Favorable ruling on FTC refund limits suspended

Tax Hot Topics newsletterThe IRS issued an advanced copy of Rev. Rul. 2020-8 on April 17 announcing that it is reassessing its nearly 50-year-old position on the time limit to claim a refund for certain excess foreign tax credits (FTCs) generated by a net operating loss (NOL) carryback.

Rev. Rul. 2020-8 suspends Rev. Rul. 71-533 pending a review by the IRS of whether the 10-year limitations period provided by Section 6511(d)(3)(A) applies to claims for refund or credit of an overpayment resulting from a FTC carryback arising as a result of a NOL carryback from a subsequent year. As part of the reconsideration of Rev. Rul. 71-533, a related revenue ruling, Rev. Rul. 68-150, which addressed the scope of Section 6511(d)(3)(A), is also being reconsidered. Rev. Rul. 68-150 is suspended in part with respect to adjustments that arise from a change to the FTC limitation, including as the result of the correction of mathematical errors or the application of an NOL carryback.

The new revenue ruling indicates that the IRS is considering whether Section 6511(d)(2)(A) should apply to the refund claim at issue in Rev. Rul. 71-533, or instead, whether a narrower limitation in Section 6511(d)(3) should apply.

In general, Section 6511(d)(3)(A) provides a refund or credit period of 10 years from the date prescribed by law for filing a return if an overpayment results from a claim for credit of foreign taxes. Section 6511(d)(2)(A) provides a three-year statute of limitations from the due date of the return for the year of the NOL that results in such carryback.

The new revenue ruling may have been prompted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which allows NOLs arising in 2018, 2019 and 2020 to be carried back five years. However, it is also worth noting that Rev. Rul. 71-533 has been slated for update on the IRS Priority Guidance Plan since 2018. Whatever the impetus for Rev. Rul. 2020-8, taxpayers should note that the suspensions are prospective and will not be applied adversely to a taxpayer that filed or files a claim for credit or refund within the 10-year limitations in accordance with the old revenue rulings. Taxpayers may therefore continue to rely on the suspended revenue rulings in the interim.

David Sites
Washington National Tax Office
T +1 202 861 4104

David Zaiken
Managing Director
Washington National Tax Office
T +1 202 521 1543

Cory Perry
Senior Manager
Washington National Tax Office
T +1 202 521 1509

Yasmin Dirks
Washington National Tax Office
T +1 202 521 1506

Mike Del Medico
Washington National Tax Office
T +1 202 521 1522

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