## Facts

- An estate filed a federal income tax return for 1920, claiming deductions for attorney’s fees ($20,750) and state inheritance taxes ($16,870), and paid the tax shown.
- After audit, the Commissioner disallowed the inheritance-tax deduction, assessed a deficiency, and the estate paid it.
- The estate filed a refund claim seeking return of the deficiency payment, asserting the inheritance-tax deduction was improperly disallowed.
- While considering the refund claim, the Commissioner concluded the attorney’s-fee deduction had been improperly allowed, recomputed liability by allowing the inheritance-tax deduction but disallowing attorney’s fees, and determined the correct tax exceeded the amount already collected.
- Because the statute of limitations barred any additional assessment for the year, the Commissioner rejected the refund claim.
- The estate sued the Collector in federal district court for recovery; the district court entered judgment for the Collector, and the court of appeals affirmed.
- The Supreme Court granted certiorari.

## Issues

1. Whether, in acting on a refund claim challenging the disallowance of a specific deduction, the Commissioner may reaudit and recompute the taxpayer’s entire liability and deny the refund based on disallowance of a different deduction.
2. Whether the statute of limitations on assessment prevents the government from denying a refund when a recomputation shows no overpayment, even though additional tax cannot be assessed.

## Decision

- The Supreme Court affirmed judgment for the Collector.
- The Commissioner may reaudit the return and redetermine the correct tax liability when evaluating a refund claim.
- A refund may be denied if the correct recomputation shows no overpayment, even if the limitations period bars assessment and collection of any additional deficiency.

## Legal Principles

- Statutory refund authority permits refunds only for “overpayments”; the controlling question in a refund claim is whether the taxpayer paid more than was legally due.
- Consideration of a refund claim authorizes redetermination of the entire tax liability for the year, not merely the specific item identified in the claim.
- The statute of limitations restricts additional assessment and collection but does not bar recomputation of liability to decide whether an overpayment exists.
- A tax refund suit is analogous to an action for money had and received; the taxpayer bears the burden to show the government holds money that belongs to the taxpayer.
- If recomputation shows the taxpayer underpaid (even though further assessment is time-barred), the taxpayer cannot establish an overpayment and is not entitled to a refund.

## Conclusion

The Court held that refund entitlement depends on proving an overpayment, and the Commissioner may reconsider the entire year’s tax liability—disallowing other items if necessary—to determine whether any refund is owed, notwithstanding that the limitations period prevents assessment of additional tax.


Lewis v. Reynolds, 284 U.S. 281 (1932)