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Topic Code: S386 Statute of Limitations (ST)(C)(I)(federal audit)(C)(I)(S/U)          Document Reference: 12201045

June 4, 2012



David C. Puff

OíConnor, Brooks & Co., P.C.

1415 Locust

Dubuque, Iowa  52001


RE:   Bradley A. and Anne M. Lohaus

         Docket No.  2010-200-1-0313

         Individual Income Tax Protest

         Department Number 2010277700051


Dear Mr. Puff:


The Review Unit of the Iowa Department of Revenue has considered your protest.  After reviewing the facts and evidence presented and the laws which apply to the protest, the Review Unit denies the protest for the following reasons:


For the years 2001, 2002, 2003, 2004, and 2005, your clients did not timely file Iowa individual income tax returns.  The Department issued an estimated assessment for tax year 2002 in December, 2004.  This assessment was paid in full on November 10, 2005.  An estimated assessment was issued for the years 2001, 2003, 2004, and 2005 in March, 2007.  The Departmentís records show that collection activity started in August, 2007 and was terminated by the Department on January 12, 2011, with the filing of the lien release.  Iowa individual income tax returns for the years 2001 through 2005 were filed by your clients on July 12, 2010.


The issue in this protest is whether the Department correctly applied the statute of limitations found in Iowa Code §422.73 which states in relevant part:


A claim for refund or credit that has not been filed with the department within three years after the return upon which a refund or credit claimed became due, or within one year after the payment of the tax upon which a refund or credit is claimed was made, whichever time is the later, shall not be allowed by the director.


In their protest, taxpayers raise the following points to support their position.


1.  The Department did not notify them that there was a one-year statute of limitations at the time the wage garnishment began.

2.  Normal Iowa taxpayers have no way of knowing the rule of the one-year postdate matter with the Department disclosing the implication of the effects of lost payments.

3.  Taxpayers filed their returns in good faith that the Department would refund any overpayments of the garnished funds to them.

4.  Due to the trust the taxpayers had in the State of Iowa together with personal circumstances, taxpayers are petitioning that the Department refund overpayment of $36,379.66 to them.


After reviewing the facts of this case and the Departmentís collection history, the Review Unitís position is as follows.


Beginning in August, 2007, the Department had several conversations with Mr. Lohaus regarding the filing of returns for the years in question.  Mr. Lohaus advised the Departmentís staff several times that he was trying to get the paperwork together so the returns could be filed.  Since no returns were being filed or any payments being made on the account, the Department initiated garnishment proceedings against Ms. Lohaus in November, 2007.  Telephone conversations with Mr. Lohaus show that he was repeatedly advised to file returns.  These returns were not filed with the Department until July 12, 2010. 


Notification of the statute of limitations concerning Iowa income tax refunds is found in both Departmental rule 701 IAC 43.3 (8) and Iowa Code §422.73.  Both the Iowa Code and the Departmentís administrative rules are published and available for public review.  Every citizen is presumed to know the law.  The Iowa Supreme Court has held:


It is a well-established principle that ignorance of the law is no excuse. Id. at 199, 111 S.Ct. at 609, 112 L.Ed.2d at 628; Millwright v. Romer, 322 N.W.2d 30, 33 (Iowa 1982). We have consistently held that individuals are presumed to know the law. Millwright, 322 N.W.2d at 33; Clark V. Iowa Dept. of Revenue and Finance, 644 N.W.2d 310, 319, (Iowa 2002).


Robert G. and Kathleen Clark v. Iowa Department of Revenue and Finance, No. 50 / 00-1969 (2002). 


Under this principle, taxpayers cannot shift their failure to file the returns before the lapse of the statute of limitations to the Department.  Their failure to act is their responsibility along with the consequences of such failure. 


Protesters argue that the Departmentís position is unfair. As noted by the Iowa State Board of Tax Review in the following quotation, the finality of settling accounts provided by a statute of limitations overrides an individual's private interest and hardship.  In regard to the Iowa income tax system and a refund claim that was not made within the statutory time limit, the Iowa State Board of Tax Review stated:


Tax refunds for excessive tax paid are a creature of the statute. Absent a statute, the taxpayer does not have a right to a refund. Slimmer v. Chickasaw County, 140 Iowa 448, 118 N.W. 799 (1908). See also Kraft v. City of Keokuk, 14 Iowa 86 (1862). The Iowa statute does provide for a refund, but it is subject to a time limitation and the taxpayers failed to make their refund claim within the statutory time limit.


This Board can sympathize with the taxpayer who has mistakenly overpaid a tax and either through oversight or bad advice has let the statutory refund period expire. But all statutes of limitations create a hardship on those who let it expire. However, the public's interest in providing for finality in settling accounts overrides any individual's private interest.


Boysen, Findings of Fact, Conclusions of Law and Order, pp. 3-4, Docket No. 658 (Iowa State Bd. of Tax Review 11-28-90).


A review of the Departmentís collection records for the years 2001 Ė 2005 shows that all payments received by the Department from taxpayers were applied to the years 2001, 2002, and 2003.  These payments totaled $55,894.63.  Since the Iowa individual income tax returns for 2001, 2002, and 2003 were filed on July 12, 2010, only those payments which made on or after July 12, 2009 can be refunded under the one-year statute of limitations.  After adjusting the liability for 2001 to reflect the tax shown on the delinquently filed return, the 2001 refund total would be $8,939.79.  After adjusting the liability for 2003 to reflect the tax shown on the delinquently filed return for that year, the total would be $1,519.36.  There would be no refund for 2002 and the last payment made for that year was on November 11, 2005. 


A review of the record shows that the Department did refund all payments which were made within one year of the filing of the returns.  A copy of the Departmentís computations, which were sent to your client on July 22, 2010 are attached for your review. 


The last issue that you raise in the protest is that there is an amount of $3,125.00 which was garnished from your clientís wages during the years 2007 through 2010, which you have identified as unexplained and subject to refund by the Department.  A review of the Departmentís garnishment activity shows that your clientís employer, Hartig Drug Co., advised the Department that your client was also being garnished for a consumer credit debt and student loan debt.  Consequently, it appears to the Review Unit that the $3,125.00 amount was applied to non-tax debt.  Therefore, the Review Unit contends that the $3,125.00 was not an income tax payment is not subject to refund by the Department.


The Review has recently litigated another case where the issue was similar to this matter regarding the one-year statute of limitations.  A copy of the decision in that case is attached for your review.


Please respond in writing by July 13, 2012, whether you agree with the Review Unitís position.  If you agree, or choose not to pursue the protest, then your letter will serve as authority for the Review Unit to request the Director to close the protest. 


If you disagree with the Review Unitís position in this matter, then the Review Unit requests that you identify those areas of disagreement and provide documentation to support your position.  Upon receipt of your letter, the Review Unit will file an Answer, which will initiate the process for an administrative hearing on your protest.  A departmental attorney will be assigned to your protest at that time.


If no response is received by July 13, 2012, then the Review Unit will construe this inaction as failure to pursue the protest and will request dismissal of the protest pursuant to departmental rule 701 IAC 7.44(2).


If you have any questions regarding this matter, please do not hesitate to contact me.






Dennis Schutt, Technical Tax Specialist

Policy and Communications Division

Audit Services Section

Telephone:    515-281-7994

Fax:              515-242-6040



cc:  Bradley A & Anne M. Lohaus