Advisers at times treat the statute of limitations related to tax returns as being broader than it actually is, believing that once a year is closed there is no ability for either the IRS or a taxpayer to make a change to an item on that return. As PLR 201548006 points out, that’s not the case. And, in this case, that works out to the taxpayer’s advantage.
The ruling starts by pointing out the well-known statute of limitations provisions for a taxpayer looking to obtain a refund:
Section 6511(a) of the Code provides that 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. Claim for credit or refund of an overpayment of any tax imposed by Title 26 which is required to be paid by means of a stamp shall be filed by the taxpayer within 3 years from the time the tax was paid.
A key fact to note is that the statute is on claiming a refund of taxes paid with the return in question and is not on making revisions to the return.
In this case the taxpayer was an investor in flow through entities that had failed to properly compute tax credits that should have been reported on the taxpayer’s K-1s. The years in question are now “closed years” under IRC §6511(a), cited above.
The ruling notes that the fact that a year is closed for assessment of tax or filing a claim for refund does not control here. Rather it notes:
Rev. Rul. 82-49, 1982-1 C.B. 5, addresses a question relating to the recomputation and carryforward of investment credit similar to the question raised by Taxpayer with respect to the recomputation and carryforward of the section 45B credit. Rev. Rul. 82-49 holds that the investment credit on qualified section 38 property need not have been claimed on an income tax return, or in a timely claim for refund for the year the property was placed in service, before the investment credit can be carried over under former section 46(b) of the Code to an open taxable year.
Under Rev. Rul. 82-49, the failure to claim investment credit on qualified section 38 property placed in service in a taxable year for which the period of limitations for filing a claim for credit or refund has expired under section 6511 of the Code does not prevent a taxpayer from carrying forward any unused credit from the closed taxable year to an open taxable year. The investment credit and employer social security credit determined under section 45B(a) are current year business credits under section 38, and are both subject to the same section 39(a) carryforward rules.
Thus the ruling concludes:
In conclusion, it is clear that a general business credit originating from closed years and being carried into open years in arriving at tax due can be adjusted to correct errors under the applicable provisions of the law by both the Service and Taxpayer. Although none of the precedents cited above specifically involve partnerships, S corporations, or section 45B credits, it is reasonable to apply the same analysis in Rev. Rul. 82-49 to recalculating the section 38 general business credits and the section 39 carryforward of unused section 45B credits that Taxpayer failed to claim on his original returns from the flow-through entities. For this purpose the Service should treat the carryforward of the investment credit and the section 45B credit the same. Even though Taxpayer's tax years before 2010 are closed, the Service may examine the correctness of the partnership's and S corporation's recomputation of the section 45B credit. In determining the proper amount of the carryforward for the 2014 tax year Taxpayer needs to apply the provisions of Rev. Rul. 82-49. Meaning, that to the extent the additional credits would have been used to reduce Taxpayer's liability in a closed year, including taking into account increased taxable income for those years due to reduced deductions, Taxpayer would not be entitled to a claim of refund, but would rather be entitled to determine the amount of the carryforward in the open year by an amount equal to the excess of the corrected credit over the amount that would have been allowed as a credit in the closed years including any carrybacks.