SPRINT CORPORATION & SUBSIDIARIES (2001) (TRU) (CORP)

Topic Code: S386Statute of Limitations (ST)(C)(I)(federal audit)(C)(I)(S/U)           Document Reference: 01240126

                                                            February 26, 2001

Terrence D. Frederick

Director - State & Local Corporate Tax

Mail Stop: MOKCMW0609

903 E. 104th Street

Kansas City, Missouri 64131

                              Re:          Sprint Corp. & Subs.

                              Docket No. 99-24-1-0149

                              Letter of Findings

Dear Mr. Frederick:

          The Review Unit of the Iowa Department of Revenue and Finance has met and made a determination on the above-referenced Protest.

          This Protest is based upon a refund denial by the Department for the tax years ending December 31, 1982, 1983 and 1984 because of the fact that the refund claim was not filed within six months of the finalization of the federal audit. The taxpayer filed amended Iowa corporate returns on March 15, 1999 to reflect federal audit adjustments for the tax years 1982 through 1985. The amended returns for 1982 through 1984 requested a tax refund while the 1985 return showed a tax due.

          Taxpayer admits that it failed to file amended returns within six months of the finalized federal audit. It inadvertently relied on the date of September 17, 1998 as the federal audit finalization date when such date actually represented the final billing to the taxpayer from the IRS. The federal audit, in fact, was finalized on March 31, 1998 and taxpayer would have had until approximately September 30, 1998 to notify the Department of the finalized federal audit. No such notice was received by the Department until the amended returns were filed on March 15, 1999.

          Iowa Code section 422.73(2) requires that

Notwithstanding the period of limitation specified, the taxpayer shall have six months from the day of final disposition of any income tax matter between the taxpayer and the internal revenue service with respect to the particular tax year to claim an income tax refund or credit.

(Emphasis added). There is no statutory authority to allow refunds that are claimed after the limitation period has elapsed. The Department has no choice but to deny the refund claim as being untimely.

          Taxpayer also requests in the alternative that the refund claims be used to offset the tax liability due for 1985. If the offsets are allowed, the assessment for tax due from the 1985 tax year would be reduced to zero.

          The doctrine of recoupment for purposes of offsetting the assessment with a barred refund claim is only applicable if the barred refund arises from the same transaction which gave rise to the deficiency assessment. This is seen in National Biscuits Co. v. U.S., 156 F. Supp. 916, 927 (Ct. Cl. 1957), which states in part that:

The cited cases show that the doctrine of equitable recoupment is available to both the taxpayer and the Government depending upon the particular fact situation. It was conceived of necessity by the requirement of fairness due to the danger of injustices resulting from the bar of the statute of limitations. It is really a case law exception to the statute of limitations where the application of the statute would work a palpable injustice. . . . The doctrine is restricted, however, to situations in which a single transaction constituted the taxable event claimed upon and the one considered in recoupment. . . . Thus, in order for the Government or the taxpayer in any case to have the doctrine of equitable recoupment applied, the offsetting amount from the year barred by the statute of limitations must result from the same transaction which gave rise to the refund or deficiency in the open year. To provide otherwise, every assessment of deficiency and each claim for refund would invite a search of the taxpayer's entire tax history for items to recoup.

(Emphasis added).

          It is assumed for purposes of these findings that the refunds at issue for 1982-1984 do not arise out of the same transaction or series of transactions as does the deficiency for 1985. Assuming that to be the case, the taxpayer’s request to offset the out-of-date refund request against the Department’s assessment must be denied. Obviously, if the taxpayer has evidence and records that the refund and deficiency do arise from the same transaction or the same series of transactions, that material should be provided to the Department for consideration. Any such evidence must be provided within 30 days from the date of this letter.

                    Otherwise, please notify me in writing as to your position regarding these findings within 30 days of the date of this letter. If you agree with these findings, or disagree but do not wish to pursue the matter, I will proceed to close the matter upon payment of the amount due directed to my attention and payable to Treasurer, State of Iowa. That amount is $48,510.45, with interest through March 31, 2001. If you wish to pursue this matter further, I will file an Answer to your Protest commencing contested case proceedings.

                    Please feel free to contact me if you have any questions.

                                                                      Sincerely,

                                                                      JAMES D. MILLER

                                                                      Assistant Attorney General

          JDM:cml