In Chief Counsel Advice 201540012 the IRS held that a corporation had not made a proper informal refund claim and thus the statute of limitations had expired.
The situation involved a dispute between a corporation and the taxing agency of a foreign government. The IRS, referring to years by “Y” and numbers indicated that the questions involved years Y1, Y2 and Y3. In year Y12 the corporation settled the dispute with the foreign government.
As the IRS explained:
In tax year Y12, Corporation B settled a dispute Corporation A had with Foreign Country's taxing authorities regarding Corporation A's foreign subsidiary. Corporation B submitted Forms 1120X for Corporation A for tax years Y1, Y2 and Y3 to claim additional FTC resulting from the settlement. Corporation A was in an "excess limitation" position and could not claim refunds relating to the additional FTC and instead carried the FTC forward. Corporation A attached an "Explanation of Changes" statement to each of these amended returns stating,
Corporation A is submitting this Form 1120X to claim, under IRC § 6511(d)(3)(A), additional foreign tax credits for its tax year ended 12/31/Y1. As shown on Attachment #1, the result of this claim is an increase to Corporation A's foreign tax credit carryforward for the tax year ended 12/31/Y1.
The corporation had previously executed extension of time to assess tax for the first four tax years covered. The extensions of time expired on 12/31/Y8 for Y1, Y2 and Y3, and on 1/Y10 for Y4..
The taxpayer discussed its intention to file a claim with the team coordinator assigned to examining the corporation on 8/Y14. In Y15 the corporation sent an email to coordinator indicating that they had almost completed the claim and wanted to discuss the agent’s thoughts. On date9/Y15 they showed the coordinator a draft of a Form 1120X, though they did not give that form to the agent nor any other IRS employee.
The corporation submitted a Form 1120X on 12/Y15, consisting of the foreign tax credit adjustment for Y4 and carryforward of credits from Y1, Y2 and Y3. The IRS denied the claims as untimely.
The memorandum notes that generally the rules for a timely refund claim are as follows:
Section 6511 of the Internal Revenue Code establishes a two-part limitation regime on refund claims. Boeri v. United States, 724 F.3d 1367, 1369 (Fed. Cir. 2013). First, to receive a "refund of an overpayment of any tax imposed by this title in respect of which tax the taxpayer is required to file a return," a refund claim must be filed no later than "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." I.R.C. §6511(a). Second, section 6511(b)(2) limits the allowable amount of a credit or refund to the amount of taxes that were paid in the preceding two or three years, depending on if the claim was filed within three years of filing a return or not. This second limitation is known as the section 6511(b)(2) "lookback" period.
However, in this case the taxpayer had agreed to extend the statute. In that case, the memorandum continues:
Section 6511(c) provides that if a taxpayer agrees to extend the time to assess tax within the time for filing a claim for credit or refund, the period for claiming a credit or refund shall not expire prior to 6 months after the expiration of the agreement.
Corporation A executed a number of agreements with the Service extending the time to assess tax. However, the last of these agreements expired on Date 1/Y10. Thus, the six month period under section 6511(c) expired on Date 3/Y10. Corporation B did not claim a refund for Corporation A relating to FTC until Date 12/Y15, four years after the section 6511(c) period expired. Thus, Corporation A's agreements under section 6511(c) do not make Corporation B's refund request for Corporation B timely.
Again, the claim was too late. But since the claim involved foreign tax credits which are subject to yet another special rule:
Section 6511(d)(3) provides a special rule for refunds relating to FTC. In lieu of the 3 year period for filing a claim provided in section 6511(a), the period for filing a claim relating to FTC is "10 years from the date prescribed by law for filing the return for the year in which such taxes were actually paid or accrued." I.R.C. § 6511(d)(3)(A). The regulations under section 6511(d)(3) clarify that the 10 year period to file claims is without regard to any extension of time for filing the returns. Treas. Reg. § 301.6511(d)-3(a). Under this rule, the section 6511(b)(2) lookback period does not apply. I.R.C. § 6511(d)(3)(B). The 10 year period for filing claims is counted from the date that the return was due for the tax year for which the FTC is claimed. Albemarle Corp. & Subsidiaries v. United States, 118 Fed.Cl. 549, 579 (2014).
The problem in this case is that the statute and regulations provide a link to the unextended due dates. Thus the statutes had expired on all of the returns prior to date in Y15 that Form 1120X was filed.
But, as was noted above, they had told an IRS agent they were expecting to file a refund claim related to this before the expiration of the statute for Y4, the year when an actual overpayment would exist. As the memorandum notes:
In this case, Corporation B informed the Service of its intention to make a claim for refund for Corporation A for tax year Y4, the amount of the refund and the basis for the future claim, all within the period of limitations for filing a claim for refund for tax year Y4.
So the question was--despite the fact that the formal claim was filed after the expiration of the statute, did this communication serve to keep the claim alive?
The memorandum concludes no.
To qualify as an “informal claim” the memorandum notes it must meet the following tests:
There are four elements to an informal claim. Pala, Inc. Employees Profit Sharing Plan & Trust Agreement v. United States, 234 F.3d 873, 877 (5th Cir. 2000). An informal claim must (1) be timely, (2) assert a right to a refund, (3) describe the tax, tax year and basis for the claim, and (4) have a written component. Id.; see Mobil Corp. v. United States, 67 Fed. Cl. 708, 716 (2005). An informal claim must put the Service on actual or constructive notice that the taxpayer is currently asserting a right to a refund. Mobil, 67 Fed. Cl. at 716. It is not enough to inform the Service of an intention to file a claim in the future. Id. at 717.
The memorandum found the informal claim wanting for a number of reasons, noting:
However, Corporation B failed to actually assert a claim for a refund for Corporation A; instead it merely communicated its intention to file a claim in the future. Showing the team coordinator its draft Form 1120X does not constitute asserting a claim, as the implication of this was simply that Corporation B was working on making a formal claim that it would file in the future for Corporation A. Further, Corporation B cannot rely on the circumstances surrounding the draft Form 1120X to indicate that it was making an informal claim for Corporation A, as Corporation B still had over three weeks to finalize and file the formal claim before the period of limitations expired. Putting the Service on notice of its intention to file a claim in the future does not equate to Corporation B making an informal claim for Corporation A.
Additionally, there is no written component in this case. While there is case law holding that the element of a written component can be satisfied by writing that was produced by the Service, New England Elec. Sys. v. United States, 32 Fed. Cl. 636, 643-44 (1995), at a minimum, the written component must be sufficient to be regarded as an assertion by the taxpayer that she believes the tax has been overpaid. Id. The various communications from Corporation B to the team coordinator imply, at most, Corporation B's intent to file a formal claim for Corporation A in the future, not that it asserted a claim. Similarly, the team coordinator's notes only indicate that Corporation B will file a formal claim for Corporation A in the future, not that Corporation B had actually asserted a claim.
A second potential way to revive the claim is found in the waiver doctrine. As the memorandum notes:
The waiver doctrine operates such that when "the taxpayer files a timely formal claim but fails to include the specific claim for relief, the claim may nonetheless be considered timely if the IRS considers that specific claim within the limitations period." Computervision Corp., 445 F.3d at 1366. However, there can only be a waiver if the Service waives the requirements of the regulation during the limitations period; consideration outside of the limitations period does not constitute waiver. Id. at 1367; see United States v. Brockamp, 519 U.S. 347, 352 (1997) (holding that equitable tolling does not apply to toll the period of limitation on claiming a refund).
The memorandum concludes that, in fact, the IRS did not give any consideration of the claim prior to the expiration of the statute. Thus, the memorandum concludes, the claim, however meritorious, is untimely and should be denied.