You Should Also Worry About Refund Statute of Limitations by Edward M. Robbins, Jr.
It is critical to understand the intricacies and the interrelationships of the refund and assessment statutes. The general rule is that the period of limitations for the taxpayer to file a claim for refund and for the IRS to make an assessment is 3 years from the date the tax return is filed.1 The key issue is to determine the return’s “filing date”. The return’s filing date depends on factors including the return’s due date, the date the return is delivered to the IRS and the date the return received by the IRS. The importance of each of these factors varies depending on the situation as shown by the following scenarios: (1) early returns (2) on extension (3) Late Returns (4) E-filed Returns (5) Amended Returns (6) Superseding Returns (7) Tentative Refund and the impact of (8) Net Operating Loss or Capital Loss Carrybacks (9) Timely Mailing, Timely Filing rules and (10) Joint Committee Review. There are many other issues that may impact the statute but the discussion below is a quick reference.
Early Returns: In general, the return filing date is the date the IRS receives the return. If a taxpayer files a return prior to the statutory due date (April 15th, for example) then the controlling date for the period of limitations for claims for refund and assessments is three years from the statutory due date, April 15th.2 For example, if the return is filed on April 12, the return is deemed filed on the statutory due date, April 15 and the three year period of limitations begins to run on the statutory due date of April 15. Note that this rule is unaffected if April 15 falls on a Saturday, Sunday or holiday giving the taxpayer until the next business day to file3 – the statutory due date remains the statutory due date.
Returns on Extension: If the taxpayer files a proper extension to October 154, for example, and the taxpayer files a return on or before October 15, then the refund claim and assessment statute is controlled by the actual filing date, i.e. the date the IRS receives the return, and not controlled by the extension date.5 For example, if the taxpayer is on an October 15 extension and mails the return on August 30 and the IRS receives the taxpayer’s return on September 3, then the three period of limitations begins to run on September 3 and not on October 15. Note how easy it would be to make the mistake of thinking that you had until October 15 to file your claim for refund. If you made this mistake, you would have lots of company.
Mailbox Rule Returns: If the IRS receives a return after the statutory or extended filing date the return filing date is the date the IRS receives the return, unless the mailbox rule applies. The “mailbox rule” of section 7502(a) provides that if a return has a “United States postmark” showing that the filing was mailed on or before the due date, but the document was delivered after the due date, the postmark date “shall be deemed to be the date of delivery.”6
Late Returns: Here is where it gets tricky. As noted above, the controlling date for the period of limitations for claims for refund and assessments is three years from the date the late return was actually filed. But although the refund claim might be timely, that is filed within the statute of limitations for filing a refund claim, the refund look back rule may specifically bar allowance of the refund. Under the look back rule the refund will be limited to the amount of tax that was paid within the look back period – 3 years plus the time of any extensions to file.7 For example, if the taxpayer paid all of his estimated taxes as of April 15 of year one but failed to file the refund claim until June 15 of year four, no refund of the estimated taxes will be allowable, even if the refund claim was timely filed, because no payments had been made within the look back period – 3 years of the date the return was filed. In this example, in order to reach the estimated taxes for refund purposes, the taxpayer would have to file his claim for refund no later than April 15 of year four. In the foregoing example, if the taxpayer had filed a proper extension to October 15, the three year look back period would be extended for the life of the extension (six months) and, assuming that the taxpayer filed a timely refund claim, the taxpayer’s June 15 refund claim would reach the estimate tax payments.
Note that the rules outlined above are unaffected if the last day of the statutory period falls on a Saturday, Sunday or holiday giving the taxpayer until the next business day to file – the statutory due date remains the statutory due date. However, the IRS through a Revenue Ruling cures a taxpayer problem where the refund claim is timely because the last day of the statutory period falls on a Saturday, Sunday or holiday giving the taxpayer until the next business day to file, but the additional day now leaves the look back period insufficient to reach the withholding.8 The Revenue Ruling basically extends the look back period by the number of additional days the taxpayer is allowed to file his refund claim where the statutory period falls on a Saturday, Sunday or holiday; therefore, the extended look back period is sufficient to reach the withholding.
E-filed Returns: Here is get worse. A document filed electronically with an electronic return transmitter in the manner and time prescribed by the IRS is deemed to be filed on the date of the electronic postmark given by the authorized electronic return transmitter.9 Thus, if the electronic postmark is timely, the document is considered filed timely although it is received by the agency, officer, or office after the last date, or the last day of the period, prescribed for filing such document.10 Thus, when the e-filed return is filed before the statutory due date, the general rule established in case law involving paper-filed returns should determine when a return is filed for purposes of refunds and assessments.
The rules are different for a e- filed return filed after the statutory due date. Unlike paper filing, the e-filing date is not the date the IRS accepts (receives) the e-filed return, the filing date is still the date of the electronic postmark. Thus, if a document is e-filed and the taxpayer receives an e-postmark, the regulations deem the return to have been filed on the e-postmark date even if the IRS actually receives (accepts) the return after the e-postmark date.
The rules get more complicated for e-filed business returns, although the filing date is still the e-postmark date. The problem comes up when the IRS rejects the e-filed return single or multiple times and the taxpayer refiles, single or multiple times in response to the rejection(s). Which of the multiple e-filing dates control? The answer may be found in the “transmission perfection period” policy set forth in Publication 4163.11 Publication 4163 provides that when an electronically transmitted business return is rejected by the IRS, the taxpayer is given a limited period of time from the e-postmark date to perfect that return for electronic re-transmission. The transmission perfection period was originally 20 days, but was reduced to 10 days, effective for business tax returns that are accepted after December 31, 2009. The perfection period is never extended regardless of weekends, holidays or the end of the year cutoff.
Here is how you calculate the return filed date when the IRS bounces your early efforts to e-file the business return:
1. Find the date the IRS ultimately accepts the e-filed business return.
2. Look back 10 days from the IRS acceptance date.
3. If the IRS rejected the e-return at any time during that 10 day look back period, find the first rejection in the 10 day period.
4. The filing date is deemed to be the electronic postmark of the earliest reject, even if it outside the 10 day look back period.
5. If the IRS did not reject the e-return at any time during that 10 day look back period, the filing date is the electronic postmark of the ultimately accepted e-filed business return.
Needless to say, the filing date for the e-filed business return can vary greatly, depending on how long it takes the taxpayer to get it right with the IRS. We can look forward to lots of instances where the IRS blows the assessment statute or the taxpayer blows the refund claim statute due to the complexity of calculating the filing date for e-filed business returns.
Amended Returns: An amended return is a return filed after the expiration of the filing period (including extensions) and subsequent to a prior filed return.12 Generally, an amended return does not impact the statute of limitations (unless additional tax is reported within 60 days of the three year expiration period).13
Superseding Returns: Taxpayers need to be mindful of the potential statute of limitations issue that arises for the assessment (section 6501) and refund (section 6511) statutes when a superseding return is filed. A tax return filed prior to the statutory or extended due date but subsequent to the original return and which changes the data reported on the original return is commonly referred to as a “superseding” return. A question arises regarding which return’s filing date begins the running of the period of limitations for assessments and claims for refund – the date that the original return was filed or the date that the superseding return was filed. This issue becomes further complicated when the original return is filed prior to the statutory due date and the superseding return is filed subsequent to the statutory due date but prior to the extended due date. For example, what is the impact on the period of limitations when the taxpayer on an October 15 extension files the original return on April 11 (deemed file on the statutory due date) and the superseding return on September 1 of the same year? To help ensure certainty regarding the validity of their refund claim, taxpayers should make every effort to file their refund claim prior to the expiration of the period of limitations based on the filing date of the first filed return, here April 15 (the statutory due date). If you time your refund claim from the date of the superseding return, you may later learn that the government has decided that the first return governs, in your case. Although the IRS has informal guidance which indicates that the superseding return controls the filing date,14 taxpayers do not want to be in the position of relying on informal IRS advice for a statute of limitations argument. Before a taxpayer agrees to an assessment or signs an extension of the period of limitations on assessment (Form 872) for a year involving a superseded return, taxpayers should contact their practitioners to verify the applicable statute dates. Case law supports an argument that the general Section 6501 assessment period runs three years from the first filing date rather than the superseding date.15
Tentative Refund: Filing a Form 1045, Application for Tentative Refund for Individuals or a Form 1139, Corporation Application for Tentative Refund Form 1139 enables taxpayers to receive their tentative allowance quickly and the Forms have no impact on the period of limitations for claims for refund and assessments.16 A taxpayer can file Forms 1045 and 1139 based on a tentative carryback adjustment that is attributable to net operating losses, net capital losses or a business credit carryback. Unlike a refund claimed on a Form 1040X or 1120X, the Forms for a tentative allowance will be paid prior to any examination of the refund and prior to Joint Committee Review. The period of limitations for filing for a tentative refund using Forms 1045 and 1139 differ from the period of limitations for filing an claim for refund on Form 1040X or 1120X. Forms 1045 and 1139 must be filed within 12 months from the expiration of the year that generated the carryback. The one year period of limitations is calculated based on the date of the end of the source tax year and not based on a tax return filing date. For example, for a 2012 calendar year taxpayer the period for filing Form 1139 expires on December 31, 2013.
Net Operating Loss or Capital Loss Carrybacks: The Code provides an enlargement of the general limitations period when a taxpayer carries back to the taxable year in question a net operating loss from a subsequent tax year.17 The IRS can assess a deficiency stemming from a NOL at any time before the expiration of the limitations period for the loss year. Likewise, a taxpayer may filed a claim for refund of tax paid in an otherwise barred carryback year, so long as the statute of limitations on filing a claim for refund in the loss year is open.18 A similar rule exists under section 6501(k) for enlargement of the assessment statute in the case of a tentative carryback that has been applied, credited, or refunded under section 6411. There are no look back rules that apply to refunds of NOL carrybacks.19
Joint Committee Review: Overpayments reported on the first return filed, whether or not timely, will be refunded prior to Joint Committee Review. The overpayment reported on an application for tentative refund, filing Form 1139 or 1045, will also be refunded prior to examination or Joint Committee Review. A superseded return or a claim for refund reporting an overpayment of more than $2 million dollars will require Joint Committee Review prior to the issuance of the refund.
Edward M. Robbins, Jr. – For more information please contact Edward M. Robbins, Jr. –EdR@taxlitigator.com Mr. Robbins is a principal at Hochman, Salkin, Rettig, Toscher & Perez, P.C. He is the former Chief of the Tax Division of the Office of the U.S. Attorney (C.D. Cal) and represents clients throughout the United States and elsewhere involving federal and state, civil and criminal tax controversies and tax litigation. Additional information is available at www.taxlitigator.com .
1. See IRC §§ 6511 (refund claims) and 6501 (assessments).
2. See IRC §§ 6513 (refund claims) and 6501(a) and (b)(1) (assessments).
3. See IRC § 7503.
4. See Treas. Reg. § 1.6081.
5. A taxpayer filing on extension does not benefit from section 6513(a). Section 6513(a) states “[f]or the purposes of this subsection, the last day prescribed for filing the return . . . shall be determined without regard to any extension of time. . . .” Likewise, the IRS does not benefit from section 6501(b)(1) when the taxpayer files its return on extension. Section 301.6501(b)-1(a) specifies that the last day prescribed for filing a return is determined without regard to any extension of time for filing.
6. Timely Mailing, Timely Filing: If an individual income tax return is mailed on April 11 and the IRS receives the return on April 18, the timely mailing date of April 11 will control. The return will be deemed to be filed on April 15 and the three year period of limitations will run from April 15. If a taxpayer has a proper extension until October 15, and the taxpayer’s return is mailed on October 14 and received by IRS on October 18 (no weekend dates), the postmark date, October 14, is deemed to be the date of delivery and the period of limitations will run from October 14, the deemed filing date, not the extended date.
7. IRC § 6511 (b) (2). See Rev. Rul. 76-511, 1976-2 C.B. 428; Rev. Rul. 78-343, 1978-2 C.B. 326; and Weisbart v. United States, 222 F.3d 93 (2d Cir. 2000).
8. Rev. Rul. 66-118, 1966-1 C.B. 290.
9. Treas. Reg. § 301.7502-1(d).
11. IRS Publication 4163, Modernized e-file (MeF) Information for Authorized IRS e-file Providers for Business Returns,
12. An amended return is not provided for in the Code. It has been held consistently that the filing of an amended return does not serve to extend the period within which the IRS may assess a deficiency. See, e.g., Zellerbach Paper Co. v. Helvering, 293 U.S. 172, 55 S. Ct. 127, 79 L. Ed. 264 (1934); Nat’l Paper Prods. Co. v. Helvering, 293 U.S. 183, 55 S. Ct. 132, 79 L. Ed. 274 (1934); Nat’l Ref. Co. v. Comm’r, 1 B.T.A. 236 (1924). It also has been held that the filing of an amended return does not serve to reduce the period within which the IRS may assess taxes where the original return omitted enough income to trigger the operation of the extended limitations period provided by I.R.C. § 6501(e) or its predecessors. See, e.g., Houston v. Comm’r, 38 T.C. 486 (1962); Goldring v. Comm’r, 20 T.C. 79 (1953). The period of limitations for filing a refund claim under the predecessor of I.R.C. § 6511(a) begins to run on the filing of the original, not the amended, return. Kaltreider Constr., Inc. v. United States, 303 F.2d 366, 368 (3d Cir.), cert. denied, 371 U.S. 877, 83 S. Ct. 148, 9 L. Ed. 2d 114 (1962).
13. See IRC § 6501(c)(7).
14. In ILM 200645019 (June 20, 2006) the IRS Chief Counsel took the view that the superseding returns starts the statute of limitations on assessment (and logically would start the statute of limitations on filing a refund claim as well). This position is inconsistent with the case law. Under Zellerbach Paper Co. v. Helvering, 293 U.S. 172 (1934), an original return, despite its inaccuracy, was found to be a “return” for limitations purposes, so that the timely filing of a superseding return did not start a new period of limitations running. The court held that “… a second return, reporting an additional tax, is an amendment or supplement to a return already upon the files, and being effective by relation does not toll a limitation which has once begun to run.” See, Zellerbach at 180. This principle was further developed in Haggar Co. v. Helvering, 308 U.S. 389 (1940), and has been followed in the context of the statute of limitations on refunds in IRC § 6511. See, e.g., Kaltreider Construction, Inc. v. United States, 303 F.2d 366 (3rd Cir. 1962), cert. den., 371 U.S. 877 (1962); Rev. Rul. 72-311, 1972-1 C.B. 398; Section 6501 – Limitations on Assessment, 98 TNT 177-60, SCA 1998-024. Note that in Cem Securities Corporation v. Commissioner, 72 F.2d 295 (4th Cir. 1934), the court held that a return which failed to substantially comply with the main purpose of the return, namely, to state the items of income, deductions, and credits for some particular taxpayer, did not set in motion the running of the period of limitations. 72 F.2d at 299.
16. See IRC § 6411.
17. See IRC § 6501(h).
18. See IRC § 6511 (d) (2).
19. See IRC § 6511 (d) (2)(A).