CCA 1319011: Section 34 refund claims were not barred by the lookback period

Plain-English summary

Chief Counsel Advice considers whether a corporation's claims for income tax refunds under IRC § 34 were barred by the lookback rules in IRC § 6511(b). The corporation had been charged amounts equal to aviation fuel excise taxes, but it did not meet the timing requirements for a payment under section 6427(l), so it sought refundable income tax credits under section 34. The advice concludes that the claims were not barred because the section 34 credits were treated as constructive income tax payments made on the statutory due dates of the corporation's returns. Those dates fell within the three-year lookback period for both claims.

Ruling snapshot

• Question: Were the corporation's section 34 refund claims barred by the section 6511(b) lookback rules?
• Outcome: Advice given.
• Key authorities: IRC §§ 34, 6427, 6511, and 6513; Israel v. United States, 356 F.3d 221 (2d Cir. 2004)

Full text (IRS public release)

       Office of Chief Counsel
       Internal Revenue Service
       memorandum
       Number: 201319011
       Release Date: 5/10/2013
       CC:PA:02MABond                                 Third Party Communication: None
       POSTF-140420-12                                Date of Communication: Not Applicable

UILC: 6511.01-00

date: January 17, 2013

 to:   Bobbie Semkova
       Attorney
       (CC:LB&I:F:MAN:1)

from: Pamela W. Fuller
Senior Technician Reviewer
(Procedure & Administration)

subject: Timeliness of Claims for Refund under Sections 34 and 6511

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

       LEGEND

       X            =      ---------------------------------------------------

       Y            =      -----------

       $a           =      --------------

       $b           =      --------------

       Year 1       =      ------

       Year 2       =      ------

       Year 3       =      ------

POSTF-140420-12 2

ISSUES

Whether X’s claims for refund of income tax for tax years Year 1 and Year 2 are barred
under the look back provisions of section 6511(b).

CONCLUSIONS

No. X’s claims are not barred by the look back provisions because the tax was deemed
paid on the statutory due dates of the respective Year 1 and Year 2 income tax returns,
which dates are within the three-year period preceding the claims.

FACTS / BACKGROUND

X is a ----------------- corporation not subject to Federal income tax under a tax treaty.
X is also exempt from certain fuel excise taxes under certain circumstances and
provided that proper documentation for the exemption exists. In Year 1 and Year 2, due
to mismatched documentation, X was improperly charged an amount equal to the
excise tax on aviation fuel by Y (an oil company), in the amounts of $a and $b
respectively. The tax imposed by section 4081 had previously been imposed on this
fuel.

As a result, X could have been entitled to payments as an ultimate purchaser of the
aviation fuel by section 6427(l), but X did not meet the timing requirements of 6427(i).
X sought relief under section 34 to receive a refundable income tax credit in lieu of
payment under section 6427(l). Section 34 provides for such a credit, equal to the
amount otherwise payable under section 6427. X filed claims for refund of income tax
in the amounts of $a and $b for tax years Year 1 and Year 2, respectively on
October 18, Year 3.

LAW AND ANALYSIS

Section 6511 contains two separate timeliness provisions that apply to claims for
refund. First, section 6511(a) establishes a filing deadline on the claim for refund, which
is three years from the time the return was filed or two years from the time the tax was
paid, whichever expires later, or if no return was filed by the taxpayer, within two years
from the time the tax was paid; second, section 6511(b) limits the amount of the refund
based on looking back either two or three years from the date the claim is filed. Hof v.
United States, 2009 WL 464364 at 1 (D.S.D.) (citing Commissioner v. Lundy, 516 U.S.
235, 240 (1996)). Where (as in this case) a tax return is filed, the deadline for filing a
claim for refund is three years from the date the tax return is filed or two years from
payment, whichever is later. I.R.C. § 6511(a).
POSTF-140420-12 3

In this case X filed income tax returns, Forms 1120-F, on October 18, Year 3. The
Forms 1120-F contained X’s claims for refund.1 X’s simultaneous filing of income tax
returns and claims for refund for Year 1 and Year 2 meets the three-year requirement of
section 6511(a); X timely filed both its Year 1 and Year 2 claims.

Where a claim is filed within such three-year period under section 6511(a), the look
back period is the three-year period preceding the claim, plus any extension of time for
filing the tax return. I.R.C. § 6511(b)(2)(A). Under section 6511(b)(2)(A), the amount of
the credit or refund may not exceed the portion of the tax paid within this “look back”
period.

Determining the tax paid date for purposes of section 6511(b)(2)(A) is less
straightforward in this case. Section 34 gives taxpayers a refundable credit against
income tax, without requiring any income tax to have been actually paid.2 This credit
is allowable even though X did not have any income tax liability. See §§ 6401(b)(1) and
(c).

For purposes of establishing the tax paid date, we analogize to the earned income tax
credit (EITC), another refundable credit, where the taxpayer frequently has never
actually paid any income tax but is still entitled to a refund of income tax. When
determining the period of limitation for claiming a refund based on the EITC, courts have
deemed a constructive payment of income tax and have deemed this constructive
payment to occur as of the statutory due date of the income tax return for the tax year at
issue. See Israel v. United States, 356 F.3d 221, 224-25 (2d Cir. 2004). The rationale
for this constructive payment analysis is grounded in the recognition that the EITC
creates an overpayment of taxes where there has been no actual payment of the tax at
issue. Id. at 223-24. In determining the tax paid date, the Second Circuit found section
6513(b) was applicable.3 The court analogized the EITC to wage withholding taxes and
concluded that “a logical and consistent reading of the Code” demanded that section
6513(b) apply to both those amounts a taxpayer did pay and those a taxpayer did not, in
fact, pay. The court further noted that the purpose of the section 6511 look back rule is
to prevent stale claims and that its holding that section 6513(b) is applicable supported
Congresses’ intent. Id. at 225-6.

In this case, in lieu of an individual taxpayer who would have taxable wages, and
therefore, wage withholding, we analogize to the generic corporate taxpayer who would
have taxable income and therefore estimated tax payments. Both withholding and
estimated tax payments are considered pre-paid income tax and both are subject to
section 6513(b). Given the courts’ analysis of tax paid in the EITC refund context, we

1
Pursuant to Rev. Rul. 69-406, 1969-2 C.B. 261, a taxpayer must file its claim for refund under section 34
on an income tax return, regardless of whether or not it must otherwise file an income tax return.
2
Note, X’s payment to Y of an amount equal to Y’s excise tax liability is not relevant for section 6511
purposes because X is seeking a refund of income tax under section 34.
3
While the constructive payment is a legal fiction, it is a necessary one because without it the Code’s
refundable credit provisions would be unworkable.
POSTF-140420-12 4

believe they would similarly hold that there is a constructive payment of income tax
when a taxpayer has a section 34 refundable credit, and that said payment is deemed
paid as of the statutory due date of a corporation’s income tax return. The income tax
return due date for a corporation such as X is March 15 of the year following the
taxable year. Thus X’s constructive payments under section 34 are deemed paid as of
that date.

With respect to tax year Year 1, X filed its claim for refund on October 18, Year 3.
Under section 6511(b)(2)(A), the Year 1 refund is limited to the portion of tax paid within
the applicable look back period of three years. Under the analysis above, there is a
constructive payment of income tax in the amount of $a, deemed paid on
March 15, Year 2. This is within the applicable look back period.

With respect to tax year Year 2, X filed its claim for refund on October 18, Year 3.
Under section 6511(b)(2)(A), the Year 2 refund will be limited to the portion of tax paid
within the applicable look back period of three years. Under the analysis above, there is
a constructive payment of income tax in the amount of $b, deemed paid on
March 15, Year 3. As with the tax year Year 1 claim, this is within the applicable look
back period.

In sum, X’s claims for refund are timely under section 6511(a), and are not barred by
the look back provisions of section 6511(b)(2)(A) because the tax was deemed paid on
the statutory due dates of the Year 1 and Year 2 income tax returns, March 15, Year 2
and March 15, Year 3, respectively, which dates are within the three-year period
preceding the claims.

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) 622-4940 if you have any further questions.