Refund Claims Dismissal on Statute of Limitations’ Grounds Affirmed

The U.S. Court of Appeals for the Federal Circuit has affirmed the Court of Federal Claims’ dismissal of a multinational corporation’s refund claims for tax years 1997 and 1998 based upon disallowed foreign tax credits attributable to the corporation’s payment of Belgian withholding taxes.  [Albemarle Corp. & Subsidiaries v. United States, 2015 U.S. App. LEXIS 14174 (Fed. Cir. Aug. 13, 2015)]. Subject matter jurisdiction was lacking because claims for tax years at issue were not filed within the 10-year statute of limitations period under IRC Section 6511(d)(3)(A).

At issue were foreign tax credits attributable to withholding taxes paid to Belgian tax authorities in 2002 as part of an agreement for withholding taxes owed on interest payments made by the corporation’s Belgian subsidiary to the corporation from 1997 through 2001.

The corporation filed its income tax return for tax year 2002 on May 15, 2009. The IRS allowed the corporation’s refund claims for 1999, 2000, and 2001, but the IRS disallowed the corporation’s claims for 1997 and 1998, determining that the 1997 and 1998 claims were not filed within the 10-year statute of limitations period.  The IRS determined that the corporation’s 1997 refund claim should have been filed on or before March 15, 2008, and that its 1998 refund claim should have been filed on or before March 15, 2009.  Noting that IRC Section 6511(d)(3)(A) was amended materially in 1997, the court examined both the pre-1997 and post-1997 versions of the statute, analyzing the 1997 refund claim through the lens of the pre-1997 version of the statute, and assessing the 1998 refund claim through the prism of the post-1997 version.

1998 refund claim. The post-1997 version of IRC Section 6511(d)(3)(A) provides:

If the claim for credit or refund relates to an overpayment attributable to any taxes paid or accrued to any foreign country or to any possession of the United States for which credit is allowed against the tax imposed by subtitle A in accordance with the provisions of section 901 of the provisions of any treaty to which the United States is a party, in lieu of the 3-year period of limitation prescribed in subsection (a), the period shall be 10 years from the date prescribed by law for filing the return for the year in which such taxes were actually paid or accrued.

The appellate court noted that the 1998 refund claim centered around the following language in IRC Section 6511(d)(3)(A): “from the date prescribed by law for filing the return for the year in which such taxes were actually paid or accrued”. The corporation argued that “the year in which such taxes were actually paid or accrued” was 2002 – the year in which the disputed foreign tax liability of the corporation had been determined and finalized – and that, accordingly, the 10-year statute of limitations period began to run on its 1998 refund claim in 2003. The IRS, on the other hand, argued that the “year in which such taxes were actually paid or accrued” was 1998 – the year in which the taxes at issue originated – and that, accordingly, the statute of limitations period began to run on the 1998 refund claim on March 15, 1999. The lower court agreed with the IRS’s argument and held that the 1998 refund claim was beyond the 10-year statute of limitations period.

The appellate court examined the meaning of the phrase the “year in which such taxes were actually paid or accrued” in the statute. In particular, the appellate court analyzed the terms “actually paid or accrued” in the phrase.  The appellate court concluded that Congress intended for the language, “the year in which such taxes were actually paid or accrued”, to refer to the “year of origin of the tax liability in question.” The appellate court also concluded that the corporation’s interpretation that the limitations period in IRC Section 6511(d)(3)(A) started to run only after contested liabilities have been finalized was contrary to the statute’s purpose and agreed with the IRS’s contention that the “limitations period should be measured with reference to the year of origin for such taxes”.  Accordingly, the appellate court concluded that the 10-year statute of limitations period for filing the refund claim for the 1998 withholding taxes started to run on March 15, 1999, which the court noted was “the date prescribed by law for filing the return for” the 1998 tax year.

1997 refund claim. With respect to the corporation’s 1997 refund claim, the appellate court looked at the pre-1997 version of the statute. The appellate court noted that under the pre-1997 version of the statute, the 10-year statute of limitations period began to run on the date “prescribed by law for filing the return for the year with respect to which the [refund] claim is made”. The appellate court determined that for purposes of the statute such year was 1997. The appellate court determined that the 10-year statute of limitations period began to run on the corporation’s 1997 refund claim on March 15, 1998, which was the due date for filing the return for tax year 1997, and that, therefore, the corporation’s refund claim made on May 15, 2009, for the 1997 taxes was time-barred.

RELATED LINKS: 

• "Federal Circuit Affirms Dismissal of Untimely FTC Refund Claims," taxanalysts®Tax Notes Today, August 14, 2015.