IRS memorandum rejects stacking of statutes of limitation for refund or credit

Tax Hot Topics IRS rejects stacking of  statute of limitationsIn a chief counsel advice (CCA) memorandum released April 24 (CCA 201517005), the IRS Office of Associate Chief Counsel (Procedure and Administration) said a taxpayer could not use two separate statutes of limitation, either together or separately, to obtain a refund in a closed tax year, because the statutes of limitation were mutually exclusive related to a given overpayment.

Under the facts of the memorandum, the taxpayer claimed a foreign tax credit under Section 901 in Year 4. In Year 13, the taxpayer filed an amended return for Year 4, seeking to change its election from a credit to a deduction for foreign taxes paid under Section 164. The deduction would serve to reduce the taxpayer’s income in Year 4, resulting in a net operating loss (NOL). On the same day, the taxpayer filed an amended return for Year 2, carrying back the NOL.

The IRS said the claim for refund in Year 2, when made in Year 13, was not timely under both Sections 6511(d)(2) and 6511(d)(3). Under Section 6511(d)(2), the general three-year statute of limitations for credit or refund is extended for refunds “attributable to” an NOL. In such a case, the claim for refund is timely if it is filed within three years of the due date (including extensions) for the return for the loss year. In this case, the loss year was Year 4, and Section 6511(d)(2), the claim for refund, should have been filed by Year 7.

Section 6511(d)(3) provides for a 10-year statute of limitations for a claim of credit or refund related to an overpayment that can be attributed to any foreign taxes paid for which a credit under Section 901 is “allowed.” The IRS explains that in this circumstance, there is an important distinction between whether a credit is allowed or allowable. Section 275(a)(4), as well as the regulations under Sections 164 and 901, state that a credit is allowable unless a deduction is taken, and a deduction is allowable unless a credit is taken. Under Treas. Reg. Sec. 1.901-1(h), a credit is allowed only when chosen, and is not allowed when a deduction is taken in lieu of that credit.

As a result, the extended statute of limitations under Section 6511(d)(3) applies only to overpayments that can be attributed to foreign taxes for which a credit is allowed, and not for overpayments that can be attributed to foreign taxes claimed as a deduction, the IRS said.

The IRS further said that even if Section 6511(d)(3) could be construed to apply to overpayments that could be attributed to foreign tax deductions, the overpayment in Year 2 couldn’t be attributed to a foreign tax paid or accrued; rather, it could be attributed to an NOL deduction carried back from Year 4.  

Finally, the IRS said taxpayers may not stack Sections 6511(d)(2) and 6511(d)(3) to provide a longer period of limitations. The periods key-off of specific dates, and the plain language of the statutes indicates that the periods are mutually exclusive related to any given overpayment, the IRS said.

David Auclair
+1 202 521 1515

Shamik Trivedi
+1 202 521 1511

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