CCA 200917036: Shareholder's original return started the assessment period

Plain-English summary

The IRS analyzed the limitations periods for assessing S corporation shareholders and recovering erroneous refunds. The three-year assessment period began when each shareholder filed the original return, not when the S corporation filed its information return or when an amended return was filed. On the assumed filing dates, the 2004 assessment period had expired, while the 2005 and 2006 periods remained open, with the 2005 period due to expire April 15, 2009. A section 7405 refund-recovery suit might also remain timely depending on the refund date, generally using a two-year period or five years for fraud or material misrepresentation.

Ruling snapshot

• Question: Were the assessment and erroneous-refund recovery periods still open for the S corporation shareholders?
• Outcome: Advice given: 2004 assessment was barred on the stated assumptions, later years remained open, and refund recovery depended on payment timing.
• Key authorities: IRC §§ 6501(a), 7405; Bufferd v. Commissioner, 506 U.S. 523 (1993); Estate of Robinson v. Commissioner, 101 T.C. 499 (1993).

Full text (IRS public release)

ID: CCA_2009032410140452 Number: 200917036
Release Date: 4/24/2009
Office: --------------
UILC: 6501.00-00, 7405.00-00

From: -----------------------
Sent: Tuesday, March 24, 2009 10:14:05 AM
To: --------------------
Cc:
Subject: Question re: 7405

Section 6501(a) provides that the Service must assess the tax imposed by title 26 within three years after the return is filed. The limitations period for assessing the income tax liability of an S corp shareholder runs from the date the shareholder files his or her original return, not the date on which the S Corp's information return is filed, and not the date of any subsequent amended return. Bufferd v. Commissioner, 506 U.S. 523 (1993), Estate of Robinson v. Commissioner, 101 T.C. 499 (1993)(When a taxpayer files an original return and subsequently files an amended return, the period of limitations begins to run from the date of the original return and not from the date the amended return is filed.) Under the facts you provided, assuming the shareholders filed their original returns on or before April 15, 2005, 2006, and 2007 (for tax years 2004, 2005, and 2006), the assessment statute has run for tax year 2004 (it expired on April 15, 2008 ), but remains open for 2005 and 2006. Please note that the assessment period for 2005 is only open until April 15, 2009.

The period for recovering an erroneous refund under section 7405 may also be open, depending on when the refund was made to the shareholders. A suit for recovery of an erroneous refund must be begun within two years after making the refund (or 5 years in the case of fraud or misrepresentation of a material fact).

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