NOL rule does not reopen closed refund period

Plain-English summary

A taxpayer's overpayment was offset against outstanding tax liabilities, then the taxpayer filed amended returns after discovering a deduction that eliminated the original tax and generated a net operating loss. The taxpayer also carried the loss back and sought another refund, filing both claims within two years of the offset payments. Chief Counsel advised that section 6511(d)(2) did not reopen the otherwise closed three-year limitations period under the stated facts. The taxpayer could rely only on the two-year period in section 6511(a). Although the claim was timely under that rule, section 6511(b)(2)(B) limited the refundable amount to tax paid within the applicable lookback period, so part of the claim had to be disallowed.

Ruling snapshot

• Question: Does the special limitations period for an NOL carryback reopen the closed refund period under the stated facts?
• Outcome: advice given
• Key authorities: IRC §§ 6402(a), 6511(a), 6511(b)(2)(B), 6511(d)(2)

Full text (IRS public release)

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ID:      CCA_2017090111150826
UILC:    6402.01-00, 6511.03-02

Number: 201739015
Release Date: 9/29/2017
From:
Sent: Friday, September 01, 2017 11:15:08 AM
To:
Cc:
Bcc:
Subject: 6402-6511 question


Hi. Our response is below. Please contact me if you have any questions.

TP made an overpayment of $------ for -------. The entire amount was offset and applied
to outstanding tax liabilities for ------- and ------- [per IRC 6402(a)] which were $---- and
$------, respectively. TP had overlooked a $------deduction that could have been
claimed on the original ------- return. TP has now filed an amended ------- return (within
2 years of the $------ payment made by offset) that shows the original tax imposed as
completely eliminated by applying $----- of the deduction; and as a result, TP claims a
refund as well as shows a $------NOL. TP also filed an amended return for -------
claiming a refund of $---- generated by a carryback of the $----- NOL; the -------
amended return was filed within 2 years of the $---- payment made by offset.

At issue is whether the period of limitations for --------is opened by IRC 6511(d)(2) which
provides a special period of limitation for a net operating loss?

IRC 6511(d)(2)(A) provides: If the claim for credit or refund relates to an overpayment
attributable to a net operating loss carryback or a capital loss carryback, in lieu of the 3-
year period of limitation prescribed in subsection (a), the period shall be that period
which ends 3 years after the time prescribed by law for filing the return (including
extensions thereof) for the taxable year of the net operating loss or net capital loss
which results in such carryback, or the period prescribed in subsection (c) in respect of
such taxable year, whichever expires later. In the case of such a claim, the amount of
the credit or refund may exceed the portion of the tax paid within the period provided in
subsection (b)(2) or (c), whichever is applicable, to the extent of the amount of the
overpayment attributable to such carryback.

Response: No. IRC 6511(d)(2) operates in lieu of the 3-year period provided in IRC
6511(a) for the year of the NOL, as extended under other subsections of IRC 6511. As
the 3-year period for ------- (which runs from the time the original return is filed) is closed
and, under the facts provided, is not extended, IRC 6511(d)(2) does not apply.
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Therefore, TP may only use the 2-year period provided by IRC 6511(a) and while the
claim is timely, $---- of the claim is disallowed under IRC 6511(b)(2)(B) which limits TP’s
refund to $----. [If the period of limitation was open pursuant to IRC 6511(d)(2), TP
would be allowed the entire $-----(assuming the entire amount is attributable to the
carryback).]