Superseding Return Filed on Extended Due Date Starts SOL

Editor: John L. Miller, CPA

The general statute of limitations (SOL) for assessment found in Sec. 6501 gives the IRS three years to assess tax after a return has been filed, beginning on the date that a valid Federal tax return is deemed filed. A return filed prior to the deadline is deemed filed on the due date. A return filed on extension is deemed filed on the day the Service actually receives the return, provided it is received on or before the extended due date; if the return is received after that date, it is deemed filed on the postmark date.

Sometimes a taxpayer receives an extension to file a Federal tax return, but files before the extended due date. The taxpayer then files a second return, also before the extended due date, changing data reported on the originally filed return. This situation triggers a question—which return constitutes “the return” for assessment SOL purposes?

Effect of a Timely Filed Amended Return

A second tax return filed before the return due date that changes data reported on an original return is commonly referred to as a “superseding” tax return. The seminal case in the area is Haggar Co., 308 US 389 (1940), in which the taxpayer was required to declare the value of stock, for purposes of a now-obsolete capital stock tax, on its “first return.” The taxpayer reported the par value of its stock on a timely filed return, then filed an amended return before the extended due date to declare the stock’s actual value. Noting that the government was not prejudiced and that there was a long-standing administrative practice of accepting timely amended returns in other contexts, the Supreme Court held that “[a] timely amended return is as much a ‘first return’…as a single return filed by the taxpayer.”

Effect of Haggar: The principle underlying the Court’s holding in Haggar has been extended and applied in court decisions and by the IRS in administrative rulings. For example, in National Lead Co., 336 F2d 134 (2d Cir. 1964), the taxpayer elected for tax year 1950 to use the LIFO inventory replacement provision in the 1939 Code; under this provision, the election was irrevocable. Prior to the election deadline, the taxpayer notified the Service that it was revoking the election. The Second Circuit cited Haggar as authority for the proposition that an election can be validly revoked within the time allowed for making it, and held that the taxpayer properly revoked it. The court reasoned that the government was in no way disadvantaged by the result, because the final election was made within the time specified in the law (see also Matheson, 74 TC 836 (1980) (election to deduct disaster loss); Rev. Rul. 56-67 (election to file consolidated return was revocable by filing separate returns before due date); and IRS Letter Rulings 8939054 (consent to revoke election under Section 10202(e)(3)(A) of the Revenue Act of 1987) and 8526074 (consent to revoke Sec. 83(b) election if requested within 30-day period for making such election)).

Superseding Returns and the SOL

In recent Chief Counsel Advice (CCA) 200645019, the IRS concluded that a taxpayer’s superseding tax return filed on the extended due date is the return that starts the assessment SOL.

Facts: On March 15, 2003, the taxpayer timely mailed Form 7004, Application for Automatic 6-Month Extension of Time to File Certain Business Income Tax, Information, and Other Returns, requesting an extension to Sept. 15, 2003 to file Form 1120, U.S. Corporation Income Tax Return. Before that date, the taxpayer filed Forms 1120 and 1139, Corporation Application for Tentative Refund. These forms reflected a tax overpayment and requested a refund. Form 1120 included only basic income tax information and schedules; the taxpayer did not include any of the required Forms 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations.

On Sept. 15, 2003, the taxpayer mailed a second Form 1120 for the 2002 tax year, which included different information from the original return and requested an additional refund on a second Form 1139. The taxpayer attached Forms 5471 to the second Form 1120.

Analysis: The Service first addressed whether the filing of Form 1120 before Sept. 15, 2003 revoked the remaining extension to file granted until that date. Based on Haggar, it concluded that the taxpayer’s filing of a first return before Sept. 15, 2003 did not revoke the remaining extension.

Second, the IRS addressed whether the taxpayer’s original Form 1120 or the superseding one started the three-year assessment SOL. It concluded that the taxpayer’s superseding tax return filed on Sept. 15, 2003 was the valid return for the tax period; thus, the superseding return started the assessment SOL.

Third, the Service addressed whether the Sec. 6038(b) penalty applied to the Forms 5471 attached to the subsequent filing on Sept. 15, 2003, as late-filed information returns. Under Sec. 6038, a U.S. taxpayer that owns a controlling interest in a foreign business entity is required to furnish certain information on Form 5471 with its Federal tax return. Failure to comply subjects the taxpayer to certain penalties under Sec. 6038(b). However, the application to extend the filing deadline of the taxpayer’s return also extended the deadline for Form 5471.

Holding: Because the return filed on Sept. 15, 2003 was the taxpayer’s return for the tax period, the IRS concluded that the Forms 5471 attached to that return were timely filed.

Mr. Miller is a member of the AICPA Tax Division’s IRS Practice & Procedures Committee. Mr. Dolan, Mr. Keenan and Ms. Markman are members of that committee. For further information about this column, contact Mr. Miller at johnmillercpa@cox.net.