In a significant case released on August 10, 1999, the Florida’s First District Court of Appeal ruled that interest on a Florida corporation income tax deficiency resulting from changes made by a federal income tax audit did not start accruing until the date that the corporation reported the federal income tax adjustments to the Department of Revenue.
In Barnett Bank v. Department of Revenue, Case No. 98-4104, Barnett Bank was audited by the Internal Revenue Service for its corporate income tax returns for 1986 through 1991. Barnett Bank settled with the IRS and agreed to changes which increased its federal taxable income. This, of course, increased Barnett Bank’s income for Florida corporate income tax purposes. Barnett Bank timely notified the Department of Revenue regarding the increase in federal taxable income, which increased its Florida corporate income tax liability for the years in question, by filing an amended state corporate tax return pursuant to §220.23(2), F.S.
The Department of Revenue did not assess penalties, but did assess interest relating back to the date that the original return was filed. Barnett Bank paid the interest under protest and filed a claim for refund on the theory that a literal reading of the statute for the payment of interest should result in interest accruing from the date the Corporation notified the Department of Revenue of the additional Florida tax resulting from the federal tax audit. When the Department of Revenue refused to pay the refund, Barnett Bank commenced a legal action.
The Court ruled in favor of Barnett Bank, holding that the language of the relevant statute, §220.809, F.S., provides that the interest accrues from the date the payment of the tax is due. The Court interpreted this statutory language literally, and ruled that the interest did not start accruing until the tax becomes due, which the Court ruled is when the amended return is filed. Accordingly, the Court ordered the Department of Revenue to refund the interest paid by Barnett Bank.
The practical impact of this case is that Corporations that paid additional Florida corporate income taxes as the result of a federal tax audit will likely be entitled to a refund of interest from the Florida Department of Revenue. A claim for refund may be filed within five years that the interest was paid (for interest that was paid prior to July 1, 1999). If the claim for refund is not filed within this period, the statute of limitations will bar the refund.
A claim for refund should be made by filing Form DR-26 "Application for Refund" with the Florida Department of Revenue.
Please note that it is possible that the Department of Revenue may attempt to have legislation adopted that would change the law set out in the Court’s ruling. It is possible that such legislation could be retroactive, or prospective - effecting only future audits. Or the legislations might possibly "grandfather" refund claims filed prior to any such possible legislation. Consequently, claims for refund should be filed as soon as possible.
© 1999 Greenberg Traurig
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