paid.
This contention rests on the mistaken premise that the withholding tax and the estimated income tax are taxes in their own right, separate from the income tax; they are instead methods for collecting the income tax.
The opinion of the court is unanimous.