Taxation – Statute of Limitations – Unfiled Return – Refund Request – DOR Notice

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N.C. Department of Revenue v. Bass (Lawyers Weekly No. 020-004-18, 17 pp.) (Michael Robinson, J.) 2017 NCBC 112

Holding: Under the statute of limitations in G.S. § 105-241.6(a), a taxpayer has three years to apply for a refund, and G.S. 105-241.7(a) requires the Department of Revenue to refund an overpayment if the DOR discovers the overpayment within the statute of limitations. There is no statute of limitations on the DOR’s assessing taxes against a taxpayer who failed to file a return. The DOR’s notice to the respondent-taxpayer – sent more than three years after an unfiled return was due – required the taxpayer to respond within 30 days, but this did not extend the statute of limitations for the taxpayer to request a refund.

The court reverses the final decision of the Office of Administrative Hearings and concludes that the taxpayer’s request for a refund regarding his 2012 North Carolina income tax return is time-barred under § 105-241.6(a).

The taxpayer tried but failed to electronically file his 2012 North Carolina tax return. In 2016 – after the three-year statute of limitations for requesting a refund had expired – the DOR sent the taxpayer a “Notice of Intent to Assess for Failure to File North Carolina Return.”

The notice required the taxpayer to do one of several things within 30 days. The taxpayer complied by sending in his unfiled 2012 return, and the taxpayer requested a refund.

The administrative law judge found that the DOR’s request for information extended the statute of limitations on the taxpayer’s request for a refund. The court disagrees.

G.S. § 105-251 provides, “(a) Scope of Information. – A taxpayer must give information to the Secretary when the Secretary requests the information. . . . (b) Correction of Liability. – When a taxpayer provides information to the Secretary within the statute of limitations and the information establishes that an assessment against the taxpayer is incorrect or that the taxpayer is allowed a refund, the Secretary must adjust the assessment or issue the refund in accordance with the information. This action is a correction of an error by the Department or by the taxpayer and is not part of the process for the administrative or judicial review of a proposed assessment or a claim for refund.”

To interpret the “statute of limitations” mentioned in § 105-251(b) as the statute of limitations for proposing an assessment, as the ALJ did, would lead to the absurd result of rewarding non-filers and punishing timely filers. The ALJ’s interpretation of the statutes in question would inevitably result in the DOR being at risk for a stale claim of refund whenever it contacted a purported non-filer more than three years after the due date of the return, even though the statute of limitations would otherwise mandate a different result. The statutory scheme does not support such an interpretation.

Because the taxpayer did not provide information to the DOR that established his entitlement to a refund within the statute of limitations for applying for a refund, the taxpayer was not entitled to, and the DOR was not required to issue, a refund under § 105-251(b).

Reversed.