Can a Louisiana tax credit still reduce tax for a prescribed period, and does an IRS adjustment reopen unrelated issues?

Plain-English summary

Louisiana Revenue Ruling 13-005 addressed two limits involving tax periods whose refund or assessment deadlines had prescribed.

First, a tax credit claimed on a late return could still reduce the tax computed for that period to zero. But if the credit exceeded the tax, the excess overpayment could not be refunded or applied to another period after the refund-or-credit claim deadline expired.

Second, an IRS audit adjustment did not reopen every issue for the same year. Prescription was suspended only for the federal adjustment and only to the extent that adjustment affected Louisiana income tax for that year.

Credit can zero out tax, but excess can be lost

The ruling distinguished a statutory tax credit from the later disposition of an overpayment as a refund or account credit.

When a credit was claimed for a prescribed period, the Department would allow enough of it to eliminate the tax computed for that period. Any remaining amount was subject to a prescription adjustment: no cash refund and no application to a prior or subsequent tax period.

Corporate example in the ruling

A corporation filed its original 2004 income and franchise tax return in 2010. The return showed:

• $3,000 of Louisiana tax; and
• a $5,000 inventory tax credit.

The credit reduced the $3,000 liability to zero. The remaining $2,000 was neither refunded nor carried to another period because the overpayment claim had prescribed.

Federal adjustment opens only the related issue

La. R.S. 47:1623(E) suspended prescription during an IRS audit and until one year after the Department was notified of an agreed federal change.

The ruling read that suspension together with Senate Concurrent Resolution No. 32 of the 1996 Regular Session. It concluded that the extended period applied solely to the federal audit adjustment and only to its effect on Louisiana income tax for the same year.

It did not revive an unrelated credit or refund issue.

Individual example in the ruling

An individual timely filed a 2006 return but omitted a Louisiana Citizens Property Insurance Corporation Assessment credit. After the ordinary period prescribed, a federal revenue-agent-report adjustment reduced the federal income tax deduction and increased Louisiana taxable income and tax.

The taxpayer later tried to claim the unrelated insurance assessment credit. The ruling said the refund request should be disallowed because that credit was not part of the federal adjustment.

Filing and prescription framework

The ruling described Louisiana's general three-year prescription rule and noted that failing to file a required return interrupts prescription. Once a return is filed and prescription begins to run, the reported tax and related charges prescribe under the timing rule stated in La. R.S. 47:1580(C)(1).

For overpayments, La. R.S. 47:1623(A) required a timely claim before the later of the stated three-year period or one year from payment.

What this means for you

Taxpayers with an old unfiled return

A credit shown on the late return could eliminate the tax for that period under the ruling, but do not assume an excess amount will produce a refund or carryforward after prescription.

Taxpayers receiving an IRS adjustment

The federal change extended the Louisiana period only for the corresponding adjustment. It did not create a general opportunity to add unrelated credits or refund claims.

Accountants and tax professionals

Track three separate questions: whether assessment prescription has run, whether the refund or overpayment claim was timely, and whether an issue actually relates to a federal audit change.

Common questions

Q: Was the tax credit itself treated as prescribed?

A: No. The ruling allowed the credit up to the amount needed to reduce the period's computed tax to zero.

Q: Could the taxpayer receive the excess credit as a refund?

A: Not after the overpayment claim period prescribed. The excess also could not be applied to another tax period.

Q: Does an IRS audit reopen the entire Louisiana return?

A: No. The suspension covered only the federal adjustment and its effect on Louisiana income tax for the same year.

Q: Could an unrelated credit be added during the federal-adjustment period?

A: No. The ruling's individual example disallowed a Louisiana insurance assessment credit unrelated to the federal adjustment.

Citations and references

• La. Const. art. VII, section 16 — general three-year tax prescription
• La. R.S. 47:1580(C)(1) — failure to file interrupts prescription
• La. R.S. 47:1621(A) — overpayment definition
• La. R.S. 47:1623(A) — time to claim a refund or credit for an overpayment
• La. R.S. 47:1623(E) — suspension during an IRS audit and after notice of an agreed federal change
• Senate Concurrent Resolution No. 32, 1996 Regular Session — federal-audit suspension limited to related adjustments
• LAC 61:III.101(C) — Revenue Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA Revenue Ruling 13-005

Original ruling text

RPage 1 of 4Revenue Revenue RevenueRRRRevenue Information Bulletin No 01-xxxx Transactions by Roustabouts, “Work as Directed" Service ProvidersrrEVENUErRRR

Revenue Ruling
No. 13 - 005
June 18, 2013
Administrative
Treatment of Tax Credits on Prescribed Periods
Purpose
The purpose of this Revenue Ruling is to determine (1) whether tax credits claimed on prescribed periods are also prescribed and (2) whether federal return adjustments open prescribed periods for issues not related to the federal return adjustment. Analysis/Discussion – Credits Claimed on Prescribed Periods According to La. Const. art. VII, § 16, “Taxes, … shall prescribe in three years after the thirtyfirst day of December in the year in which they are due, but prescription may be interrupted or suspended as provided by law.” As such, taxes generally prescribe or become uncollectible three years after December 31st of the year in which the taxes became due. According to La. R.S. 47:1580(C)(1), “The failure to file any return required to be filed by this Subtitle shall interrupt the running of prescription, and prescription shall not commence to run again until the subsequent filing of such return. Once prescription commences to run, the tax, license, excise, interest, penalty, or other charge which is reported on such return shall prescribe in three years after the thirty-first day of December of the year of the filing of the return. …” As such, the failure to file a return interrupts prescription and prescription does not start to run again until the filing of such return. Likewise, once prescription starts to run, the amount due, including tax, license, excise, interest, penalty, and other charges, reflected on the return will prescribe three years after December 31st of the year that the return was filed. According to La. R.S. 47:1621(A), “For the purpose of this Chapter, “overpayment” means a payment of tax, penalty, or interest when none was due; the excess of the amount of tax, penalty, or interest paid over the amount due; or the payment of a penalty that is later waived or remitted by the secretary, provided that the power of the secretary to refund overpayments shall be as prescribed and limited in this Section.” Also, according to La. R.S. 47:1623(A), “After three years from the 31st day of December of the year in which the tax became due or after one year from the date the tax was paid, whichever is the later, no refund or credit for an overpayment shall be made unless a claim for credit or refund has been filed with the secretary by the taxpayer claiming such credit or refund before the expiration of said three-year or one-year period.” A Revenue Ruling is issued under the authority of LAC 61III.101 (C ). A Revenue Ruling is written to provide guidance to the public and to Department of Revenue employees. It is a written statement issued to apply principles of law to a specific set of facts. A Revenue Ruling does not have the force and effect of law and is not binding on the public. It is a statement of the department's position and is binding on the department until superseded or modified by a subsequent change in statute, regulation, declaratory ruling, or court decision.

Revenue Ruling No. 13-005
Page 2 of 4

It is the Department of Revenue’s position that the use of “refund or credit” refers to the ultimate disposition of an overpayment, either in the form of a refund to the taxpayer or a credit which is applied to a prior or subsequent tax year, and not to the tax credit being claimed, which ultimately results in the overpayment. In such cases, the overpaid accounts would reflect a “prescription adjustment”, which means that, even though an overpayment exists, a refund will not be issued nor will a credit be allowed for prior or subsequent tax periods. Instead, a tax credit will be allowed, up to the amount of tax that has been computed for the period, in order to eliminate or zero out the tax for the period. However, in such a case, a refund would not be issued nor would a credit be allowed for subsequent tax periods. Example A corporate taxpayer fails to file a 2004 Corporation Income and Franchise Tax Return, which is due in 2005. As such, according to La. R.S. 47:1623(A), no refund or credit for an overpayment would be allowed on the 2004 tax period for any returns filed after December 31, 2008. The corporate taxpayer files its original return for the 2004 tax period in 2010. This return reflects a Louisiana tax liability of $3,000 and an inventory tax credit of $5,000. According to the provisions of La. R.S. 47:1621(A) and La. R.S. 47:1623(A), the $5,000 inventory tax credit would be allowed to eliminate or zero out the taxpayer’s tax liability of $3,000. As such, the taxpayer’s tax liability for the 2004 tax period would be reduced to zero. However, the remaining $2,000, that amount remaining after the zeroing out of the taxpayer’s tax liability, would neither be refunded to the taxpayer nor would the taxpayer be allowed a credit for prior or subsequent tax periods. Instead, the taxpayer’s account would reflect a “prescription adjustment”, meaning that even though an overpayment exists, neither a refund nor a credit will be allowed due to the overpayment having prescribed. Analysis/Discussion – Federal Return Adjustments (RARs) According to La. R.S. 47:1623(E), “Provided that where a refund or credit relates to an overpayment of income tax, the running of prescription shall be suspended by means of: … (2) For any period from the time of the commencement of an audit of a taxpayer by the United States Internal Revenue Service until one year from the time the secretary of the Department of Revenue is notified by said taxpayer or the federal government of an agreed change to the taxpayer’s United States income tax return.” As such, prescription is suspended beginning from the date of the commencement of an audit by the IRS until one year from the date that the secretary is notified by either the taxpayer or the IRS that there have been changes made to the taxpayer’s federal income tax return. According to Senate Concurrent Resolution No. 32 of the 1996 Regular Session, “Whereas, Act 316 of the 1980 Regular Session of the Legislature of Louisiana, relative to individual income tax, and Act 16 of the 1986 First Extraordinary Session of the Legislature of Louisiana, relative to corporation income tax, were enacted to provide that state income tax law would conform to federal income tax law with regard to the determination of income and deductions, subject to limited exceptions; and

Revenue Ruling No. 13-005
Page 3 of 4

Whereas, Article VII, Section 16 of the Constitution of Louisiana provides that taxes, except real property taxes, and licenses shall prescribe in three years after the thirty-first day of December in the year in which they are due, but prescription may be interrupted or suspended as provided by law; and Whereas, because the determination of the state income tax is contingent upon the correct computation of the federal income tax, the Louisiana Legislature enacted Act 761 of the 1985 Regular Session to add R.S. 47:1580(B)(2) and (3), relative to prescription of income tax assessments, and Act 245 of the 1991 Regular Session to add R.S. 47:1623(E)(1) and (2), relative to prescription of refunds of overpayments of income tax, in order to suspend the prescription of income taxes for the purpose of incorporating the results of federal audits; and Whereas, it was the intent of the Louisiana Legislature that R.S. 47:1580(B)(2) and (3) and R.S. 47:1623(E)(1) and (2) would allow for the extension of prescription solely for the purpose of incorporating adjustments made pursuant to federal audits; and Whereas, the suspension of prescription until one year after the Department of Revenue and Taxation is notified of federal audit changes allows the department reasonable time to redetermine the state income tax based upon the audited federal amounts; and Whereas, it is the intent of the Louisiana Legislature that confusion be avoided for the future. Therefore, be it resolved that the Legislature of Louisiana does hereby clarify that it intends that R.S. 47:1580(B)(2) and (3) and R.S. 47:1623(E)(1) and (2) suspend the prescription of the income tax solely to the extent of federal audit adjustments made by the United States Internal Revenue Service and only to the extent such federal audit adjustments affect the computation of income tax computed pursuant to Louisiana law, for the same taxable year. Be it further resolved that the Legislature of Louisiana does not intend to affect pending litigation with this Resolution and hereby provides that this Resolution shall have prospective application only. Be it further resolved that a copy of this Resolution shall be transmitted to the secretary of the Department of Revenue and Taxation recommending and requesting that the aforementioned statutes be interpreted and administered in accordance with the intent expressed in this Resolution.” Based upon SCR 32, prescription is suspended solely with respect to the federal audit adjustment and only to the extent that the federal audit adjustment affects the computation of Louisiana income tax for the same tax year. Example An individual taxpayer has individual income tax liability for the 2006 tax year. The taxpayer files a timely return, but does not claim their credit for the Louisiana Citizens Property Insurance Corporation Assessment. Prescription tolls for the 2006 tax year on December 31, 2010. In December 2010, the Department processes a federal RAR adjustment. The only adjustment is to

Revenue Ruling No. 13-005
Page 4 of 4

reduce the federal income tax, thereby increasing Louisiana taxable income and Louisiana tax. In March 2011, the taxpayer files a return claiming the credit for the Louisiana Citizens Property Insurance Corporation Assessment, even though it had nothing to do with the federal RAR adjustment. According to the provisions of La. R.S. 47:1623(E) and SCR 32, the refund request for the taxpayers Louisiana Citizens Property Insurance Corporation Assessment should properly be disallowed as it was not included as part of the federal RAR adjustment. Conclusion It is the Department of Revenue’s determination that credits claimed on prescribed periods are not prescribed and will be allowed, up to the amount of tax that has been computed for the period, in order to eliminate or zero out the tax for the period. It is also the Department’s position that federal adjustments, such as RARs, do not open prescribed periods for issues not related to the federal adjustment. Tim Barfield Secretary