CHIEF COUNSEL: SUPERSEDING RETURN DOESN’T RESTART LIMITATIONS PERIOD FOR ASSESSMENT, REFUND

08 July 2020

Chief Counsel Advice 202026002

Chief Counsel, in a Chief Counsel Advice, has determined that when a “superseding return” is filed, the original return is the “return” that starts the statutory period for assessing the tax due or claiming a refund of an overpayment.

Background—superseding v. amended returns. A superseding return is a return filed after a taxpayer files a return (“original return”) and before the due date (including extensions) for the original return. An amended return is a return filed after an original or superseding return is filed and after the expiration of the filing period (including extensions) for the original return. ( IRS.gov, Amended and Superseding Corporate Returns )

Under Code Sec. 6501(a), the IRS must assess additional tax for a given tax year within three years after “the return” for that year was filed.

Discussing what is known as the Beard test, the Supreme Court found that the statute of limitations for assessment begins to run when a return which meets that test is filed, and a later filed amended return doesn’t restart that limitations period. (Zellerbach Paper Co., (S Ct 1934) 14 AFTR 688; National Paper Products Co., (S Ct 1934) 14 AFTR 693)

To qualify as a “return” under the Beard test, a document must

  1. Purport to be a return;
  2. Be signed under penalty of perjury;
  3. Contain enough information to allow the tax to be calculated; and
  4. Represent an honest and reasonable attempt to satisfy the tax laws. (Beard (1984) 82 TC 766)

Under Code Sec. 6511(a), a taxpayer must file a claim for refund of any overpayment of tax within three years from the time “the return” was filed or two years from the time the tax was paid, whichever period expires later.

Facts. Taxpayer, a calendar-year corporation, obtained an extension to file its Year 1 Form 1120, U.S. Corporation Income Tax Return. Taxpayer filed its Year 1 Form 1120 (“original return”) on September 11, Year 2, four days before the extended due date.

However, Taxpayer made a mistake when filing its original return because in Year 1 it had made an automatic change to its accounting method, but failed to include Form 3115, Application for Change in Accounting Method, with its timely filed original return. On September 15, Year 2, Taxpayer filed another return (“superseding return”) to correct this mistake.

On September 12, Year 5, Taxpayer filed a Form 1120X, Amended U.S. Corporation Income Tax Return, for Year 1, claiming an overpayment for that year. Taxpayer argued that its claim for refund was timely under Code Sec. 6511(a) because it was filed within three years of the date it filed its superseding Form 1120.

Issue 1. When a taxpayer files an original return and then files a superseding return, which return constitutes “the return” for purposes of Code Sec. 6511 and starts the three-year statutory period for filing a claim?

Issue 2. When a taxpayer files an original return and then files a superseding return, which return constitutes “the return” for purposes of Code Sec. 6501 and starts the three-year statutory period for assessment?

Conclusion. Chief Counsel, citing National Paper Co., determined that for both issues, the original return, not the superseding return, is “the return” that starts the running of the statutory limitations period.

Chief Counsel noted that, although the return in National Paper was an amended return, nothing in the Supreme Court’s opinion limited its holding to amended returns, nor did the opinion differentiate between superseding and amended returns. Thus, Chief Counsel opined, National Paper applies to superseding returns as well as amended returns or purposes of the limitations period on assessment under Code Sec. 6501. Therefore, the IRS had to use the filing date of the original return as the beginning of the statutory period for assessment under Code Sec. 6501(a).

According to Chief Counsel, National Paper also supports the conclusion that the original return, not the superseding return, starts the limitations period for refund claims under Code Sec. 6511 because, under Zellerbach and National Paper a superseding return relates back to, and becomes part of, the original return and, therefore, can’t restart the limitations period for refund claims. Moreover, the purpose of the limitations period (which is to limit possible claims) supports interpreting the ambiguous term, “the return”, in Code Sec. 6511 to mean the original return. Therefore, the limitations period under Code Sec. 6511(a) for filing a refund claim began when Taxpayer filed the original return on September 11, Year 2. Thus, the statute expired on September 11, Year 5, and Taxpayer’s refund claim, filed on September 12, Year 5, was barred because it was late.