Baral, David v. U.S. (02/22/2000)

By: Gigi Barnett, Medill News Service

Questions presented

Whether a remittance of estimated taxes or of taxes withheld from wages is a payment of tax that is subject to the Internal Revenue Code's limitation on tax refunds.

Brief

As is the case with many taxpayers, David Baral prepared his own taxes in 1988.

Baral, who relied on the directions provided by the Internal Revenue Service, estimated that he didnt send enough money to pay his taxes, though, he hadnt yet calculated his payments at that time.

He decided to avoid penalties by sending an extra $1,100 with an estimated tax form to the IRS. The government agency recorded the payment on Jan. 27, 1989. A few months later, Baral asked the IRS for an extension of time to file his 1988 income tax return on Aug. 15, 1989, stating that he could not find his 1987 tax return.

With substantial capital gains and dividend income for 1988, and a large capital loss carryover, Baral needed to determine the precise calculations for his return.

He said that he tried to get assistance from the local IRS office in Washington, D.C. to help him figure the amount of money received on investments and capital gains.

Baral said he didnt get any help from workers at the IRS and couldnt submit his forms on time. ""He was not particularly concerned because he believed that the amounts withheld and remitted would fully cover his income tax liability when that liability could be correctly determined,"" his documents state.

In 1993, the IRS asked Baral to file his income tax from the previous years, including the 1988 and 1989 forms. Later that year, he completed the forms and submitted them. He owed the IRS $4,029, which totaled $5,204 after his estimated tax payment had been included.

Baral had overpaid $1,175, which included the extra $1,100 he submitted in 1989 plus a $75 late fee. He wanted that money credited as estimated tax for 1989.

The IRS denied his request, stating that he was required to make his overpayment of his 1988 income tax on April 15, 1989, ""a date more than three years and four months (the extension period) before the claim for credit (by return) was filed on June 1, 1993.""

Baral had simply run out of time to claim that money.

At trial, Baral -- who sued the government and represented himself -- argued that the withheld income tax and the estimated tax payments were only ""deposits"" designed to guard against potential penalties. He lost the suit.

In a two-paragraph, unpublished, per curiam opinion, the Circuit Court for the District of Columbia affirmed. ""That Baral may have intended the remittances to be deposits rather than payments under (the statute) is irrelevant; the statute conclusively determines that these remittances were payments as a matter of law,"" the court said.

The U.S. Supreme Court granted certiorari on Sept. 28, 1999.

On Feb. 22, 2000, a unanimous Court affirmed, holding that remittances of estimated income tax and withholding tax are “paid” on the due date of a calendar year taxpayers income tax return. Writing for the Court, Justice Clarence Thomas found that contrary to Barals claim, the withholding tax and estimated tax are not taxes in their own right (separate from the income tax), that are converted into income tax only on the income tax return. Instead, they are methods for collecting income taxes.

At the end of the brief opinion, Justice Thomas noted that timely taxpayers should be pleased by the Court's opinion, in that if payment occurs only at the IRS' assessment, no interest could accrue during the time between the filing of a timely return and the IRS assessment, which comes later.