IRS REFUNDS DOES YOUR COMPANY HAVE ONE COMING?

Transcription

1 IRS REFUNDS DOES YOUR COMPANY HAVE ONE COMING? Feb. 24,

2 RSM US LLP. All Rights Reserved.

3 Today s speakers Patti Burquest Principal Leads the IRS Controversy practice within RSM s Washington National Tax office David Click Director Member of RSM s National Office of Risk Management and an adjunct professor at Bentley College 2 2

4 IRS REFUNDS DOES YOUR COMPANY HAVE ONE COMING? Feb. 24,

5 Agenda Topics Minutes Carryback claims Form 1139 or Form 1120X? 15 Quick refunds of excess estimated payments (Form 4466) Refund claims to correct errors or to protect future claims Statute of limitations issues impacting carryback claims, amended returns and refund claims

6 Learning objectives At the conclusion of this course participants will be able to: Identify deadlines for filing certain refund claims State options available to taxpayers when an IRS examination identifies an error that may result in a refund Identify the special procedures that apply to corporate refund claims of $5,000,000 or greater Assess the benefits for filing a carryback claim using Form 1139 or Form 1120X Identify ways that a corporation may use Form

7 CARRYBACK CLAIMS Form 1139 or Form 1120X? 6

8 Tentative refund of a carryback for corporations Form Basic rules: Tentative carryback refund Section 6411 allows for a quick tentative refund of taxes resulting from an NOL, net capital loss, or unused general business credit under section 38 Generally paid within 90 days of filing; interest accrues if not paid within 45 days Filing deadline one year from the loss/credit year end Refunds are made prior to an IRS examination or Joint Committee on Taxation (JCT) review The refund can be offset by outstanding deficiencies

9 Tips for quick processing of carryback refund Form 1139 must be filed within one year of the loss year end (Dec. 31, 2015 for calendaryear 2014 losses) Form 1139 can be rejected if not complete or it does not agree with IRS records Obtain transcript of account for carryback years Check IRS accounts to ensure no surprise refund freezes or potential offsets before you file Include relevant forms from the loss year return For refund >$1 million, include Form 8302 ACH or FedWire 8

10 Carryback claims for NOLs, credits and capital losses for corporations - Form 1120X Must be filed within three years from the time the original return was filed or two years from the time the tax was paid Unlike with Form 1139, there is no requirement that the IRS pay the refund until it determines that there is an overpayment Refunds are paid after examination and JCT review, if applicable If carryback claim is denied or adjusted, can request Appeals consideration Statute of limitations to file refund suit is two years from the date of denial of the Form 1120X The refund can be offset against other deficiencies 9

11 Tips for preparing a carryback refund via Form 1120X Limit the adjustment items to only the carryback items 10 Don t use the carryback claim to also adjust other items File a separate Form 1120X for non-carryback adjustments either before or after the carryback claim Support the carryback claim with Form 1120 items specifically relating to the carryback Pages 1 and 2 of loss return for NOL Form 3800 for general business credit carrybacks Form 6251 for alternative minimum tax adjustments Schedule D/Form 4797 from loss return, if applicable For refund >$1 million, include Form 8302 ACH or FedWire

12 Form 1139 v. Form 1120X which is better? It depends Form 1139 Pay first/examine later After 45 days, interest accrues from the return due date of the loss/credit year until paid Assessment statute controlled by loss/credit year, but assessments can cover any item in the carryback year up to the amount of the refund paid via Form 1139 Exposure items in carryback year that are unrelated to the carryback may be at risk of assessment of tax until statute of limitations for the loss/credit year expires Subject to JCT review after the refund has been paid Form 1120X Examine first/pay later After 45 days, interest accrues from the return due date of the loss/credit year until paid Assessment statute controlled by loss/credit year, but assessments are limited to adjustments to the carryback items if the statute for the carryback year is closed The IRS can adjust the refund for exposure items in the carryback year or adjust the carryback items until the statute of limitations of the loss/credit year expires Subject to JCT review before the refund is paid 11

13 QUICK REFUNDS OF EXCESS ESTIMATED PAYMENTS Form

14 Quick refund of estimated taxes for corporations Form 4466 Excess estimated taxes can be refunded by filing Form 4466 after the close of the year but before the return due date Payment in 45 days from filing No interest is paid Penalty for excessive refund (section 6655(h)) Refund timing issues for February and March filings 13

15 Timing for Filing Form 4466 Although the due date is March 15 for calendar-year corporations, the processing time depends on IRS workload If filing after Feb. 15, the processing time of 45 days may delay the refund until after April 1 Consider whether the refund will be quicker if the Form 1120 is filed, claiming the excess overpayments as a refund No interest on the Form 4466 refund v. interest on the Form 1120 refund if paid after 45 days of filing Refund amounts can be designated to specific liabilities at the direction of the taxpayer Example: Amended return with additional tax is going to be filed for 2013 The Form 4466 refund from 2015 can be applied to the 2013 account in anticipation of the amended return and liability 14

16 REFUND CLAIMS TO CORRECT ERRORS OR PROTECT FUTURE CLAIMS 15

17 Amended returns to correct errors Form 1120X What should you do if you discover an error on your Form 1120? Prepare Form 1120X to correct the error If a refund is due, ensure that the Form 1120X is filed within the statute of limitations period for claims under section 6511 Three years from the date the return was filed Two years from the date tax was paid for the year Provide an explanation of the error to be corrected and supporting schedules to ensure that the IRS understands the nature of the claim and can act upon it 16

18 Amended returns to correct errors What is the IRS required to do when it receives the claim? There is no requirement that the IRS act upon the claim. After six months, the taxpayer can file a refund suit to prosecute the refund claim. If the IRS acts on the claim, it will generally do one of the following: Survey the Form 1120X to determine whether the claim seems reasonable and can be allowed without an examination Examine the return and allow the claim, subject to JCT review, if applicable Examine the return and deny the claim 17

19 Amended returns to correct errors What if the corporation requests a refund in excess of $5 million? The JCT staff must review the refund, generally before it is paid The IRS must prepare a written report for the JCT staff to review for each refund case in excess of the threshold The written report to the JCT is reviewed by the IRS Joint Committee review staff prior to submission; this process can take as long as one year The statute of limitations on assessment is generally required to be extended by agreement (Form 872) to allow the JCT time to review the case and approve the refund 18

20 What if I discover a refund opportunity during an IRS examination? Discuss the error correction with the examination team File an affirmative adjustment with the Large Business and International (LB&I) team within the first 30 days of the examination opening conference New LB&I guidelines suggest that a Form 1120X must be filed after the 30-day period expires File a copy of the Form 1120X with the LB&I team and request that it be included in the examination and examination report 19

21 Protective claims for refund If the resolution of a tax refund is contingent on a future event or decision, a protective claim can be filed to preserve the taxpayer s ability to claim a refund for years that are impacted once the contingency is resolved Example: 20 The outcome of tax litigation in year four may impact a corporation s taxable income in years one through three, allowing for a refund A protective claim can be filed to preserve the corporation s right to the refund for years one through three if filed before the statute of limitations has expired for each of years one through three May also be used when information is not immediately available to quantify the amount of the claim

22 Protective claims (cont.) Components of a protective claim Must be in writing and be signed by the taxpayer Must include identifying taxpayer information, including the name, address and taxpayer identification number Must apprise the IRS as of the nature of the claim in clear terms Must identify the type of tax and the tax years for which a refund is sought Must describe the contingencies affecting the claim 21

23 Protective claims (cont.) The claim should be filed with the IRS campus where the return is normally filed It should clearly be labeled as a protective claim for refund The protective claim should be maintained as a protective claim in the IRS system until the contingency is resolved without the IRS acting on the claim The claim must be perfected once the contingency is resolved File Form 1120X, describe the protective claim for which the contingency has been resolved and attach pertinent documents or information to support the claim The variance doctrine may limit expanding the claim 22

24 Form 843 claims for abatement of tax, penalties or interest Form 843 is used to claim a refund or request abatement of certain taxes, interest, penalties or additions to tax It is not available to obtain a refund of income, estate or gift tax Used generally to obtain an abatement or refund of interest and/or penalties Reasonable cause relief from penalties Correction of IRS interest or penalty computation errors 23

25 STATUTE OF LIMITATIONS ISSUES 24

26 Time to file a refund claim Refund claims shall be filed by the later of Three years from the date the return was filed, or Two years from the date tax was paid 25

27 Example: three years from date of return ABC Corporation files its 2014 corporate tax return on Sept. 10, 2015 ABC later discovers an error on the return that when corrected results in a refund The refund claim needs to be filed on or before Sept. 10,

28 Example: two years from the time tax was paid ABC corporation files its 2013 tax return on Sept.15, 2014 The IRS examines the return and proposes an adjustment If ABC pays the resulting tax deficiency on Oct. 1, 2015, ABC has until Oct. 1, 2017 to file a refund claim to get back the additional tax paid The refund claim does not have to relate to the examined issues 27

29 Filing a refund claim Amount Claim filed within three years: credit or refund is limited to the amount of tax paid during the three years preceding the claim, plus any period of extension that was allowed to file original return Claim not filed within three years: credit or refund is limited to the amount of tax paid during two years preceding the claim No claim filed: credit or refund is limited to amount that would be allowed if claim were filed on date credit or refund is allowed 28

30 Filing a refund claim (cont.) Extension by agreement: time to file refund claim shall not expire until six months after the expiration of an agreement to extend the time for assessment of tax for the same tax period (see Form 872) Credit or refund is limited to the amount of tax paid after the execution of the agreement and before the filing of the claim plus the amount of refund or credit that would have been allowed if a claim had been filed on the date the extension was executed 29

31 Refund claims special situations Bad debts and worthless securities Overpayments resulting from deduction of bad debts or worthless securities may be claimed within seven years of the filing date of the return for the period in which the loss arose or seven years from the date of the return for the period in which the loss may be utilized Foreign tax credits The period for filing a claim for refund or credit based on the application of foreign tax credits is ten years from the filing date of the return for the period during which the foreign taxes were paid or accrued 30

32 What if you file a refund claim and the IRS does not pay? If the IRS denies your refund claim, you may file suit in the appropriate district court or the Court of Federal Claims in Washington Filing a refund claim is a prerequisite to filing a lawsuit The lawsuit must be filed within two years from the date the IRS mails the notice of disallowance The time for filing suit can be extended with Form

33 What if you never hear from the IRS? Is there anything you can do to get your money? If you do not hear from the IRS within six months of filing your refund claim, you can file suit in a district court or in the Court of Federal Claims If you know the IRS will deny your claim, when you file the refund claim, you also can file a Waiver of Statutory Notification of Claim Disallowance (Form 2297) so you can file your refund suit right away 32

34 Contact RSM Patti Burquest Principal David Click Director

35 RSM US LLP. All Rights Reserved.

36 RSM US LLP This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute audit, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. RSM US LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person. RSM US LLP RSM US LLP is a limited liability partnership and the U.S. member firm of RSM International, a global network of independent audit, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and One distinct S. Wacker legal Drive entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other Suite 800 party. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. Chicago, IL RSM and the RSM logo are registered trademarks of RSM International Association. The power of being understood is a registered trademark of RSM US LLP. 35