United States: Court Weighs In On Deadline For Filing FTC Refund Claims

On September 19, 2014, the U.S. Court of Federal Claims issued its opinion in Albemarle Corp. v. United States, No. 12-184T, holding that it lacked jurisdiction over the taxpayer's claim for refunds based on foreign tax credits because such claims were not timely made with the Internal Revenue Service (IRS).  The 49-page opinion provides a detailed discussion of the rules under IRC § 6511(d)(3)(A) relating to the period of limitation for filing a claim with respect to foreign taxes paid or accrued, but its analysis and result are questionable.

Generally, a claim for credit or refund of overpayments of tax must be filed by the taxpayer within the later of three years from the time the return was filed or two years from the time the tax was paid.  For claims relating to an overpayment attributable to taxes paid or accrued to a foreign country, Internal Revenue Code (IRC) § 6511(d)(3)(A) extends this period to "10 years from the date prescribed by law for filing the return for the year in which such taxes were actually paid or accrued."  Prior to its amendment in 1997, the statute required that such claim be made within 10 years from the date prescribed by law for filing the return for the year with respect to which the claim was made.

In Albemarle, the taxpayer reached a settlement with the Belgian tax authorities in 2002 relating to its 1997 – 2001 tax years.  As a result of the settlement, the taxpayer made payments of additional tax to Belgium on January 31, 2002, and August 29, 2002.  On May 15, 2009, the taxpayer filed a refund claim related to its 1997 – 2001 tax year.  The IRS permitted the refund claims for the 1999 – 2001 tax years, but denied the 1997 and 1998 claims on the ground that they should have been filed on or before March 15, 2008 and 2009, respectively.  In other words, the IRS read IRC § 6511(d)(3)(A) as requiring that any refund claims be filed within 10 years from the date the tax return for these years were due, without extension (the returns were filed on September 15, 1998 and 1999, respectively).  The IRS's "without extension" position is based on its regulations, even though the statute does not contain this language and extensions are automatic if properly requested.  The court did not address this issue, instead focusing on the year during which the statute began to run rather than the particular date within the year.  The taxpayer argued that the plain language of the statute allowed a claim for refund to be filed within 10 years from the date the payment was made (i.e., 10 years from 2002), not the date the return was filed.

The Court of Federal Claims went to great lengths to set forth the applicable procedural and substantive law, perhaps conscious that its opinion might be appealed to the U.S. Court of Appeals for the Federal Circuit.  After stating the law, the court discussed the parties' agreed position that the accrual of foreign taxes for purposes of the foreign tax credit is based on the all events test.  Under a three-prong test, the all events test is met when:  (1) all events have occurred which determine the fact of liability; (2) the amount of the liability can be determined with reasonable accuracy; and (3) economic performance has occurred.  The court found that there was no dispute because the taxes were contested, the all events test was not met until 2002, when the contest was resolved.  This conclusion is supported by numerous long-standing authorities, including Rev. Rul. 58-55, 1958-1 C.B. 266, which holds that contested foreign taxes cannot actually be accrued "until the contested liability is finally determined," although such taxes ultimately "relate back" to the year from which the liability arose.  Notably, however, the court's analysis of the third prong is confusing in that it discussed arguments related to whether the transaction that gave rise to the contest foreign taxes had economic substance.  It appears that the court may have confused the timing concept of economic performance with the substantive concept of economic substance.

The court next discussed the parties' competing arguments on whether the relation-back doctrine applied, requiring that the 2002 payments be treated as if they were paid or accrued on the date the 1997 and 1998 returns were due.  The taxpayer argued that the plain meaning of the phrase "year in which such taxes are actually paid or accrued" meant the year in which the taxes accrued in fact, not the year in which the taxes accrued under a legal fiction (i.e., the relation-back doctrine).  This argument is compelling, as Congress purposely inserted the word "actually"—which modifies both paid and accrued—and made no mention of the relation-back doctrine in the statute.  The government responded that the statute was ambiguous, but, even if clear, the taxpayer's reading would create a bizarre result of the same foreign tax liability accruing on two different dates. 

The court, without any explanation, concluded that the pertinent phrase was not clear from the face of the statute and proceeded to the legislative history.  It did not attempt to employ dictionary definitions or look to other sections of the IRC that might contain similar provisions—two common tools employed by courts in statutory construction cases.  Relying primarily on the portion of the legislative history indicating that the 1997 amendment was intended to overrule the Court of Federal Claims' prior opinion in Ampex Corp. v. United States, 620 F.2d 853 (Ct. Cl. 1980) that, under the pre-1997 version of the statute, a claim for refund attributable to foreign taxes filed within 10 years of the date a return claiming carryovers of tax credits from earlier years was timely, even though more than 10 years passed from the date of the returns for the earlier years.  Based on the legislative history, the court held that 1998, not 2002, was the proper year for judging whether the 10-year limitations period had expired with respect to the refund claim for 1998.  The court noted that the U.S. Court of Appeals for the Sixth Circuit, in Chrysler Corp. v. Commissioner, 436 F.3d 644 (6th Cir. 2006), an opinion involving the pre-1997 version of the statute, had disagreed with Ampex.

Regarding 1997, the court rejected the government's convoluted effective date argument that when Congress amended the statute to apply effective for tax years beginning on or after August 5, 1997 (the taxpayer's 1997 tax year began on January 1, 1997), it meant the change impacted ongoing tax years.  Without discussing the rationale of its earlier opinion in Ampex, the court applied the relation-back doctrine and cited the Sixth Circuit's opinion in Chrysler Corp.

Again, perhaps sensing that its opinion would be the subject of further review, the court looked at the taxpayer's subjective actions and took it to task for waiting until 2009 to file its refund claims.  It brushed aside the taxpayer's reasons for the delay, essentially finding that the taxpayer was at fault for waiting this extra time.  This analysis, which should be viewed as dicta, is troubling because there is no room in IRC § 6511(d)(3)(A) for subjective inquiries into the taxpayer's state of mind for when it files its refund claims.  Compounding the problem, the court noted that the taxpayer's "plight might have generated more sympathy" if, through no fault of its own, the foreign tax dispute was not settled until more than 10 years after the return was filed.

It remains to be seen whether the taxpayer will appeal the Court of Federal Claims' decision to the Federal Circuit.  The opinion's analysis is questionable on several points and presents legal issues that would be reviewed de novo, without any deference to the judge's fact findings.  If an appeal is filed, taxpayers in a similar situation may want to wait and see how the Federal Circuit reacts, assuming that they are not subject to any deadline for filing suit in court.  If no appeal is made, taxpayers seeking to litigate their issue should carefully consider whether to file suit in local district court to avoid the negative precedent in the Court of Federal Claims.  Although an opinion of one judge from that court is not binding on another judge of the court, it may be more difficult to convince the second judge to depart from the Albemarle opinion.  Taxpayers should also consider filing protective refunds claims in situations where it does not appear that a tax payment to a foreign jurisdiction will actually be made (and there will be enough time to file a formal refund claims with the IRS) within 10 years from the date the U.S. return was filed.

Court Weighs In On Deadline For Filing FTC Refund Claims

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions