Close
Close

IRS disallows refund claim relating to foreign tax credits as untimely

RFP
Tax Hot Topics
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.

Contact
Dave Auclair
T +1 202-521-1515
E david.auclair@us.gt.com

Shamik Trivedi
T +1 202-521-1511
E Shamik.trivedi@us.gt.com

Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.