Legal ruling 386

Claim for Refund - Sufficiency of Various Federal Reports

Advice has been requested whether, under the circumstances described below, certain timely filed reports of federal income tax overassessments, such as federal revenue agents' reports, constitute claims for refund under the Personal Income Tax Law and Bank and Corporation Tax Law.

(1) The taxpayer submits the federal report with correspondence requesting a refund.

(2) The taxpayer submits the federal report without any accompanying request for a refund.

(3) The Internal Revenue Service rather than the taxpayer submits the federal report.

As to form and content, the claim for refund requirements of the Personal Income Tax Law and Bank and Corporation Tax Law are broadly stated. The claim must be filed by the taxpayer (Revenue and Taxation Code Section 19053, 26073) or an authorized representative (Cal. Admin. Code, tit. 18, Reg. 19051-19062.9(b)(ii)(3)) and, in writing, must state the specific grounds upon which it is founded (Revenue and Taxation Code Sections 19055, 26074).

In contrast to federal provisions, neither the Revenue and Taxation Code nor the relevant regulations require that the claim be made under penalties of perjury or that a particular form be used. The fact that the taxpayer's intent to seek a refund is expressed in some written form other than in an amended return or on a Franchise Tax Board claim for refund form has no bearing on the adequacy of the claim. In each case, the applicable test is whether the taxpayer has provided information in the claim which apprises the Franchise Tax Board of the exact basis of each ground on which the refund is claimed so that the facts relative to these grounds may be investigated and decisions made.(Appeals of A. Brigham and Zelletta M. Rose, and Lori, Ltd., Incorporated, A. Brigham and Zelletta M. Rose, Transferees, Cal. St. Bd. of Equal., August 1, 1966, CCH 203-361, P-H 48,417; Appeal of Clarence L. and A. Lois Morey, Cal. St. Bd. of Equal., August 3, 1965, CCH 202-914, P-H 58,385; Appeal of American Institute of Interior Designers, Cal. St. Bd. of Equal., August 3, 1965, CCH 202-917, P-H 13,368; see also Kuehn v. United States, 480 Fed.2d 1319 (1973); Herrington v. United States, 416 Fed.2d 1032 (1969); Angelus Milling Co. v. Commissioner, 325 U.S. 293, 89 Law.Ed. 1619, 65 Sup.Ct. 1162 (1945).)

A timely filed report of a federal income tax adjustment, such as a federal revenue agent's report, which is accompanied by a refund request will constitute a claim for refund if specific grounds are set forth which focus the Franchise Tax Board's attention on the merits of the claim. Usually, the grounds for the refund will be apparent from information in the federal report, but it is conceivable that further written elaboration would be required to "perfect" the claim. If it is clear that the taxpayer seeks a refund, but that the refund request lacks sufficient specificity to apprise the Franchise Tax Board of the exact basis of the claim, the refund request is considered an "informal" claim for refund (see Clement v. United States, 472 Fed.2d 776 (1973); United States v. Kales, 314 U.S. 186, 86 Law.Ed. 132, 62 Sup.Ct. (1941)). Informal claims toll the statute of limitations. Unless the informal claim is substantiated by a later amendment which refers to the defective claim (Appeal of Clarence L. and A. Lois Morey,supra; Tobin v. Tomlinson, 310 Fed.2d 648 (1962), and which is limited to clarifying the original grounds rather than adding new ones (Bear Valley Mutual Water Company v. Riddell, 493 Fed.2d 948 (1974); Sappington v. United States, 408 Fed.2d 817 (1969)), the taxpayer cannot appeal to the Board of Equalization (Revenue and Taxation Code Sections 19058, 26076) or institute a legal action (Revenue and Taxation Code Sections 19082, 26102).

If a federal income tax adjustment is timely filed by the taxpayer without any accompanying explanation, the taxpayer's intent is ambiguous. The taxpayer may be seeking a refund or simply may be complying with Section 18451 or 25432 of the Revenue and Taxation Code. In these cases, the federal report is not considered even an "informal" claim for refund.

Although the timely filed federal report, standing alone, does not constitute a formal or an informal claim for refund, the Franchise Tax Board has the authority to, and does, allow a credit, make a refund, issue a notice of proposed overassessment or certify an overpayment to the State Board of Control for approval of the refund if the federal information clearly establishes that such action is appropriate (Revenue and Taxation Code Sections 19053, 26073).

Since the pertinent Personal Income Tax Law and Bank and Corporation Tax Law sections and regulations require that the taxpayer or the taxpayer's representative file the claim for refund, a report submitted by the Internal Revenue Service does not constitute a claim for refund.

As earlier discussed, however, if the information is submitted by the Internal Revenue Service within statutory periods and establishes that the taxpayer has made an overpayment of state taxes, the Franchise Tax Board is authorized to, and does, initiate a credit or refund.