IRS disallows refund claim relating to foreign tax credits as untimely

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IRS disallows refund claim relating to foreign tax credits as untimelyIn an IRS chief counsel advice (CCA) memorandum (CCA 201540012) released Oct. 2, the IRS determined that a taxpayer’s claim for a refund related to foreign tax credits was not timely, and that purported informal claims for a refund were not properly made.

Under the facts of the CCA, the taxpayer settled a dispute one of its subsidiaries had with a foreign country, which resulted in additional foreign taxes paid. The taxpayer was under examination by the IRS and it informed the IRS of its intent to file a claim for refund based on the increase in foreign tax credit based on the additional foreign tax paid. The taxpayer also showed a member of the IRS examination team a draft Form 1120X and informed the person that additional work was needed to finalize the claim for refund. The taxpayer filed a formal claim for refund beyond the period of limitations, and the claim was denied by the IRS as untimely.

The IRS also denied that the taxpayer’s actions constituted the filing of an informal claim for refund during the period of limitations, holding that the taxpayer did not meet the requirements for an informal claim. Under the facts of this particular situation, the taxpayer discussed with the IRS its intention to file a claim for refund and the taxpayer showed the IRS a draft Form 1120X. The IRS understood that the taxpayer would continue to revise the draft before making a submission of the final version to the IRS.

A taxpayer must meet four elements to make an informal claim for refund. The informal claim must be (1) 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. The informal claim must put the IRS on actual or constructive notice that the taxpayer is currently asserting a right to a refund.

In this case, however, the IRS found that taxpayer did not meet those requirements, because the taxpayer merely communicated its intention to file a claim in the future and never submitted a written component of the informal claim. According to the CCA, showing the Form 1120X to a member of the examination team did not constitute asserting a claim.

Dave Auclair
T +1 202-521-1515

Shamik Trivedi
T +1 202-521-1511

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