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Jamie C. Yesnowitz
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On May 24, 2021, the Oregon Tax Court ruled that the taxpayer’s filing of an amended Oregon corporation excise tax return did not allow for the waiver of Oregon’s general three-year restriction on issuing refunds.1
The additional time to file an amended return requesting a refund only applies in situations where a taxing authority initiates the change. If the change is initiated by the taxpayer, no extension for a refund request applies.
The taxpayer, Bed Bath & Beyond Inc., filed an Oregon corporation excise tax return on Dec. 4, 2015 for the tax year ending Feb. 28, 2015. On its own initiative, the taxpayer subsequently filed an amended federal return. The Internal Revenue Service (IRS) accepted the amended return and issued a refund on Jan. 8, 2019, but did not issue a Revenue Agent’s Report. Thereafter, the taxpayer amended its state returns and received refunds from five states.
The taxpayer then filed an amended Oregon corporation excise tax return on Feb. 1, 2019, claiming a refund.2
This amended return was filed within the 90 days allowed under Or. Rev. Stat. Sec. 314.380(2)(c) following the filing of a return reporting a change in taxable income subject to tax by Oregon or resulting in a change in the taxpayer’s Oregon tax liability. However, the claim for refund was filed more than three years after the original Oregon return was filed.3
The Oregon Department of Revenue denied the taxpayer’s claim for refund. Following a written objection filed with the Department, the taxpayer appealed to the Oregon Tax Court. The Department filed a motion for summary judgment with the Tax Court and the taxpayer filed a cross-motion for summary judgment.
Court determines taxpayer’s refund request was properly denied
The main issue in the case was whether the three-year limitation on refund claims applies to amended returns where changes in taxable income are initiated by the taxpayer and not by a taxing authority. The Tax Court also considered whether an additional 90-day statute of limitations extension applies to refund requests.
Timing of refund request
Or. Rev. Stat. Sec. 314.415(2)(a) generally provides that the Department may not allow or make a refund more than three years after the return was filed. If a change or correction is made by the IRS or other state tax authority, Or. Rev. Stat. Sec. 314.415(2)(b) requires that a claim for refund be received by the Department within two years after the federal or other state correction was made. If a corporate income tax amendment shows changes to the out-of-state tax filing made by the taxpayer on an out-of-state return, the taxpayer “shall file” an amended return with the Department “within 90 days thereafter.”4
While the taxpayer filed the amended return within 90 days, the statute does not specifically address refund requests filed within that timeframe.
No exception is provided to the three-year deadline if the refund request results from a change in taxable income initiated by the taxpayer, instead of the IRS. An exception to the general three-year deadline applies where an out-of-state taxing authority has changed a taxpayer’s return. Current law provides that claims for refund are “deemed timely” if filed within two years of “a change or correction made by the Internal Revenue Service or by the taxing authority of another state.” This exception applies to claims for refund “under this paragraph” (i.e. under Or. Rev. Stat. Sec. 314.380(2)(b)).5
In the instant case, it was undisputed that the change to the taxpayer’s reported taxable income was due to the filing of its own amended returns rather than an adjustment by a taxing authority. Accordingly, based on the facts presented, the Tax Court granted the Department’s motion for summary judgment and denied the taxpayer’s refund claim.
Limitation is for refund only
The Tax Court also considered whether the additional time to file only applies to the additional tax that would be due with the amendment. The Court explained that “firstly, not all amended returns are filed outside the three-year window provided by ORS 314.415(2)(a) and, secondly, not all self-reported changes to taxable income result in a refund claim.” Based on this reasoning, “[u]nder the first scenario, the filing required by ORS 314.380(2)(c) could result in a refund; under either scenario, it could change a taxpayer’s assessment.” This interpretation allows for an additional two years in the case of additional tax being assessed to timely file without penalty or interest.
The Tax Court’s decision highlights the unequal treatment of tax refunds and the applicable statute of limitations. This decision could impact current and future Oregon refund claims, as the case indicates that taxpayers may only amend returns and obtain refunds if they do so within the statute of limitations.
One can question the difference in the statute of limitations applicable for refunds, as compared to findings for additional tax due, and why there should be a difference based on the party initiating the amended return change. Nevertheless, existing Oregon statutes and the Tax Court’s decision highlight the need for taxpayers to conservatively file amended returns as early as possible within the earlier expiration date of the statute of limitations. While this decision is specific to Oregon, similar unequal application of the statute of limitations to taxpayer-initiated refund claims may exist in other states and should be considered when filing for refunds on amended returns. Taxpayers filing state amended return refund claims should expect increased scrutiny regarding the statute of limitations deadline and, where possible, should file returns conservatively and retain proof of filing prior to the due date.
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