CCA 1313027: IRS maintains income exclusion position and identifies possible mitigation relief

Plain-English summary

The IRS advised that it continued to oppose a taxpayer's request to exclude a redacted amount from income for a redacted year. The memo also analyzed the mitigation provisions in IRC §§ 1311 through 1314. It said those provisions might allow the IRS to reopen another tax year if the Service accepted the taxpayer's refund claim, because the taxpayer's positions concerning the same rollover income could be inconsistent across years. The memo identified four conditions for a readjustment under IRC § 1312(3)(A), subject to the facts described.

Ruling snapshot

• Question: Can the taxpayer exclude the disputed rollover income, and could the mitigation provisions permit reopening another tax year if a refund is granted?
• Outcome: Advice given. The IRS maintained its original position against the exclusion and identified a possible mitigation argument.
• Key authorities: IRC §§ 402, 1311, 1312, 1313, and 1314; Treas. Reg. § 1.1312-3(a)(2), Example 1(ii)

Full text (IRS public release)

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ID: CCA_2012121308293246 Number: 201313027
Release Date: 3/29/2013
Office: --------------------------
UILC: 402.00-00, 1311.00-00

From: ---------------------
Sent: Thursday, December 13, 2012 8:29:34 AM
To: --------------------
Cc:
Subject: RE: CCA ---------

This email follows up on the email below. We have reviewed the written protest filed by the taxpayer’s
representative and stand by our original position that the taxpayer is not entitled to exclude $X from her
income in -------.

Furthermore, §§ 1311 through 1314 include provisions on the mitigation of the effect of the statute of
limitations period (the “mitigation provisions”). In the event that the Service were required to permit the
taxpayer to exclude $X from her gross income in --------and grant her request for a refund, the mitigation
provisions may permit reopening the ------- tax year. Taken together with the relevant provisions of
§§ 1311 and 1313, § 1312(3)(A) permits a readjustment of a taxable year, despite the limitations bar, if
four conditions are met: (1) a ‘determination’ excluded an item from the taxpayers' gross income in one
year (-------); (2) this ‘determination’ adopted a position maintained by the taxpayers which is inconsistent
with the exclusion of that same item of income in another year (-------); (3) the taxpayers excluded the
item from gross income in that other year (-------); and (4) the taxpayers paid tax on the item for the year
in which the ‘determination’ held it excludable (-------). See Treas. Reg. sec. 1.1312-3(a)(2), Ex. 1(ii);
Chertkof v. Commissioner, 649 F.2d 264 (4th Cir. 1981); Birchenough v. United States, 187 Ct. Cl. 702
(1969).

The exclusion of the rollover income in ------- is inconsistent with the exclusion of the income in -------.
Therefore, it would appear that there is a basis for asserting mitigation in this case if the ------- claim for
refund is accepted.

This document may not be used or cited as precedent. Section 6110(k)(3) of the Internal Revenue Code.