Things are turning around for the Yankees.
Derek Jeter, who hasn’t played this season, made an appearance on the field today, taking a few practice swings. The team is 2nd in the AL East (and yes, their winning percentage is much better than my beloved Phillies who are a dismal 3rd in the NL East). And now, Hal Steinbrenner, the team’s co-owner and managing partner just got his own big win: Steinbrenner beat the Internal Revenue Service (IRS) in a tax refund challenge.
In 2011, the IRS sued Steinbrenner in federal court in Tampa, Florida, in an attempt to recover $670,494 in what they allege were improper tax refunds. The IRS initially paid out the refund in 2009 and then cried foul, filing suit to get it back.
The crux of the IRS claim is that the amended return was filed five months too late. The return was filed in August 2009 but the IRS argued that the statute of limitations would have expired in March, making the refund impermissible. U.S. District Judge Steven Merryday disagreed, ruling that the IRS’ application of the tax treatment of partnerships didn’t apply to this particular set of facts.
The issue stems from an earlier audit involving Hal Steinbrenner’s father, George Steinbrenner, and several of his partnerships and related entities including YankeeNets LLC, Yankees Holdings, L.P. YankeeNets, and Yankees Holdings. Steinbrenner and the IRS eventually settled. The date of that settlement, March 1, 2007, is key because the IRS claims that the statute of limitations for refund began to run on that day. Under IRC Section 6230(c)(2)(B), that would have limited Steinbrenner’s claim to a filing date of March 1, 2009:
(B) Under paragraph (1)(B) Any claim under paragraph (1)(B) shall be filed within 2 years after whichever of the following days is appropriate:
(i) the day on which the settlement is entered into,
(ii) the day on which the period during which an action may be brought under section 6226 with respect to the final partnership administrative adjustment expires, or
(iii) the day on which the decision of the court becomes final.
Judge Merryday ruled in the case, however, that the refund was claimed timely because of the subsequent filing history. You see, the following year, IRS adjusted certain items of partnership income for 2001 and 2002 for those pass-throughs, which resulted in a net operating loss (NOL) for 2002. At the same time, on February 7, 2008, the IRS issued one of the related pass-through entities a notice of adjustment. That adjustment triggered a series of tax consequences, including a bill for more taxes – and that tax was paid. By the time that Hal Steinbrenner, as a beneficiary of those pass-throughs, could benefit from the NOL, he had already filed his tax returns and paid the tax – so he filed an amended return. Specifically, he amended his 2001 tax return to reflect the tax result of the NOL from 2002: one of the little perks of NOLs is that you can use them to offset income in other years.
In his ruling, Judge Merryday examined, at length, the arguments offered by IRS but chose to rely mostly on IRC Section 6511(a):
Claim for credit or refund of an overpayment of any tax imposed by this title in respect of which tax the taxpayer is required to file a return shall be filed by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within 2 years from the time the tax was paid.
The result of that statute, Judge Merryday wrote, “stated simply and directly” is that taxpayer has two years from the date of paying the tax in order to claim the refund. Both Steinbrenner and IRS agree that the overpayment of tax was made in 2008. Following that logic, Judge Merryday found that the claim for refund in 2009 was made “comfortably sooner than two years after paying the tax.”
The case is a big victory for the Steinbrenners. But then, the family is no stranger to winning. Hal inherited his share of the team when his father, George Steinbrenner, died in 2010. That ended up being a big tax win, too: George died in 2010, the year there was no federal estate tax.