ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – WILL BAD ADVICE FROM THE CDTFA STOP THE RUNNING OF ITS STATUTE OF LIMITATIONS FOR FILING REFUND CLAIMS?
By Robert S. Schriebman
Will bad advice from the CDTFA stop the running of its statute of limitations for filing refund claims? In the tax law, generally, there is a doctrine known as “estoppel.” According to Black’s Law Dictionary, estoppel means that a party is prevented from profiting caused by its own improper conduct.
Taking a page from my experience in dealing with improper EDD actions, the statute of limitations for filing an appeal or a petition before the CUIAB is disregarded if one can prove the EDD acted improperly in the assessment process. Judges are inclined to allow late petitions as timely filed when one can show improper conduct on the part of the EDD.
Do the same standards of estoppel apply if a claim for refund is late due to improper advice from the CDTFA? In the recent case involving T-Mobile, the Office of Tax Appeals (OTA) had to deal with this very issue. (T-Mobile Resources Corporation, OTA Case No. 18012040, Dec. 23, 2020)
The Case of T-Mobile
T-Mobile (TM) paid millions of dollars in use taxes between 2012 and 2014. It sought a refund of over $12 million for improperly assessed use taxes. On September 22, 2014, it timely filed a claim for refund for the period October 1, 2011 through March 31, 2013. An audit was conducted by the CDTFA and TM was granted a refund for all except $301,000. The CDTFA claimed TM underreported and offset the refund against an assessment. There were meetings and reports filed. During this process, TM was informed that it may timely file a claim for refund as to the offset on or before July 27, 2016. On July 20, 2016, TM filed a claim for refund of $301,000 for an overpayment relating to its first quarter 2013 return. Upon receipt of this claim, the CDTFA informed TM that the claim was too late. TM filed a petition for refund with the OTA and lost!
Why Did TM Lose?
The OTA discussed the basic rules relating to a refund claim set forth in R&TC § 6901. In the case of an overpayment, the excess amount shall be credited on any amounts then due and payable from the taxpayer, and the balance shall be refunded to the taxpayer providing the claim for refund is filed the later of (1) three years plus one month following the close of the calendar quarter; or (2) six months from the date of the overpayment. Here, TM filed its first quarter 2013 timely and paid the taxes due per the return. That return is for the period January 1, 2013 through March 31, 2013. One month thereafter is April 30, 2013. The tax on that return was paid when the return was filed. Six months thereafter is September 30, 2013. Obviously, the 3-year expiration date is April 30, 2016. Since the refund claim was filed on July 20, 2016, it is too late by either time limit.
The OTA ruled that the refund claim was too late. It did not matter whether TM received improper advice from the CDTFA that it could file its claim by July 27, 2016.
Applying the Doctrine of Estoppel
TM certainly could have hired the best legal minds in the business. Their attorneys never raised the issue of estoppel. We do not know how the OTA would have applied this doctrine. Looking at an example from the EDD, it too has refund claim statutes, as well as statutes governing the timeliness of filing petitions. CUIAB judges will ignore filing time limits and treat a late petition as timely filed if improper actions by the EDD were relied on by the employer. The principle is exactly the same. Why TM’s attorneys never raised the estoppel doctrine will remain a mystery.
Violations of the Taxpayers’ Bill of Rights
The Taxpayers’ Bill of Rights is found in R&TC § 21001 et seq. §21012(a) allows damage recovery for reasonable reliance on written advice from either the FTB or CDTFA. It is unknown at this writing whether TM sought damages in the superior court. The OTA has no jurisdiction to award damages. In the case, TM did not attack the CDTFA for violations of the statute.
It was incumbent upon the OTA to discuss and rule upon the application of the doctrine of estoppel. It is a mystery to me why neither side raised this issue. In my opinion, the ruling by the OTA was unreasonable and harsh.
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
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