CCA 1136021: A protective claim cannot extend the deadline for changing a foreign-tax election

Plain-English summary

This Chief Counsel Advice concludes that a taxpayer’s refund claim tied to cascading net operating loss and foreign tax credit carrybacks was untimely under the applicable limitation periods. It also concludes that a later protective claim did not constitute a valid election to switch from deductions to credits for foreign income taxes and could not extend the statutory deadline. The memorandum explains that a valid protective claim must state a present claim that is contingent on a future event, identify the contingency and the tax year or years involved, and be clear enough to alert the Service to the claim’s nature. It concludes that the taxpayer’s filing merely reserved a possible future claim and did not meet those requirements.

Ruling snapshot

• Question: Whether refund claims and a protective filing were timely and whether the filing validly changed the taxpayer’s foreign-tax election.
• Outcome: Advice given.
• Key authorities: IRC §§ 164, 172, 6402, 6501, 6511, and 901; Treas. Reg. §§ 1.901-1(d), 1.1502-21, 20.2053-1(d)(5)(i), and 301.6511(d)-3(a); United States v. Kales, 314 U.S. 186 (1941).

Full text (IRS public release)

       Office of Chief Counsel
       Internal Revenue Service
       Memorandum
       Number: 201136021
       Release Date: 9/9/2011
       CC:PA:01:CAMcGreevy
       POSTF-117060-10

UILC: 6511.00-00

date: December 08, 2010

 to:   -----------------------
       ----------------------------------------------------------------
       (Large Business & International)

from: James Coffey Gibbons
Branch Chief
(Procedure & Administration)

subject: CCA Request POSTF-117060-10

       This Chief Counsel Advice responds to your request for assistance. This advice may
       not be used or cited as precedent.

       Issues:

           1.       Is Taxpayer’s ------- refund claim filed --------------------timely under either
                    section 6511(d)(3)(A) or 6511(d)(2)(A), where the claim results from a
                    carryback of foreign tax credits (FTCs) from -------, which in turn resulted from
                    a net operating loss (NOL) carryback from ------- to -------, which NOL was
                    generated by a timely election to claim deductions rather than credits for
                    foreign income taxes paid or accrued in -------?

           2.       Does Taxpayer’s ------- Protective Claim (------- PC) filed in --------------------
                    constitute an election within Treas. Reg. §1.901-1(d) and IRC §901(a) and
                    subject to §6511(d)(3)(A) to claim credits rather than deductions for foreign
                    income taxes paid or accrued in -------, effectively reversing the election made
                    in ------- to convert previously-claimed FTCs to deductions?

           3.       Is Taxpayer’s ------- PC a valid protective claim in general? If so, should the
                    Service delay action on the claim pending final disposition of the -----------------
                    cycle?

POSTF-117060-10 2

Conclusions:

1. No. IRC §6511(d)(3)(A) governs the applicable refund period, since the ------- refund
   claim is “attributable to” a claimed credit for foreign income taxes paid or accrued in -----
   ------- and carried back to -------. Since the ------- refund claim was filed more than 10
   years after the due date (without extensions) of Taxpayer’s ------- tax return, the claim is
   untimely. Moreover, even if the --------refund claim were considered to relate to the NOL
   carryback from ------- that freed up the --------FTCs, the claim would be untimely under
   IRC §6511(d)(2)(A) since it was filed more than three years after the due date (including
   extensions) of the return for -------, the year in which the NOL carryback arose.
   Taxpayer has not cited any authority in support of its attenuated argument that the -------
   refund claim relates to an overpayment “attributable to” foreign income taxes paid in -----
   -------.

2. No. The ------- PC does not constitute a final election to claim credits rather than
   deductions, for foreign income taxes paid or accrued in -------, and was ineffective to
   extend the statutory deadline for Taxpayer to make this choice.

3. No. The ------- PC is not a valid protective claim in general. It does not contain a
   claim that is contingent. It merely informs the Service that Taxpayer wants to reserve
   the right to make a claim in the future.

Facts:

Carrybacks of NOLs and FTCs

In ----------------------, Taxpayer filed a Form 1120X, Amended U.S. Corporation Income
Tax Return, for the taxable year ------- to change its election from credits under IRC
§901 to deductions under IRC §164(a)(3) for foreign income taxes paid or accrued in ---
-------. The ------- Form 1120X generated no refund for taxable year -------. Instead,
Taxpayer stated that the effect of the change in election was to increase the ------- NOL
by $---------------. The ------- Form 1120X was dated --------------------------, and was
posted at the IRS Service Center on --------------------------.

In ----------------, Taxpayer filed a Form 1120X for taxable year ------- in which the
increased NOL generated by the --------Form 1120X was carried back and allocated to
respective subgroups, subject to limitations per Treas. Reg. § 1.1502-21. After
limitation, $----------------was available to be carried back, and of that amount, $-------------
-----------------was utilized to reduce ------- taxable income to ------. This utilization of NOL
carrybacks freed up FTCs for foreign income taxes paid or accrued in ------- that were
originally utilized in -------. The ------- Form 1120X generated no refund for that year.
The --------Form 1120X was dated -------------------, and was posted at the IRS Service
Center on ---------------------.
POSTF-117060-10 3

Around the same time, Taxpayer filed a Form 1120X for the taxable year ------- in which
the ------- “freed up” FTCs totaling $--------------were carried back to generate a
requested refund of $-------------. Taxpayer cited section 6511(d)(3)(A) as authority for
the requested refund. The ------- Form 1120X was dated -------------------, and was
posted at the IRS Service Center on ---------------------.

Protective Claim

Taxpayer then filed a Form 1120X for taxable year ------- with the label “Protective
Claim” on the front. The ------- PC had no numbers on the face of the return and
requested “------” refund. The ------- PC was dated ---------------------. There is no posting
date on the IRS’ Integrated Data Retrieval System (IDRS) per the BMFOL transcript for
the ------- PC.

On Part II, Explanation of Changes, Taxpayer stated that “[t]he purpose of this amended
return is to attach a protective election only. This election is being made to protect
Taxpayer’s right to claim the effect of foreign taxes as a credit for the year -------. This
election is not immediately effective and does not now replace a prior election to deduct
such foreign taxes. Rather effectiveness will be contingent on future events which will
not occur with the period of limitations.”

Attached to the ------- PC, Taxpayer provided the following statement:

   In accordance with Treas. Reg. § 1.901-1(d), a protective election only
   is made for the taxable year --------to claim the benefits of a credit for
   foreign taxes paid or accrued under Section 901 of the Internal Revenue
   Code for that year. This protective election is made within the period
   prescribed by Treas. Reg. § 1.901-1(d) and Section 6511(d)(3)(A).

   This election is protective only. On --------------------Taxpayer made an
   election to claim as a deduction under Section 164(b)(3), the total foreign
   taxes paid or accrued and to reduce the total income by Section 78 Gross-
   up amounts previously reported for the tax year ended --------------------------
   -------- and filed refund claims to affected years resulting from that election.
   Those claims and other years which would affect the advisability of
   electing a deduction or credit for the ------- foreign taxes are currently
   under or still subject to examination by the Internal Revenue Service.
   Because those examinations are not completed, and will not be completed
   by the period prescribed in Treas. Reg. § 1.901-1(d) and Section
   6511(d)(3)(A), this protective election should not be given effect pending
   the conclusion and resolution of the examination. Only at that time,
   dependent upon a final determination of the income tax liabilities for
   several years, can it be finally determined whether the previous election

POSTF-117060-10 4

    (for deduction treatment under section 164(b)(3) or this election (for credit
    treatment under section 901) should be given effect.

    The amount of allowable credits and support therefore, have previously
    been provided.

Taxpayer Statement, attached to ------- PC.

Relevant Dates

The due date of the ------- tax return, without extensions, was ---------------------.

The ten-year period for filing a claim for refund attributable to foreign income taxes paid
or accrued in ------- under IRC §6511(d)(3)(A), or for changing the election to claim a
credit or deduction for such taxes in accordance with IRC §901, expired on -----------------
-------, ten years after the due date (without extension) of the ------- return.

The periods of limitation for assessment or refund, as extended by agreement under
IRC §§ 6501(c)(4) and 6511(c), for the relevant taxable years are as follows:

    ------- – --------------------------

    --------– --------------------------

    ------- – --------------------------

Law and Analysis:

1. What is the applicable period of limitation for filing a claim for refund for -------
   arising from FTCs carried back from ------- to -------, which were freed up by an NOL
   carried back from ------- to -------, which in turn arose from a timely change in election to
   deduct rather than credit foreign income taxes paid or accrued in -------?

A. Limitation Periods in General

The limitation periods for filing claims for refund are set out in IRC §6511. Under IRC
§6511(a), the general period of limitation for a credit or refund is three years from the
time the return was filed or two years from the time the tax was paid, whichever period
expires later. There are special rules extending the periods of limitation for various
situations, however, including special rules for NOLs and FTCs. The special rules for
NOLs and FTCs are found in IRC §6511(d)(2) and 6511(d)(3), respectively.
POSTF-117060-10 5

IRC §6511(d)(2)(A) provides that if any claim for refund “relates to an overpayment
attributable to an [NOL] carryback,” then the limitation period shall instead be “that
period which extends three years after the time prescribed by law for filing the return
(including extensions thereof) for the taxable year of the NOL that resulted in the
carryback.” IRC §6511(d)(2)(B) provides that if the allowance of a refund of an
overpayment of tax attributable to an NOL is otherwise prevented by the operation of
any law or rule of law other than IRC §7122 (relating to compromises), such refund may
be allowed or made, if the claim is filed within the period provided in IRC
§6511(d)(2)(A).

IRC §6511(d)(3)(A) provides that, if a claim for refund “relates to an overpayment
attributable to any taxes paid or accrued to any foreign country for which a credit is
allowed against the tax imposed by subtitle A in accordance with the provisions of
section 901,” in lieu of the three-year period prescribed in section (a), “the period shall
be ten years from the date prescribed by law for filing the return for the year in which
such taxes were actually paid or accrued.”1 Treas. Reg. §301.6511(d)-3(a) confirms
that for purposes of the FTC 10-year refund statute, the due date of the return is
determined without regard to extensions. Compare IRC §§6511(d)(2)(A) and
6511(d)(3)(A).

B.    Cascading Carrybacks: Instigating Event v. Independent Examination

As noted, IRC §6511(d)(3)(A) applies to determine the applicable refund period for
claims relating to an overpayment of U.S. tax “attributable to” foreign taxes “for which
credit is allowed” under §901. IRC §6511(d)(3)(A) and the regulations thereunder
specify that the period is ten years from the return deadline (without extensions) for the
year in which the foreign taxes were actually paid or accrued. IRC §6511(d)(2)(A)
provides that a claim for refund relating to an overpayment “attributable to” an NOL
carryback is three years from the return deadline (including extensions) for the year in
which the NOL arose.

As a result of the Taxpayer’s timely ------- election to deduct, rather than credit, foreign
taxes paid or accrued in -------- the increased --------NOL was carried back to ------,

1
IRC §6511(d)(3)(A) was amended in 1997, effective for foreign taxes paid or accrued in taxable years
beginning after August 5, 1997. Prior to amendment, the statute provided that the period was 10 years
from the date prescribed by law for filing the return “for the year with respect to which the claim is made”
instead of the current language of “for the year in which such taxes were actually paid or accrued.”
Pub.L. 105-34, § 1056(a). The amendment was enacted to clarify that the limitations period attributable
to refund claims that result from foreign tax credit carryovers runs from the due date of the return for the
year in which the foreign taxes were paid or accrued, and not the earlier or later year to which the foreign
st
taxes were carried and claimed as a credit. H.R.Rep. 105-220, 105 Cong. 1 Sess. (July 30, 1997) at
576-577. The amendment reversed the result in Ampex Corp. v. United States, 620 F.2d 853 (Ct.Cl.
1980), which held that the period ran from the carryover year. The Service does not follow the Ampex
decision.
POSTF-117060-10 6

which freed up FTCs for foreign taxes paid or accrued in -------, which the Taxpayer
seeks to carry back to -------. Under a plain reading of IRC §6511(d)(3)(A), taking an
independent examination of the ------- refund claim, the claim was untimely, because the
claimed overpayment is in the most direct sense attributable to credits for foreign taxes
paid or accrued in -------, which were carried back and claimed as a credit in -------. The
ten-year period for claiming a credit or refund attributable to foreign taxes paid or
accrued in ------- expired on ---------------------, two years before the ------- refund claim
was filed.2

Rev. Rul. 71-533, 1971-2 C.B. 413, addressed the interaction of the NOL and FTC
refund statutes in a case similar to that presented here. The taxpayer in the ruling
incurred an NOL in 1969 that was carried back to reduce its taxable income in 1966 to
zero. The NOL carryback freed up foreign taxes paid or accrued in 1966, which the
taxpayer sought to carry back and claim as a foreign tax credit in 1964. The ruling
concludes that the applicable refund statute is the FTC refund statute of IRC
§6511(d)(3)(A), not the NOL refund statute of IRC §6511(d)(2)(A). The analysis
underlying the ruling is equally applicable here. But even if the --------refund claim were
considered to be “attributable to” the NOL carried back from -------, rather than to the
FTCs carried back from -------, the ------- refund claim was untimely, because under IRC
§6511(d)(2)(A) the refund period for claims attributable to the ------- NOL expired on -----
---------------------, three years from the due date of the return for -------, and -------- years
before the ------- refund claim was filed.

However, a refund claim for any year attributable to foreign taxes paid or accrued in -----
------- could be made at any point up to and including ---------------------. Therefore, if the
------- refund claim for excess FTCs carried back from ------- can be considered
attributable to the ------- foreign taxes, that claim would be timely under IRC
§6511(d)(3)(A). For this argument to succeed, all of the cascading carrybacks would
have to be deemed to be “attributable to” the ------- foreign taxes, so that the IRC
§6511(d)(3)(A) period for refund claims attributable to the --------foreign taxes serves to
extend the limitation periods for the ------- claim, based on the cascading ------- NOL and
------- FTCs. This approach would effectively look through the adjustment to the
character of the instigating event, which in this instance is the deduction for foreign
taxes paid or accrued in -------.

C.      Prior Analysis

2
Under the Claims Court’s opinion in Ampex, described in note 1 above, interpreting the prior version of
IRC §6511(d)(3) that applied with respect to foreign taxes paid or accrued in 1997 and earlier years, the
refund period for a ------- claim based on FTC carrybacks from ------- would have expired two years earlier,
on ---------------------.
POSTF-117060-10 7

Although this exact issue has not been addressed, similar issues have been considered
administratively.3 Judicial decisions that address similar issues are discussed briefly
herein.

            Judicial Decisions

Although limitations statutes barring the collection of taxes must be strictly construed in
favor of the government, Badaracco v. Comm’r, 464 U.S. 386 (1984), the few courts
that have addressed this issue have favored the instigating event approach.

The Tax Court has defined “attributable to” to mean “traced directly to.” Herman Bennet
Co. v. Comm’r, 65 T.C. 506, 510 (1975) (allowing an otherwise untimely refund for 1963
because a timely 1969 NOL carryback to 1966 released a previously allowed
investment credit); see also Braunstein v. Comm’r, 374 U.S. 65, 70 (1963) (defining
“attributable to” as “caused or generated by”).

In First Chicago Corp. v. Comm’r, 742 F.2d 1102 (7th Cir. 1984), the Seventh Circuit
adopted the instigating event approach when determining the effect of capital loss and
investment credit carrybacks on the Service’s ability to assess an otherwise untimely
deficiency. Specifically, the appellate court reversed a Tax Court decision, 80 T.C. 648
(1983), and adopted the dissenters’ position that “the reduction in the carryover amount
of taxpayer’s 1971 income tax to 1972 was ‘attributable to the application to the
taxpayer of’ the 1974 capital loss and investment credit carrybacks, both of which were
effective to reduce its 1971 tax liability and to result in a 1972 deficiency.” First
Chicago, 742 F.2d at 1103. The adopted Tax Court dissenting opinion held that any
deficiency that could be traced back to the carryback would be “attributable to” that
carryback. First Chicago, 80 T.C. at 665. The Tax Court dissenters had relied on
specific language in the legislative history of the refund claim procedure to determine
that the Commissioner should “recompute every tax, including those of any prior year
affected by the carryback.” Id. at 667.

The Southern District of Iowa also adopted the instigating event approach when it faced
similar issues in Marshalltown Savings & Loan Ass’n v. United States, 92-1 USTC P50,
100 (S.D. Iowa 1991). In Marshalltown, the taxpayer filed a Form 1139 and a Form
1120X for 1980, based on the carryback of a net operating loss from 1985 to 1979, and
a resultant carryforward of investment tax credits from 1979 to 1980. The court held
that, although the general refund limitations period had expired for 1980, the taxpayer’s
refund claim was timely under IRC §6511(d)(2) because the overpayment was

3
The Service has considered similar issues on several occasions in written, nonprecedential, fact specific
advice but has not taken a position with respect to the issues in any formal guidance. Chief Counsel
Advice and Field Service advice are nonprecedential and should not be relied upon be either taxpayers or
the Service. We note, however, that factual variations in the existing CCAs and FSAs, and the potentially
inconsistent results that may not be readily identifiable, demonstrate hazards that should be considered
when dealing with this case.
POSTF-117060-10 8

attributable to the 1985 NOL carryback. As the instigating event was the 1985 NOL
carryback, the limitation period for that carryback was to be used for all the cascading
results.

D.       Current Analysis

The issue of which limitations period is applicable when there are cascading NOL and
FTC carrybacks is unsettled, which has caused the Service’s analysis to be somewhat
inconsistent in the past. Although the courts that have addressed this issue have
tended to follow the instigating event approach, the only decision that we have identified
that actually deals with the effect on refunds – as opposed to assessments – is an
unpublished Order from the Southern District of Iowa. See Marshalltown, 92-1 USTC
P50, 100. Thus, the issue is not yet settled. Under the instigating event approach,
claims would be timely if they could be traced, however remotely, to any attribute in
another year that could directly give rise to a refund claim, even if the statute were
closed with respect to the attribute directly claimed on the amended return. In our view,
the better interpretation is that the need for certainty and finality dictates an
interpretation in which each carryback is looked at individually, and the applicable
statute is that relating to the proximate cause of the claim.

2. Does Taxpayer’s ------- Protective Claim (------- PC) filed in -----------------------------
   -----------------------------------------------------------------------------------------------constitute an
   election within Treas. Reg. §1.901-1(d) and IRC §901(a) subject to §6511(d)(3)(A) to
   claim credits rather than deductions for foreign income taxes paid or accrued in --------
   thus reversing the election made in ------- to convert previously-claimed FTCs to
   deductions?

Section 901(a) provides that, for any taxable year, a taxpayer may make or change an
election to claim credits or deductions for foreign income taxes paid or accrued at any
time before the expiration of the period prescribed for making a claim for credit or refund
of U.S. tax for such taxable year. Treas. Reg. §1.901-1(d) clarifies that the applicable
refund period is the 10-year period prescribed by IRC §6511(d)(3)(A), rather than the
three-year period prescribed by IRC §6511(a). Thus, the applicable deadline for making
or changing an election to credit or deduct creditable foreign taxes is ten years from the
due date of the return (without extensions) for the year in which the foreign taxes are
paid or accrued.

In -------, Taxpayer filed a Form 1120X for the taxable year ------- to change its election
from credits under IRC §901 to deductions under IRC §164(a)(3) for its foreign taxes
paid or accrued in -------. The ------- Form 1120X was dated --------------------------, and
was posted at the IRS Service Center on -------------------------. The due date of the -------

tax return, without extensions, was ---------------------. Because the ten-year period under
IRC § 6511(d)(3)(A) would have expired on ---------------------, ten years after the due
date (without extensions) of the ------- return, this election was timely made.
POSTF-117060-10 9

On ---------------------, Taxpayer executed a Form 1120X for taxable year ------- with the
label “Protective Claim” on the front of the form. The ------- PC, which was dated ---------
------------,4 purports to amend its ------- return to “claim the effect of foreign taxes as a
credit for the year -------,” but, according to the attached statement, “is not immediately
effective and does not now replace a prior election to deduct such foreign taxes.” The
statement provides that the ------- PC was not intended to be effective until the
completion of all examinations by the Internal Revenue Service of “other years which
would affect the advisability of electing a deduction or credit for the ------- foreign
taxes….” Only at the “conclusion and resolution of the examination [sic], …
[d]ependent upon a final determination of the income tax liabilities for several years, can
it be finally determined whether the previous --------] election… or this election… should
be given effect.” Finally, according to the statement, “[t]he amount of allowable credits
and support… have previously been provided.”

The ------- PC was signed on ---------------------. For purposes of this analysis, it will be
assumed that it was filed before the expiration of the applicable ten-year election period
under IRC §901(a) for foreign taxes paid or accrued in -------, which was --------------------
-------. Since the ------- PC is later in time than the -----------------------election to change
from FTCs to deductions for -------, the ------- PC generally would supersede the -------
election, but only if the ------- PC was a valid election under Treas. Reg. §1.901-1(d).

However, by filing the ------- PC Taxpayer did not elect to claim credits for foreign taxes
paid or accrued in -------. To the contrary, the --------PC expressly states that Taxpayer
did not intend at that time to change its previous election to deduct, rather than credit,
foreign taxes paid or accrued in -------- Indeed, Taxpayer continues to press its claim
that the --------foreign tax deductions gave rise to an NOL that in turn gave rise to its
disputed --------refund claim. Rather than reflecting a timely change in election, the ------
--------PC reflects Taxpayer’s attempt unilaterally to extend the statutory deadline for
changing its election provided in IRC §901(a), which expired on ---------------------. Thus,
the --------PC does not supersede the Taxpayer’s last timely election, made in--------, to
convert previously-claimed FTCs to deductions for -------, and the time for Taxpayer to
make further changes to its choice has now expired.

In Chrysler Corporation v. Commissioner, 436 F.3d 644 (6th Cir. 2006), the court
affirmed the Tax Court’s holding that the taxpayer’s attempt to change its election from
deductions to credits was untimely because it was made more than 10 years after the
due date of the return for the year in which the foreign taxes were paid or accrued. The
court rejected the taxpayer’s argument that the election period should be construed to
run from the later year to which the taxpayer sought to carry forward excess foreign
taxes from the election year. Noting that the taxpayer retained the benefit of deductions
for the foreign taxes, and that statutes granting deductions should be construed strictly
in favor of the government, the court held that the plain meaning of IRC §901(a)

4
There is no posting date on the IRS’ IDRS for the ------- PC.
POSTF-117060-10 10

establishes a 10-year window for the taxpayer to choose between credits and
deductions for foreign taxes paid. In this case, the Taxpayer’s 10-year window expired
on ---------------------. Taxpayer’s attempt indefinitely to extend the statutory 10-year
period by filing the ------- PC on that date was ineffective.

3. Is Taxpayer’s ------- PC a valid protective claim generally? If so, should the
   Service delay action on the claim pending final disposition of the ---------------cycle?

The concept of a "protective claim" is not used in the Code or regulations, but is
established by case law. A valid protective claim need not state a particular dollar
amount or demand an immediate refund; however, the claim must have a written
component; must identify and describe the contingencies affecting the claim; must be
sufficiently clear and definite to alert the Service as to the essential nature of the claim;
and must identify a specific year or years for which a refund is sought. See, e.g., United
States v. Kales, 314 U.S. 186 (1941). A protective claim is a present claim contingent
upon a future event; it is a statement that upon the happening of the contingency the
claim will be prosecuted. The delay in resolving the contingency does not create any
inconsistency with the present assertion of the claim. See Kales, 314 U.S. at 196. A
claim cannot be viewed as a protective claim merely because a taxpayer labels it as
such.

In general, a protective claim is based on an expected change in the tax law, other
legislation, regulations, or case law. Taxpayers seeking certain determinations from the
Service or another tax authority also may submit protective claims while the
determination is pending. See Pala, Inc. Employees Profit Sharing Plan and Trust
Agreement, 234 F.3d 873, 880 (8th Cir. 2000) (The court stated the taxpayer could have
filed a protective claim while the Service was considering a request for a determination
that a plan was qualified as a tax-exempt profit sharing plan). For example, a taxpayer
requesting assistance from the U.S. competent authority under the provisions of an
income, estate, or gift tax treaty to which the United States is a party is advised to file a
protective claim (along with their related parties) before the expiration of the period of
limitations. See Rev. Proc. 2006-54 at section 9. Also, an estate that has not paid
certain claims or expenses at the time the estate return is filed may file a protective
claim for refund under Treas. Reg. § 20.2053-1(d)(5)(i). See also Rev. Rul. 77-274,
1977-2 C.B. 326 providing that where a suit for damages for wrongful death has been
filed, but there has been no recovery at the time the return is filed, the fiduciary is
advised to file a protective claim for refund.

As indicated above, a protective claim for refund is recognized by the Service and the
courts as a method of filing a claim satisfying IRC §6402 within the applicable period of
limitation even though the taxpayer’s right to make the claim is presently contingent and
must await resolution of a pending enactment or determination to fully establish the
taxpayer’s right. That is, a valid protective claim contains a present claim that the
Service may immediately allow or disallow once the contingency is resolved. In this
case Taxpayer’s ------- PC is a writing, but it does not make a present claim or even
POSTF-117060-10 11

identify a year or years for which a refund is sought. Taxpayer stated that only after the
conclusion of the examination of other, unidentified years will it know whether or not it
wants to change its foreign tax election for ------ and whether or for what years it might
then file a refund claim. The pending examinations of other years, however, did not
prevent Taxpayer from making an IRC §901 election for the --------taxable year. The
examination is not similar to the request for a determination that was pending with the
Service in Pala, Inc. In this case Taxpayer could have made an election for the ---------
taxable year instead of filing the ------- PC. In fact, Taxpayer previously did make the
election but then revoked it via Form 1120X in ----------------------. Also, the ------- PC
does not present the IRC §901 election as an alternative to the deduction under section
164 that would come into effect upon the resolution of a contingency regarding the -------
tax year. The ------- PC contains no present claim to be allowed or disallowed
immediately upon the completion of an examination; it only informs the Service of a
course of action Taxpayer may or may not take after the examination of various
unspecified years are concluded, which may or may not give rise to a refund claim in
other years. In contrast to making a present claim, Taxpayer is attempting to reserve
the right to make a claim based on a change to its IRC §901 election for ------- if the
results of the examination of other years later show it would be beneficial. The -------
PC lacks the elements required for a valid protective refund claim.

This writing may contain privileged information. Any unauthorized disclosure of this
writing may undermine our ability to protect the privileged information. If disclosure is
determined to be necessary, please contact this office for our views.

Please call 202-622-4910 if you have any further questions.