Deaton v. Commissioner

In April 1994, Barbara and Ronny Deaton (plaintiffs) filed an Internal Revenue Service (IRS) Form 4868 requesting an extension of the filing deadline for their 1993 federal tax return. To obtain the extension, the Deatons were required to estimate their tax due, but they were not required to make payment to the IRS at that time. Nevertheless, to avoid the imposition of interest and penalties, the Deatons enclosed a check for $125,000 with their Form 4868. This amount corresponded to the stated balance due on the Form 4868. The check contained no indication that the Deatons intended to make a deposit rather than a payment. The IRS granted an extension until October 1995, but the Deatons did not file their 1993 return until 2000, along with delinquent returns for 1994 through 1996. The Deatons’ 1993 return reported an overpayment of $50,221, which the Deatons asked the IRS to apply to their subsequent tax liabilities. The IRS refused this request based on 26 U.S.C. § 6511(b)(2)(A), which limited a taxpayer’s credit or refund to a three-year lookback period (plus certain additional time). The IRS subsequently attempted to levy the Deatons’ property to collect on their tax liabilities for 1994 through 1996. The Deatons requested and received a collection due-process hearing, in which they argued that their $125,000 check was a deposit and not a tax payment and thus was not subject to the lookback limit. The IRS Appeals Office rejected the Deatons’ assertion and sustained the proposed levy. The Deatons filed a petition against the IRS commissioner (defendant) in the United States Tax Court. The Tax Court also ruled against the Deatons, concluding that under the case’s facts and circumstances, their $125,000 check was properly categorized as a payment rather than a deposit. The Deatons appealed, arguing that their remittance categorically was a deposit.