Tribal welfare refund extension does not expand payment lookback

Plain-English summary

Chief Counsel explained how the Tribal General Welfare Exclusion Act of 2014 affected refund and credit claims. Claims that were still timely when the Act was enacted on September 26, 2014, received until September 26, 2015, to be filed, generally covering returns filed on or after September 26, 2011. But the Act extended only the claim-filing deadline, not section 6511’s separate lookback limits on which payments may be refunded, so a timely claim may still reach no refundable payment. Assessed but unpaid tax attributable to qualifying nontaxable payments may be considered for informal abatement. The memorandum also explains when the 45-day refund-interest rule stops or continues overpayment interest.

Ruling snapshot

• Question: Which claims and payments are reachable under the Act’s one-year refund extension, and how are unpaid assessments and refund interest handled?
• Outcome: Advice given on claim deadlines, payment lookbacks, abatements, and interest.
• Key authorities: Tribal General Welfare Exclusion Act of 2014 § 2(d); IRC §§ 6402, 6404, 6511, 6513, and 6611.

Full text (IRS public release)

       Office of Chief Counsel
       Internal Revenue Service
       Memorandum
       Number: 201514022
       Release Date: 4/3/2015
       CC:PA:02:DSkinner
       POSTU-105138-15

UILC: 139E.00-00, 6511.00-00

date: March 19, 2015

 to:   Shelley Turner Van Doran
       Area Counsel
       (Tax Exempt & Government Entities)

from: Blaise G. Dusenberry
Senior Technical Reviewer
(Procedure & Administration)

subject: Tribal General Welfare Exclusion Act refund questions

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

       BACKGROUND

       Congress enacted the Tribal General Welfare Exclusion Act of 2014 (Act)1 in part to
       codify the IRS’s June 2014 guidance on determining when payments from tribes to tribal
       members and their spouses and dependents will qualify as non-taxable payments under
       the general welfare exclusion.

       Section 2(d) of the Act addresses the effective date of the Act and extends the statute of
       limitations for filing certain refund claims. You asked us to answer certain questions
       relating to claims and amounts available for credit or refund under the Act.

       QUESTIONS

             1. For what taxable years will claims for refund or credit be timely under the Act?
             2. What is the scope of the Act’s one-year waiver of the statute of limitations?
             3. What payments may be reached by a claim for credit or refund under the Act?
             4. How will a claim affect a year for which there is assessed but unpaid tax?
             5. How will the 45-day interest rule apply?
       1
           P.L. 113-168, 128 Stat. 1884 (Sept. 26, 2014).

POSTU-105138-15 2

ANSWERS

1. Timely claims may be filed for any year with an open period for claiming a refund
   as of the date of enactment of the Act (September 26, 2014). Generally, this will
   include any return filed on or after September 26, 2011. This will include returns
   for tax years 2011 through 2014 and returns for earlier years that were filed late
   or on extension on or after September 26, 2011.
2. Claims that would have been timely on September 26, 2014, will be timely if
   made on or before September 26, 2015. Taxpayers should file as early as
   possible, however. See #3, below.
3. Payments made within two years of a refund claim may be credited or refunded;
   and for refund claims filed within three years of filing a return, payments made
   within three years of the date of the refund claim may be credited or refunded.
   When a taxpayer filed the return on extension and filed a refund claim within
   three years of the return filing date, payments made within three years of the
   date of the claim for refund, plus the length of any filing extension, may be
   refundable—generally 3.5 years.
4. Refund claims for periods for which the taxes have been assessed but not fully
   paid may be treated as informal requests for abatement. If the assessment is
   excessive because certain payments are non-taxable under the general welfare
   exclusion, the IRS may abate the excessive amounts.
5. When the IRS issues a refund within 45 days of a claim, no interest is allowable
   between the claim date and the refund date, but if the IRS does not issue the
   refund within 45 days, then interest must be paid from the date of the
   overpayment to a date not more than 30 days before the IRS pays the refund.

LAW AND ANALYSIS

Congress passed the Tribal General Welfare Exclusion Act of 2014 on September 26,
2014. Section 2(d) of the Act addresses the effective date and an extension of the
refund statute of limitations in certain cases, as follows:

  (1) In general. The amendments made by this section shall apply to taxable
  years for which the period of limitation on refund or credit under section 6511 of
  the Internal Revenue Code of 1986 has not expired.

  (2) One-year waiver of statute of limitations. If the period of limitation on a credit
  or refund resulting from the amendments made by subsection (a) expires before
  the end of the 1-year period beginning on the date of the enactment of this Act,
  refund or credit of such overpayment (to the extent attributable to such
  amendments) may, nevertheless, be made or allowed if claim therefor is filed
  before the close of such 1-year period.

POSTU-105138-15 3

1. Taxable years and timely claims

To be timely, refund claims must be filed by the later of three years from the date a
return was filed or two years from the date the tax was paid; or, in the absence of a
return, within two years from the date the tax was paid. I.R.C. § 6651(a).

The Act applies to taxable years for which the time for filing a claim for refund has not
expired, and we interpret that to mean had not expired on September 26, 2014, the date
the Act was enacted. Act § 2(d)(1). For refund claims that would expire within one year
after enactment, the Act provides that refund claims made during that one year period
will be considered timely. Act § 2(d)(2).

a) Returns for tax years 2011 and later. Individual income tax returns are generally
   due on April 15, and returns filed before the due date are considered filed on the
   due date. I.R.C. § 6513(a). Three years before the September 26, 2014,
   enactment date of the Act is September 26, 2011. Timely-filed returns for tax
   year 2010 are considered filed on April 15, 2011, which is more than three years
   before the date of enactment. Because section 6511(a) requires taxpayers to file
   refund claims within three years of the date they filed their returns, the time for
   filing a refund claim for timely 2010 returns had already expired when the Act
   passed.

b) Returns for tax year 2010 filed on extension. Returns filed with an extension of
   time to file are due six months after the original filing due date. I.R.C. § 6081(a).
   For individual returns, the extended due date is October 15. Thus, 2010 returns
   filed on extension on or after September 26, 2011, were filed within three years
   of the date the Act passed, and refund claims for those returns will be timely if
   they are filed on or before September 26, 2015.2 I.R.C. § 6501(a); Act § 2(d)(1)
   and (2).

c) Late-filed returns filed after September 26, 2011. Late returns for any year filed
   on or after September 26, 2011, were also filed within three years of enactment,
   and refund claims for those returns would also be timely if received on or before
   September 26, 2015. Id. Likewise, refund claims for payments made within two
   years of September 26, 2014 (i.e., payments made on or after September 26,
   2012), will be timely if filed on or before September 26, 2015. Id.

2
September 26, 2015, is a Saturday. Affected taxpayers will have until Monday, September 28, 2015, to
file timely refund claims under the Act. See I.R.C. § 7503.
POSTU-105138-15 4

Summary of tax returns eligible for credit or refund

Generally:
a) Claims for refund for returns filed before September 26, 2011, are not timely and
may be denied.3
b) Claims for refund for returns filed after September 26, 2012, are timely and
should be evaluated and processed.
c) Payments made within two years of the refund claim date are refundable.

The challenging cases will have to be scrutinized carefully. For returns filed between
September 26, 2011, and September 26, 2012, amounts paid within two years of the
refund claim will be creditable or refundable (as always). Whether any other amounts
may be refunded will turn on whether the claim were filed within three years of the date
the taxpayer filed the return. If the claim is within three years of the return, then the
look-back period for identifying payments that the IRS may credit or refund will be three
years plus the period of any filing extension. I.R.C. § 6501(b)(2)(A). But if the claim is
later than three years from the date of the return, then the look-back period would reach
only those payments made within two years of the refund claim

2. Scope of Act’s statute of limitations extension

In addition to providing a period of limitations that controls the timeliness of refund
claims, the Code also imposes two limits on the allowance of credits and refunds. The
first limit requires a timely claim for refund before the IRS may allow a credit or refund.
See I.R.C. § 6511(b)(1) and Act § 2(d)(1) and (2). The second limit controls the
amounts that may be credited or refunded; that is, limiting the payments from which the
IRS may provide refunds or credits. I.R.C. § 6511(b)(2). The Act addresses the first
limitation by extending the statute of limitation for filing a timely refund claim, but it does
not address the second limitation that controls just which payments may be refundable
on the date the taxpayer submits the claim. Therefore, claims that would have been
timely on September 26, 2014, will be timely if filed on or before September 26, 2015;
but because the Act did not also extend the payment limitations, there may be no
payments from which the IRS may issue credits or refunds for claims that are timely
only because of this extension.

3. Payments available for credit or refund

When a taxpayer files a refund claim within three years of filing a return, any payments
made within three years of the date of the refund claim (plus the period of any

3
Examples of situations that would change this result are: agreements extending the period of
assessment pursuant to section 6501(c)(4), because those agreements extend the period for claiming a
refund under section 6511(a) until six months after the end of the extended assessment period, I.R.C.
§ 6501(c); and cases where the taxpayer filed a timely refund claim and the IRS has not acted on the
claim, because in such cases the refund period is tolled and the date of that timely claim will be used for
looking back to determine which payments may be refunded or credited.
POSTU-105138-15 5

extensions of time to file the return) are available for refund or credit. I.R.C.
§ 6511(b)(2)(A). But when a taxpayer does not file a claim within three years of the
date he filed the return, only those payments made during the two years before the
refund claim may be refunded or credited. I.R.C. § 6511(b)(2)(B).

As a result, it is possible under the Act for a taxpayer to have a timely refund claim but
for the IRS to have no payments that it may credit or refund.4 This is particularly true
when taxpayers take advantage of the additional year the Act provides for filing a timely
claim. A refund claim may be timely under the Act even if it’s filed more than three
years after the return, but if the IRS receives a refund claim more than three years after
the return filing date, then the only payments that the IRS is allowed to refund or credit
are those made within two years of the date of the refund claim. See I.R.C.
§ 6511(b)(2)(A) and (B). In such a case, payments available for refund would typically
not include amounts paid when the taxpayer filed the return, estimated tax payments, or
withholding tax payments, because those payments are considered made on the filing
due date. I.R.C. § 6513(a). For this reason, even though the Act may provide
additional time to file a refund claim, taxpayers should file their claims as quickly as
possible to make sure they’re received within three years of the return filing date.

4. Assessed but unpaid taxes

In cases where the IRS has assessed tax and some or all of it remains unpaid,
taxpayers may not file claims for refund, because the IRS may only make a credit or pay
a refund if the taxpayer has overpaid. I.R.C. § 6402. Paying the tax in full is a
prerequisite of filing a refund claim and for suing for a refund. See Flora v. United
States, 362 U.S. 145 (1960); Weber v. Commissioner, 138 T.C. 348, 363 (2012). The
Code prohibits taxpayers from filing a claim for an abatement of income tax
assessments. I.R.C. § 6404(b). Nevertheless, taxpayers may informally request an
abatement, and the IRS is authorized to abate the unpaid portion of any assessment
that is excessive in amount. I.R.C. § 6404(a)(1). Thus, in cases where the IRS
assessed tax for amounts that qualify as non-taxable payments under the general
welfare exclusion and those assessments have not been paid, the IRS may abate the
excessive amount of the assessments.

5. 45-day interest rule

4
This issue also arises with late-filed returns. Absent an extension of time to file, a return filed more than
three years after the due date and claiming a refund will only be able to reach payments made within
three years of the return filing date (which in this example is the same as the refund claim date). Any
payments deemed made on the due date of the return by section 6513(a) will be too old and therefore
unavailable for credit or refund, pursuant to section 6511(b)(2)(A). Likewise, while a refund claim filed
within three years of the return filing date will be able to access any payments made within three years
before the date of the refund claim, if the return itself were filed late, a refund claim submitted toward the
end of the three-year window after the return filing date may not reach any payments that are deemed
made on the original due date.
POSTU-105138-15 6

When an overpayment is refunded within 45 days after a taxpayer claims a refund, the
IRS may not pay interest for the period from the date the taxpayer filed the claim to the
date the IRS makes the refund. I.R.C. § 6611(e)(2). In such a case, overpayment
interest will run from the date of the overpayment to the date the taxpayer files the
refund claim and will stop on the refund claim date. But if the IRS is unable to pay a
refund allowable under the Code and Act within 45 days of the date of the claim, then
the IRS will pay overpayment interest from the date of the overpayment to a date not
more than 30 days before the IRS makes the refund. I.R.C. §6611(b)(2).

Please call David Skinner at (202) 317-5240 if you have any further questions.