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Court Rejects Refund Claims from NOL Carryforwards Carrybacks.
(Parker's Federal Tax Bulletin: August 6, 2013)

A couple's claims for refunds based on net operating loss carryforwards and carrybacks were dismissed because the refund claims were untimely and the mitigation provisions did not apply to extend the statute of limitations for filing the refund claims. Hall v. U.S., 2013 PTC 201 (Fed. Cl. 7/12/13).

Raleigh Hall and Margaret Hall were the sole shareholders of R.W. Hall General Contractors, Inc., an S corporation. In 2007, they filed amended returns and sought to apply several years of accumulated net operating losses (NOLs) from years 1988 through 2001 forward to reduce their 2003 taxable income. The IRS denied their refund claim and the couple filed suit in 2010. The IRS told the Halls that when deducting the NOLs, the couple was required to apply the losses first as a carryback unless a timely waiver was elected. In finding that Raleigh and Margaret did not timely elect to waive the carryback periods for the NOLs, a court granted an IRS motion for summary judgment and dismissed the couple's complaint. In 2011, Raleigh and Margaret filed new refund claims for 1992, 1995 and 1997.

After those claims were denied, the couple filed suit and maintained they were entitled to refunds under the statute of limitations mitigation provisions of Code Sec. 1311 through Code Sec. 1314. The IRS asked the court to dismiss the complaint.

Under Code Sec. 6511(a), the statute of limitations for filing a tax refund claim is the later of (1) three years from the time the return is filed, or (2) two years from the time the tax was paid. For net operating loss carrybacks, Code Sec. 6511(d)(2)(A) provides that a refund claim must be filed within three years of the date on which the return was due to be filed, including extensions, for the tax year of the NOL that resulted in the carryback.

The IRS argued that the 1997 NOL carrybacks were time-barred because the refund was claimed more than six years after the return for the year at issue was required to be filed. The 1992 and 1995 NOL carryforwards, the IRS said, were time-barred because the refund claims were filed more than three years from the date the returns were required to be filed.

The Court of Federal Claims held that Raleigh and Margaret's claims for refund based on the NOL carryforwards and carryback were time-barred because they were filed after the applicable statute of limitations period had expired. The court noted that, for the mitigation provisions to apply, three threshold requirements must be met: (1) There must be a determination; (2) the determination must fall within one of the circumstances of adjustment in Code Sec. 1312(1) through (7); and (3) either an inconsistent position must have been maintained by the party against whom the mitigation will operate, or the correction of the error must not have been barred at the time the party for whom mitigation will operate first maintained its position. The court agreed that a final determination was made in the couple's 2010 suit, and the first requirement was met. However, in rejecting the couple's argument that their inability to carry back the NOLs operated as a double tax to engage the mitigation provisions, the court found that there was no circumstance of adjustment, and the couple first maintained their position regarding the NOLs after the 1992, 1995 and 1997 tax years were closed. Therefore, the couple did not meet all three requirements of the mitigation provisions and were not eligible to reopen the statute of limitations.

For a discussion of the statute of limitations period for net operating loss carrybacks, see Parker Tax ¶261,180.

Parker Tax Publishing Staff Writers


Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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