An original return starts the limitations periods despite a superseding return

Plain-English summary

Chief Counsel considered which filing starts the three-year limitations periods when a taxpayer files an original return and then a superseding return before an extended due date. The memorandum concluded that the original return starts both the IRS assessment period under section 6501 and the taxpayer's refund-claim period under section 6511. It relied primarily on Zellerbach, which treats a later return as an amendment or supplement that relates back without restarting a limitations period. Haggar did not change the result because it addresses a superseding return's substantive effectiveness, while limitations statutes serve the separate purpose of cutting off rights after a fixed time. Applying that rule, one taxpayer's refund claim was late, and the IRS was instructed to measure a separate assessment period from the original return's filing date.

Ruling snapshot

• Question: Does an original return or a timely superseding return begin the three-year assessment and refund-claim limitations periods?
• Outcome: advice given (the original return begins both periods)
• Key authorities: IRC §§ 6501(a), 6501(b)(1), 6511(a), 6513(a); Zellerbach Paper Co. v. Helvering; Haggar Co. v. Helvering

Full text (IRS public release)

           Office of Chief Counsel
           Internal Revenue Service
           memorandum
           CC:PA:02:THHUSE
           POSTF-123485-19


           Number: 202026002
           Release Date: 6/26/2020

 UILC:     6501.00-00, 6501.03-01, 6501.03-03, 6501.04-11, 6511.00-00, 6511.01-01, 6511.01-
           03, 6511.09-00, 6511.10-00

  date:    February 26, 2020

     to:   Karo Gary Petrosyan, Attorney
           (Large Business & International)

  from:    Elizabeth Chirich, Branch Chief (Branch 1)
           (Procedure & Administration)


subject:   The effect of superseding returns on the statute of limitations in sections 6501 and
           6511


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


           ISSUES

               1. When a return is filed and then a second return is subsequently filed before the
                  return due date (i.e. a superseding return1), which return constitutes “the return”
                  for purposes of section 6501 and starts the statutory period for assessment of
                  three years?
               2. When a return is filed and then a second return is subsequently filed before the
                  return due date (i.e. a superseding return), which return constitutes “the return”
                  for purposes of section 6511 and starts the statutory period for filing a claim for
                  refund of three years?




           1 A "superseding return” is sometimes referred to as a "substitute," "supplemental," or "timely amended"
           return as well.
POSTF-123485-19                                   2

CONCLUSIONS

For both issues, the original return, not the superseding return, is “the return” that starts
the statutory period. Zellerbach Paper Co. v. Helvering, 293 U.S. 172 (1934).



FACTS

   I.      ------- Tax Year

         -----------------------------------(“the Taxpayer”), a calendar-year taxpayer, filed a
timely extension, Form 7004, Application for Automatic Extension of Time to File Certain
Business Income Tax, Information, and Other Returns, to extend the time for filing its ---
------- Form 1120 from March 15, ------- to September 15, -------. The Taxpayer timely
filed its ------- Form 1120 on ---------------------------, four days earlier than the extended
due date. However, the Taxpayer made a mistake. During ------- the taxpayer made an
automatic change to its accounting method. The instructions to Form 3115, Application
for Change in Accounting Method, state that taxpayers must file Form 3115 in duplicate,
and a copy must be filed no later than the date the original Form 3115 is filed with the
Federal income tax return. The taxpayer realized it failed to file a copy of the
Form 3115 before filing the original Form 3115 with the Form 1120. Thus, the taxpayer
-------------------------------------------------subsequently filed a superseding Form 1120 on ----
---------------------------, --------before the extended due date of September 15, -------.

       On ---------------------------, the Taxpayer filed a Form 1120X for ------- claiming an
overpayment for that year. The Taxpayer argues that its claim for refund is timely
because it was filed within three years of ---------------------------, the date it filed its
superseding Form 1120. They argue that the period of limitations for refunds under
section 6511 began on that date. You have asked whether the period of limitations
under section 6511 for filing the claim for refund began on ---------------------------, when
the Taxpayer timely filed its original Form 1120 for -------, or ---------------------------, when
the Taxpayer timely filed its superseding Form 1120 for -------.

   II.     ------- Tax Year

         The Taxpayer timely requested an automatic extension to file its ------------

- Form 1120, which extended the due date until October 15, -------. The Taxpayer
requested the extension because it expected to adjust some amounts on its ------------
- Form 1120. Despite the extension, the Taxpayer filed its ------- Form 1120 on -----------
-------, which return showed a loss and refund due of approximately $--- ---------. On ----
-----------------------, before the extended due date, the Taxpayer filed a superseding Form
1120 showing a larger loss and a larger refund, approximately $----- --------. You have
asked whether the three-year statute for assessment under section 6501 should begin
on ------------------, the original filed date for the return, or -----------------------, the date the
superseding return was filed reporting the larger loss.
POSTF-123485-19                               3



LAW AND ANALYSIS

   I.     Relevant Provisions

       Under section 6501(a), the Service must assess additional tax for a given tax
year within three years after “the return” for that year was filed. Under section 6511(a),
a taxpayer must file a claim for refund of any tax within three years from the time “the
return” was filed or two years from the time the tax was paid, whichever period expires
later. These statutes are ambiguous, however, as to which return is “the return” for
purposes of the statutes of limitation when more than one return has been filed.

        If both returns are filed before the original due date, this ambiguity has no effect
on when the statute of limitations begins because a return filed before the last day
prescribed for filing is deemed filed on the last day. See I.R.C. §§ 6501(b)(1) and
6513(a). Thus, in that situation, regardless of which return is “the return,” the statute will
begin on the original due date for the return. But a return filed on extension is treated
as filed on the day it is received. See, e.g., First Charter Financial Corp. v. United
States, 669 F.2d 1342 (9th Cir. 1982) (finding that return filed during automatic
extension period was filed when received for purposes of statute of limitation on
assessment). So where the first return is filed before the last date prescribed for filing
(original or extended), and a second return is subsequently filed during the extension
period, the statute would begin running on different dates, depending on which return is
“the return” for purposes of section 6501(a) or 6511(a).

        Two related cases, Zellerbach Paper Co. v. Helvering, 293 U.S. 172 (1934) and
National Paper Products Co. v. Helvering, 293 U.S. 183 (1934), and Haggar Co. v.
Helvering, 308 U.S. 389, (1940), are relevant to this discussion. We conclude that
Zellerbach requires that the original return, not the superseding return, starts the
limitations periods under both sections 6501 and 6511, and that Haggar is
distinguishable. These cases will be analyzed first in the context of the statute of
limitations for assessment under section 6501 and then in the refund context under
section 6511.

   II.    Statute of Limitations for Assessments under Section 6501

       Under Zellerbach and National Paper, the original return, not the superseding
return, starts the period of limitations for assessment under section 6501. In these two
related cases, the issue before the Supreme Court was substantially the same, but the
facts were slightly different. In both cases, new statutes were enacted after two
companies had already timely filed their tax returns. Each statute affected income tax
and was effective retroactively. In response to the new law, “[National Paper] filed an
additional return, supplementing the original one by a statement of the additional taxes
due.” Nat’l Paper, 293 U.S. at 186. Zellerbach Paper, on the other hand, “did not make
a new or supplemental return correcting the computation in the one on file.” Zellerbach,
POSTF-123485-19                                         4

293 U.S. at 175. In both cases, the Commissioner issued a notice of deficiency after
the limitation period for assessment had run from the original returns’ filing date.

        The taxpayers argued that the notices of deficiency were untimely. The
government’s position was that, since the original returns did not incorporate the
changes under the statute, the original return in both cases was a nullity, so the statute
of limitations on assessment had not begun to run with the filing of the original returns.
The Court disagreed. Discussing what is now known as the Beard test, the Court found
the original returns filed by both Zellerbach Paper Company and National Paper met
that test and started the statute of limitations for assessment. Thus, the notices of
deficiency were untimely.

        The court disagreed with the government’s argument that starting the period of
limitation for assessment with the original return unfairly curtails the government’s time
for audit and assessment:

        [A] second return, reporting an additional tax, is an amendment or
        supplement to a return already upon the files, and being effective by
        relation does not toll a limitation which has once begun to run. . . .
        Supplement and correction in such circumstances will not take from a
        taxpayer, free from personal fault, the protection of a term of limitation
        already running for his benefit.

Id. at 180.2 In coming to this conclusion, the Zellerbach Court deemed a loss of four
months for audit insignificant, Id. at 181, and it apparently did not find a loss of ten
months alone to be a factor that would change its decision in National Paper. Nat’l
Paper, 293 U.S. at 185.

        The Court found the idea of tolling the statute due to a supervening change in the
law particularly unfair to the taxpayer. Its reasoning, however, applies more broadly to
all situations where an amended return is filed. For example, in Badaracco v.
Commissioner, 464 U.S. 386 (1984), the Supreme Court held that the later filing of a
non-fraudulent amended return, after the filing of a fraudulent return, cannot reinstate
the general three-year limitations period and terminate the indefinite limitations period
under section 6501(c)(1). Badaracco, 464 U.S. at 393–94 (“Thus, when Congress
provided for assessment at any time in the case of a false or fraudulent ‘return,’ it plainly
included by this language a false or fraudulent original return. . . . It is established that a
taxpayer who submits a fraudulent return does not purge the fraud by subsequent


2 Zellerbach is cited for the proposition that a second return does not restart the limitations period, despite

the fact that the taxpayer in Zellerbach did not file a second return. This is because the Court explained
its reasoning on this issue in its Zellerbach opinion and then just referred back to that reasoning in its
National Paper opinion. See Nat'l Paper, 293 U.S. at 186 (“For reasons stated in our opinion in
[Zellerbach], the period of limitation began to run on the filing of the first return, and a return for additional
taxes, even if filed afterwards, was an amendment or supplement which did not toll the statute.”)
(emphasis added).
POSTF-123485-19                                       5

voluntary disclosure; the fraud was committed, and the offense completed, when the
original return was prepared and filed.”)

        In reaching its conclusion, the Court rejected the taxpayers’ argument that, under
Zellerbach, a “repentant” return terminated the indefinite limitations period, stating, “The
[Zellerbach] Court held that an original return, despite its inaccuracy, was a ‘return’ for
limitations purposes, so that the filing of an amended return did not start a new period of
limitations running.” Badaracco, 464 U.S. at 397. And it further noted, relying on
Zellerbach and other cases, that “[i]t thus has been consistently held that the filing of an
amended return in a nonfraudulent situation does not serve to extend the period within
which the Commissioner may assess a deficiency.” Id. at 393 n. 8 (emphasis added).3

        Badaracco recognized that Zellerbach applies to any case involving amended
returns. Thus it is a natural extension that Zellerbach apply to superseding returns filed
during an extension period as well. Nothing in the Zellerbach opinion limits its holding
to amended returns, nor does it differentiate between second returns filed before or
after the deadline for filing. Rather, the Court refers to “a second return, reporting an
additional tax,” that is, “an amendment or supplement to a return already upon the files,”
a definition that would encompass both amended returns and superseding returns.

        The reasoning of Zellerbach also applies with equal force to superseding returns
filed on extension. In both superseding- and amended-return situations, if the second
return were to restart the limitations period, the taxpayer would lose the protection of the
assessment statute for the period between the dates the two returns were filed. This is
unfair to the taxpayer and thwarts the purpose of the statute of limitations,4 which, in the
tax context, is “to cut off rights that might otherwise be asserted . . . .” See Kavanagh v.
Noble, 332 U.S. 535, 539 (1947) (citing Rosenman v. United States, 323 U.S. 658, 661
(1945)), reh'g denied, 333 U.S. 850 (1948). This purpose is served best when the
original return starts the period of limitations.

       The loss of time to audit the superseding return, even if the superseding return
were filed at the end of a six-month automatic extension period, does not influence our
conclusion that an original return, despite its inaccuracy, is the return for purposes of
the statute of limitations on assessment, and the filing of a superseding return during an


3 The Badaracco opinion referred to, and was consistent with, an extensive body of law cited for the

general proposition that an amended return is a nullity for most purposes (apart from refund claims). See,
e.g., J.E. Riley Investment Co. v. Comm’r, 311 U.S. 55 (1940) (an election required to be made on a
"return" generally cannot be made or modified on an amended return); Koch v. Alexander, 561 F.2d 1115
(4th Cir. 1977) (A taxpayer cannot create Tax Court jurisdiction by filing an amended return reflecting a
decrease in tax); Plunkett v. Comm’r, 41 B.T.A. 700, (1940) [CCH Dec. 11,045], aff'd, 118 F.2d 644
(1st Cir. 1941) [41-1 USTC ¶9373] (The filing of a correct amended return does not cure an earlier
defective filing so as to avoid the penalty for failure to file). Because this line of cases involves amended
returns, it is distinguishable from cases that involve superseding returns, like the cases at hand, and
should not apply to them.

4 Courts consult a statute’s purpose when, as here, the text (“the return”) being interpreted is ambiguous.
POSTF-123485-19                               6

extension period does not restart the period of limitations. See Zellerbach and National
Paper (Court was unmoved by losses of four and ten months, respectively).

       Haggar Co. v. Helvering, 308 U.S. 389, (1940), does not require a different
conclusion. In Haggar, for purposes of a new capital stock tax, the taxpayer was
required to declare the value of its stock on what the statute referred to as the "first
return." The taxpayer could declare any value of capital stock for its first taxable year,
but the declared value for the first year was a controlling factor for the computation of
excess profits tax for later years. The statute provided that the declaration once made
could not be amended.

       On a timely filed return, Haggar mistakenly reported the par value, as
distinguished from actual value, of its issued capital stock. Before the due date, it filed a
superseding return declaring the actual value. The Commissioner, refusing to accept
the value of the capital stock declared in the superseding return, gave notice of a
deficiency in excess profits tax calculated upon what was declared in the first return.
Noting that the government was not prejudiced, that the purpose of the statute was not
thwarted, and that there was a longstanding administrative practice of accepting
superseding returns in other contexts, the Court observed:

       "First return" thus means a return for the first year in which the taxpayer
       exercises the privilege of fixing its capital stock value for tax purposes,
       and includes a timely amended return for that year. A timely amended
       return is as much a "first return" for the purpose of fixing the capital stock
       value in contradistinction to returns for subsequent years, as is a single
       return filed by the taxpayer for the first tax year.

Haggar, 308 U.S. at 395–96.

         Over the years, Haggar has come to stand for the proposition that a superseding
return, whether filed on extension or not, is effective for most purposes. For example,
courts have held that many elections required to be made on a timely return can be
made or changed on a superseding return. See, e.g., National Lead Co. v.
Commissioner, 336 F.2d 134 (2d Cir. 1964) (inventory accounting relief provision);
Charles Leich & Co. v. United States, 329 F.2d 649 (Ct. Cl. 1964) (excess profits tax
election); Wilson v. United States, 267 F. Supp. 89 (E.D. Mo. 1967) (partnership tax
year); Cf. J.E. Riley Investment Co. v. Comm’r, 311 U.S. 55 (1940) (“[Haggar] would
compel the conclusion that had the amended return been filed within the period allowed
for filing the original return, it would have been a first return [for purposes of determining
percentage depletion election] . . . .”) (citations omitted).

       In addition, the Service has applied Haggar in the penalty context. See, e.g.,
Rev. Rul. 78-256, 1978-1 C.B. 438 (holding that the “tax shown on the return” refers to
the amount shown on a superseding return, not the original return, for purposes of
calculating the estimated tax underpayment penalty in section 6655); Rev. Rul. 83-36,
POSTF-123485-19                               7

1983-1 C.B. 358 (applying Haggar to the estimated tax underpayment penalty for
individual taxpayers in section 6654).

         Nonetheless, Haggar does not compel a conclusion that a superseding return is
“the return” for purposes of the statute of limitations. It has never been applied in that
context; nor should it be because the purpose of the statute of limitations is distinct from
the purpose of the statute in Haggar and from the purposes of the statutes covering
elections and penalties to which Haggar has been applied. While Haggar has been
applied to statutes aimed at determining what substantively is included in the return, the
statute of limitations is a mechanical rule with the purpose of cutting off rights, as
discussed above. Furthermore, Haggar does not conflict with Zellerbach. A
superseding return modifies or supersedes an original return under Haggar and still
relates back to the date of the original return for timing purposes under Zellerbach.
Zellerbach recognizes that a second return, although it does not restart the limitation
period, is still “an amendment or supplement to a return already upon the files, and . . .
[is] effective by relation.” Zellerbach, 293 U.S. at 180; see also Wilson, 267 F. Supp.
at 91 (suggesting that the question Haggar addresses is “whether or not an amendment
is part of a first return”) (emphasis added); Barber v. Comm’r, 64 T.C. 314, 317 (1975)
(noting that if the amended return had been timely filed, then under Haggar, “[the
amended] return might then be treated as part of the original return”).

   III.   Statute of Limitations for Claims for Refund under Section 6511

        Zellerbach and National Paper also support the conclusion that the original
return, not the superseding return, starts the period of limitations for claims for refund
under section 6511. For example, Zellerbach has been applied to cases involving
issues of whether amended returns restart the period of limitations for claims for
refunds. See, e.g., Kaltreider Construction, Inc. v. United States, 303 F.2d 366, 368 (3d
Cir.), cert. den., 371 U.S. 877 (1962) (rejecting taxpayer’s argument that the statute in
section 6511 began at the time the “amended return” was filed because “[t]he language
of the Supreme Court in [Zellerbach] is directly in point.”); Rev. Rul. 72-311, 1972-1 C.B.
398 (citing Kaltreider in holding that the “return” referred to in section 6511 is the original
return and not an amended return); see also Adams v. I.R.S., No. 2:13-CV-04525-CAS,
2014 WL 457915, at *3 (C.D. Cal. 2014); Chaney v. United States, 45 Fed. Cl. 309,
314–15 (1999); Mertens v. United States, 12 Cl. Ct. 678, 679 (1987); but see Greene v.
United States, 191 F.3d 1341, 1343–44 (Fed. Cir. 1999) (holding the statute of
limitations for seeking refund began to run upon filing of an amended return;
distinguishable because the tax liability at issue was not required to be shown on the
original return and could not be known until at least two years after the taxable year
ended)

        Similar to the 6501 context, Zellerbach also applies when the second return filed
is a superseding return filed on extension. The opinions that apply Zellerbach as
support for holding that an amended return does not restart the limitations period under
6511 discuss the general principle that all statutes of limitations involve hardship and it
is not the court’s role to alleviate that hardship. See Kaltreider, 303 F.2d at 368–69
POSTF-123485-19                                   8

(“Statutes of limitation frequently involve some hardship, but alleviation of that hardship
is matter of policy for Congress.”); Chaney, 45 Fed. Cl. at 317 (“Statutes of limitations
are established to cut off rights, justifiable or not, that might otherwise be asserted and
they must be strictly adhered to by the judiciary.”) (citations omitted).

       The hardship faced by taxpayers in the section 6511 refund limitation period
context is the same regardless of whether the second return is an amended return or a
superseding return. In both instances, the statute begins running with the original
return. The Service faces the same hardship, as discussed above, in the context of the
assessment statute of limitations under 6501. Enacting these sections at the same
time, Congress created time periods that run concurrently, and treating superseding
returns differently under each section would thwart these concurrent periods by starting
the periods at different times. Thus, a court considering this issue under section 6511
would likely find that Zellerbach requires the statute of limitations for claims for refund to
start when the original return is filed, not when the superseding return is filed.

       Haggar can again be distinguished in the same ways discussed above in the
context of section 6501. A superseding return can be effective in modifying the original
return by relating back to and becoming part of the original return, under Haggar,
without tolling the period of limitations for claims for refund, in line with Zellerbach.
Moreover, the purpose of the statute of limitations supports interpreting the ambiguous
term, “the return,” in section 6511 to mean the original return.


CONCLUSION

         For tax year -------, the statute under 6511(a) for filing a claim for refund began
when the original return was filed on ---------------------------. Thus, the statute expired on
---------------------------, and the claim for refund filed on ---------------------------, is barred
because it was late.

         For tax year -------, the Service should use the filing date of the original return, ----
-------------------, as the beginning of the statutory period for assessment under section
6501(a).




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