Tribal refund waiver reaches both filing and look-back limits

Plain-English summary

Chief Counsel reconsidered earlier advice about refund claims under the Tribal General Welfare Exclusion Act of 2014. The Act created a one-year waiver for claims attributable to the new exclusion when the normal limitation period was still open on September 26, 2014 but expired during the following year. The new advice treats that provision as an exception rather than a simple filing extension. When its conditions are satisfied, the exception applies both to whether a claim is timely under IRC § 6511(a) and to how much tax falls within the look-back period under § 6511(b)(2). The memorandum explains how to apply that approach to 2011 returns, extensions, filing dates, and payments through three examples.

Ruling snapshot

• Question: Does the Act's one-year refund waiver override only the claim deadline, or also the section 6511 look-back limit on refundable payments?
• Outcome: Advice given that the waiver can apply to both requirements when its statutory conditions are met.
• Key authorities: IRC §§ 139E, 6511, 6513, 7503; Tribal General Welfare Exclusion Act of 2014 § 2(d).

Full text (IRS public release)

           Office of Chief Counsel
           Internal Revenue Service
           Memorandum
           Number: 201636041
           Release Date: 9/2/2016
           CC:PA:01:RLGregory
           POSTU-107509-15

 UILC:     6511.00-00, 6511.01-00

  date:    July 11, 2016

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

  from:    Elizabeth Chirich
           Branch Chief
           (Procedure & Administration)


subject:   Tribal General Welfare Exclusion Act refund questions

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

           LEGEND

           X = -----

           On March 19, 2015, we furnished your office with a memorandum under the above
           subject’s heading, which stated that certain refund claims, although timely filed due to a
           special provision under the Tribal General Welfare Exclusion Act of 2014 (“Act”),1 were
           nonetheless barred by I.R.C. § 6511(b)(2), which limits refund claims to taxes paid
           within the applicable look-back period. Specifically, we concluded that the provision’s
           one-year period applied as an extension to the time to file a refund claim, but the one-
           year period did not also extend the look-back period.

           Currently the Indian Tribal Governments Office has over X claims with respect to the
           2011 tax year that fall into the category of timely filed claim with no amounts available to
           refund under our initial analysis. You have asked us to reconsider our advice on
           whether these claims, discussed more fully below, may be paid or whether the look-

           1
               P.L.113-168, 128 Stat.1884 (Sept. 26, 2014).
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back period overrides the Act with respect to these claims.

We have reanalyzed this issue and now believe that the waiver provision enacted by
Congress applies not as an extension, but instead as an exception, or waiver, when all
requirements are met. Examples where refunds may be paid are shown below.


LAW

I.R.C. § 6511 contains two types of requirements regarding the timeliness of a
refund claim: a filing deadline and a look-back period. Section 6511(a) states the
filing deadline as:

       (a) Period of limitation on filing claim
       Claim for credit or refund of an overpayment of any tax imposed by this
       title in respect of which tax the taxpayer is required to file a return shall be
       filed by the taxpayer within 3 years from the time the return was filed or 2
       years from the time the tax was paid, whichever of such periods expires
       the later, or if no return was filed by the taxpayer, within 2 years from the
       time the tax was paid. Claim for credit or refund of an overpayment of any
       tax imposed by this title which is required to be paid by means of a stamp
       shall be filed by the taxpayer within 3 years from the time the tax was paid.

Section 6511(b) establishes that no refund may be allowed or made unless a
timely claim is filed within the period of limitations, then further establishes two
look-back periods used to determine the amount of paid tax available for refund.
The first look-back period applies when a claim is filed within the 3-year period
referenced in section 6511(a); the second applies to claims filed outside the 3-
year period but otherwise within the alternate, 2-year period allowed in section
6511(a). Section 6511(b) reads as follows:

       (b) Limitation on allowance of credits and refunds
              (1) Filing of claim within prescribed period
              No credit or refund shall be allowed or made after the expiration of
              the period of limitation prescribed in subsection (a) for the filing of a
              claim for credit or refund, unless a claim for credit or refund is filed
              by the taxpayer within such period.
              (2) Limit on amount of credit or refund
                      (A) Limit where claim filed within 3-year period
                      If the claim was filed by the taxpayer during the 3-year
                      period prescribed in subsection (a), the amount of the credit
                      or refund shall not exceed the portion of the tax paid within
                      the period, immediately preceding the filing of the claim,
                      equal to 3 years plus the period of any extension of time for
                      filing the return. If the tax was required to be paid by means
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                    of a stamp, the amount of the credit or refund shall not
                    exceed the portion of the tax paid within the 3 years
                    immediately preceding the filing of the claim.
                    (B) Limit where claim not filed within 3-year period
                    If the claim was not filed within such 3-year period, the
                    amount of the credit or refund shall not exceed the portion of
                    the tax paid during the 2 years immediately preceding the
                    filing of the claim.
                    (C) Limit if no claim filed
                    If no claim was filed, the credit or refund shall not exceed the
                    amount which would be allowable under subparagraph (A) or
                    (B), as the case may be, if claim was filed on the date the
                    credit or refund is allowed.

Congress enacted the Tribal General Welfare Exclusion Act of 2014 on
September 26, 2014. Section 2(a) of the Act amended the Internal Revenue
Code to insert I.R.C. section 139E, which essentially omits from gross income
certain benefits provided by Indian tribes to their members. Section 2(d) of the
Act provides the Act’s effective date and extends the statute of limitations on
refunds or credits, as follows:

      (d) EFFECTIVE DATE.—
             (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.


ANALYSIS

The effective date provisions of the Act are two-fold. First, paragraph (d)(1) provides
that the amendments only apply if the period of limitation on refund or credit under
section 6511 had not expired as of the Act’s enactment date (September 26, 2014).
Paragraph (d)(2) then provides that a refund may be made or allowed if it would have
been timely if filed as of the enactment date, would not normally be allowable before the
end of 1 year from the date of enactment (“1 year period”), and is filed before the close
of the 1-year period beginning on the enactment date of the Act. While the result is
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similar to an extension of the statute of limitations, the Act provision is more correctly
called an exception, not an extension.

The Act’s exception (“exception”) applies only if the requirements are met, and only to
the extent the refund is attributable to the Act’s amendments. The first requirement is
that the period of limitation on refund or credit under section 6511 of the Internal
Revenue Code of 1986 had not expired as of September 26, 2014, the date of
enactment. The period of limitations within section 6511 is found specifically in section
6511(a), and includes multiple periods. A claim is timely filed under section 6511(a) if it
is filed 1) within the later of three years from the date the return was filed or two years
from the time the tax was paid; or 2) if no return was filed, within two years of when the
tax was paid.

Applying the first requirement to section 6511(a), a claim would be allowable if
September 26, 2014 was within three years of the date the return was filed or two years
from the time the tax was paid.

The second requirement is that the period of limitations expires during the period
between September 26, 2014 and September 26, 2015. Therefore, if a claim would
have been timely as of September 26, 2015 or later, then the exception is unnecessary
and does not apply. If a claim is timely filed during the 1-year period without need for a
waiver, then application of the waiver is also not necessary. If, however, a claim that
would have been timely on September 26, 2014 is filed during the 1-year period but
after the normal period of limitations had expired, then it is to be deemed timely if it
would have been timely on September 26, 2014, to the extent the refund is attributable
to the amendment.

After determining whether a claim is timely under section 6511(a), the next step is to
determine the applicable look-back period in section 6511(b). While section 6511(a)
provides whether a claim is timely, section 6511(b) determines the amount available to
be refunded. Section 6511(b) also has multiple provisions.

Section 6511(b)(1) first provides that no refund shall be made or allowed unless the
claim is filed within the period provided by 6511(a). As discussed earlier, if the claim is
only deemed timely under section 6511(a) due to the application of the exception, then
the requirement of section 6511(b)(1) would also be deemed met. Section 6511(b)(2)
then provides the look-back rules. Section 6511(b)(2)(A) applies if the claim is filed
within the 3-year period in section 6511(a); section 6511(b)(2)(B) applies if the claim is
filed within the 2-year period in section 6511(a).

Just as with the analysis for section 6511(a), the exception can apply to the look-back
period if the requirements are met. If the applicable look-back period is found in section
6511(b)(2)(A), then the look-back period should first be determined as of the claim date
and then determined as of September 26, 2014. If the second period (i.e., the period
calculated from September 26, 2014) would provide an additional allowable amount,
POSTU-107509-15                                  5

then that additional amount would be deemed allowable through application of the
provision. If the applicable look-back period is found in section 6511(b)(2)(B), the same
type of analysis would be done. First, allowable amounts would be determined from the
claim date (including amounts paid two years before the date of the claim). Then the
allowable amounts would be determined as if the claim were filed on September 26,
2014. Any additional allowable amounts would be deemed allowable through
application of the provision.

Tax year 2011 returns were due on April 15, 2012. Claims for refunds relating to
returns filed on or before April 15, 2012 were due on April 15, 2015. Therefore, all
claims for the 2011 tax year would have been timely if filed on September 26, 2014, and
the time for filing a claim would have expired before September 26, 2015. Therefore,
any claim filed between April 16, 2015 and September 26, 20152 would fall under the
exception.

Taxpayers who requested and received a six-month extension to file a tax year 2011
return would have had until October 15, 2012 to file the original return. Because the
rule to treat returns filed before the due date as if they were filed on the due date does
not apply during an extension, any return filed on or before September 25, 2012 would
have a period of limitation for claims expiring before September 26, 2015. Therefore, all
taxpayers who filed tax year 2011 returns on or before September 25, 2012 could have
filed a claim on or before September 26, 2015, and could potentially utilize the
exception in the Act.

Taxpayers who filed their tax year 2011 return on or after September 26, 2012 would
normally have a claim filing deadline of September 26, 2015. Therefore, the exception
would not apply to those returns.

The following examples show how to apply the exception using this analysis:

Example 1:
Tax year 2011, no extension requested
Return filed March 14, 2012 reporting a tax liability of $4000
Claim filed September 14, 2015 reporting a corrected tax liability of $2500
Refund requested $1500

Payments: withholding of $3000; with the return (March 14, 2012) $1000

Analysis:
Applying I.R.C. § 6513(a), the original return and all payments are deemed filed and
paid on April 15, 2012. Under section 6511(a), the claim was filed more than three
years from the date of the return and more than two years from the date of payment.

2
 September 26, 2015 was a Saturday. Affected taxpayers had until Monday, September 28, 2015, to file
a claim for refund utilizing the Act’s exception. See I.R.C. § 7503.
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However, utilizing the exception, the taxpayer could have filed a timely claim on
September 26, 2014. Therefore, any claim filed on or before September 26, 2015 may
be considered timely to the same extent as if it had been filed on September 26, 2014.
If it had been filed on September 26, 2014, the claim would have been filed within three
years of the return. Therefore, the claim is deemed timely filed under the 3-year period
and the exception. The applicable look-back period is section 6511(b)(2)(A). Three
years before the claim date was September 14, 2012, and no extensions were
requested to extend that time period. No payments would be available under the rule
without an exception. Utilizing the exception, the look-back is then determined as if the
claim were filed on September 26, 2014. Three years before that date would be
September 26, 2011. As all payments were deemed made on April 15, 2012, all
payments are deemed available under section 6511(b) and the exception.

Example 2:
Tax year 2011; extension granted to October 15, 2012
Return filed October 15, 2012
Claim filed September 1, 2015

Analysis: The claim was filed within the three-year period in section 6511(a) without
need to consider the exception. The look-back period is found in section 6511(b)(2)(A)
and includes the extension period; therefore, there is no need to consider the exception
to the allowable amount.

Example 3:
Tax year 2011; extension granted to October 15, 2012
Return filed June 1, 2012
Claim filed September 1, 2015

Analysis: Section 6513 does not deem a return filed on the extended due date.
Therefore, the claim is not filed within three years of the return or two years of payment.
However, a claim filed on September 26, 2014 would have been within the 3-year
period of section 6511(a). Therefore, utilizing the exception, the claim is deemed to be
filed within the 3-year period. The applicable look-back period is section 6511(b)(2)(A).
The look-back period is three years plus any extensions; therefore, the look-back period
reaches all payments without a need to utilize the exception.

This writing may contain privileged information. Any unauthorized disclosure of this
writing may undermine our ability to protect the privileged information. If disclosure is
determined to be necessary, please contact this office for our views.

Please contact Rachel Gregory at (202) 317-5456 if you have any further questions.