Overpaid tax cannot be credited to a different year's penalty balance after the refund deadline

Plain-English summary

Chief Counsel Advice considered whether an overpayment from an amended return could be credited to a penalty balance for a different tax year after the assessment and refund periods had expired. The advice concluded that the assessment was invalid because it was made after the assessment limitations period, but the taxpayer still needed to make a timely refund claim. Because no timely claim was filed, the payment could not be refunded or credited to another year's penalty balance. The advice also explains that an amended return does not restart the assessment or refund limitation periods.

Ruling snapshot

• Question: Can an overpaid tax amount be credited to a different year's penalty balance after the assessment and refund periods expire?
• Outcome: Advice given, credit unavailable on these facts
• Key authorities: IRC §§ 6401, 6402, 6404, 6501, and 6511; Rev. Rul. 72-311 and Rev. Rul. 74-580

Full text (IRS public release)

ID: CCA_2013111211094607 [Third Party Communication:

UILC: 6511.00-00 Date of Communication: Month DD, YYYY]

Number: 201404011
Release Date: 1/24/2014
From:
Sent: Tuesday, November 12, 2013 11:09:46 AM
To:
Cc:
Bcc:
Subject: ----------------------

This responds to your OVDI-related inquiry of September 25, 2013.

As we understand the facts, the taxpayer entered into the OVDI for tax years ------ through ------
------. As part of the OVDI process, taxpayer filed an amended ------ return reporting previously
unreported income. The amended ------ return was received by the Service on ----------------------,
and the additional tax was assessed on ---------------------. When the taxpayer filed the amended
------------ return, the taxpayer also made a payment of the additional tax reported as owed on
the amended return. The payment was made on ---------------------. The ASED expired on the ---
--- tax year on ------------------. The return was not sent to Exam until September ------. At no
time has taxpayer made a claim for refund of the ------ overpayment. Upon exam, it has been
determined that the taxpayer over-reported the additional income and, as a result, overpaid
the additional tax due for ------.

Exam wants to know whether the amount of the overpaid ------ taxes may be credited to the
taxpayer’s penalty balance in a different tax year.

Quite simply, the answer is no. The assessment on --------------------- was an invalid assessment
and could have been abated pursuant to § 6404(a)(2) (stating that the Service may abate any
portion of an assessment that “is assessed after the expiration of the period of
limitations”). The assessment is invalid because the original return had an assessment date of -
------------------, and an amended return does not revive the period of limitation on assessment
or refund, Rev. Rul. 72-311; therefore, the assessment in question was made after the ASED
expired on ------------------. Moreover, the Service took no steps to extend the statutory
assessment period by consent or waiver for tax year ------ when it permitted the taxpayer to
participate in the OVDI. Additionally, we have no information that leads us to believe the
statute of limitations on assessment would otherwise be open under other exceptions to the
general three-year period, e.g., section 6501(e)(1). According to Rev. Rul. 74-580, the Service
may refund any payment made pursuant to an assessment that was made after the ASED
expired. However, the taxpayer must also make a timely claim for refund in accordance with §
6511 to receive a refund. In this case, the ASED had expired both when the payment was
remitted and at the time of the invalid assessment so, the assessment could have been abated
 2

and the taxpayer had two years from the date of payment to claim a refund pursuant to § 6402.
Neither of those happened.

The general assessment statute of limitations of I.R.C. § 6501(a) is three years from the date of
the filing of the return. The purpose of an assessment, however, is only to place the taxes
owed on the books of the Government. Hibbs v. Winn, 542 U.S. 88, 100 (2004). See also Lewis
v. Reynolds, 284 U.S. 281, 283 (1932) (“Although the statute of limitations may have barred the
assessment and collection of any additional sum, it does not obliterate the right of the United
States to retain payments already received when they do not exceed the amount which might
have been properly assessed and demanded.”).

Even to the extent that the payment could be a statutory overpayment, it cannot be
automatically refunded to the taxpayer if the ASED has expired, because it is subject to the
period of limitations on refund claims found in I.R.C. § 6511(a). See Rev. Rul. 74-580 (stating
that an overpayment under section 6401(a) “should be refunded under section 6402(a) if the
taxpayer has filed a timely claim for refund in accordance with section 6511(a)”); see also
Williams-Russell & Johnson v. United States, 371 F.3d 1350, 1353 & n.2 (11th Cir. 2004) (finding
it unnecessary to address the taxpayer’s assertion that the I.R.C. § 6511(a) limitation period
does not run from the date of payment when there is a § 6401(a) statutory overpayment, but
also indicating that such an argument has “little merit.”). Section 6511(a) requires that a claim
for refund be filed within three years from the time the return was filed, or two years from the
time the tax was paid, whichever is later. In addition, the amount of a refund is limited by §
6511(b), which provides either: (1) a three-year look-back period in cases in which the claim
was filed within three years of the return or (2) a two-year look-back period in cases in which
the claim was filed within two years of payment.

Filing an amended return does not extend the three-year I.R.C. § 6511(a) period of limitations
on a refund claim. Zellerbach Paper Co. v. United States, 293 U.S. 172 (1934); Rev. Rul. 72-311,
1972-1 C.B. 398. Therefore, even if the taxpayer had a statutory overpayment for tax year ------
------, any refund would have to have been claimed by the taxpayer within the two-year period
following the payment made on ---------------------. As the taxpayer did not file a claim on or
before ---------------------, any refund claim now filed would be untimely, and the refund cannot
be made. As a refund may not be made due to the expiration of the period of limitations under
section 6511, the Service may not credit the ------ overpayment to a different year’s penalty
balance.

Regards,

--------------------------------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------------------------

--------------------------