IRS addressed a refund claim involving a transferred tax credit

Plain-English summary

The IRS advised that a credit transferred out of a taxpayer's account should reduce the gross amount treated as paid within the two-year lookback period for a refund claim. It reasoned that counting both the transferred credit and the later claim could result in recovering the same credit twice. The advice concerned IRC § 6511(b)(2)(B), which limits a refund by reference to amounts paid within the applicable period. The IRS also discussed a Second Circuit decision addressing what counts as tax paid for this purpose.

Ruling snapshot

• Question: Should a transferred credit be included in the amount paid within the two-year refund lookback period?
• Outcome: Advice given
• Key authorities: IRC § 6511(b)(2)(B); Carroll v. United States, 339 F.3d 61 (2d Cir. 2003).

Full text (IRS public release)

ID: CCA_2010052417213143 Number: 201025062
Release Date: 6/25/2010
Office: --------------
UILC: 6511.02-00

From: --------------------
Sent: Monday, May 24, 2010 5:21:33 PM
To: ----------------------------------
Cc:
Subject: RE: Refund Interest Claim

I don't think that it makes sense to consider the $------------as part of the payment that is now able to be
refunded, because the transfer of the credit to ------- then made the taxpayer eligible to make a claim for
credit or refund for ------- within two years of that credit - logically, it seems that the ability to file a claim for
refund based on both credits to be double dipping (even if taxpayer had no real reason to file one for ------
------).

The best authority I could find (the facts are not analogous but the court looks at the meaning of payment
under 6511(b)(2)(B)) was Carroll v. United States, 339 F.3d 61 (2nd Cir. 2003), where the court, applying the
look back rule, held that while the refund claim contested only the penalty and not the underlying tax
assessment, and the payment within two years of the claim was applied to both the tax liability and the
penalty, the entire amount paid within two years of the claim could be refunded. The court stated that for
purposes of section 6511(b)(2)(B), the tax paid is the sum of taxes, penalties, and interest paid for the
tax year in question. In your case, I would argue that the ($-----------) transferred out reduces the gross
sum paid within the two year period, especially as the credit and the transfer out appear to have occurred
in the same week.