Procedure & Administration
For taxpayers, there are certain acts for which timeliness is crucial, such as filing a refund claim with the IRS within the statute of limitation. A refund claim is required to set forth in detail each ground upon which a credit or a refund is claimed and to include facts sufficient to apprise the IRS of the exact basis thereof. Occasionally, a taxpayer may want to amend a previously filed refund claim at a time outside the refund statute of limitation period. Certain factors dictate whether this supplemental claim—also referred to as a revised supplemental claim—is deemed to be an amendment to an existing claim, which may be allowed because it is based on the grounds established in a previous timely filed claim, or a new claim, which may be disallowed because it is outside the time period allotted for filing a refund claim for such items.
Before discussing the various factors that distinguish whether a supplemental claim is deemed to be an amendment to a claim versus a new claim, it is important to understand the basic principles of refund claims and the time frames for filing such items. Sec. 6511(a) sets forth the limitation period for filing a credit or refund claim. The taxpayer may file a claim for credit or refund of an overpayment of tax within the later of (1) three years from the time the return was filed or (2) two years from the time the tax was paid. If the taxpayer filed no return, the claim must be filed within two years from the time the tax was paid. No credit or refund will be allowed or made after the limitation period in Sec. 6511(a) has expired unless the taxpayer filed a refund or a credit claim within that period (Sec. 6511(b)(1)).
A refund claim must not only be timely but also satisfy certain requirements for specificity regarding the legal and factual grounds on which the claim is based. Regulations under Sec. 6402 provide the following requirements for refund claims:
(b) Grounds set forth in claim. (1) No refund or credit will be allowed after the expiration of the statutory period of limitation applicable to the filing of a claim therefor except upon one or more of the grounds set forth in a claim filed before the expiration of such period. The claim must set forth in detail each ground upon which a credit or refund is claimed and facts sufficient to apprise the Commissioner of the exact basis thereof. The statement of the grounds and facts must be verified by a written declaration that it is made under the penalties of perjury. A claim which does not comply with this paragraph will not be considered for any purpose as a claim for refund or credit. [Regs. Sec. 301.6402-2(b)(1)]
Once an initial claim is filed, the taxpayer can amend the existing claim or file new claims to raise additional grounds before the statute of limitation expires. However, once the refund statute of limitation expires, the taxpayer generally cannot assert new legal or factual grounds as the basis for a refund claim. In other words, the IRS cannot accept a claim and issue a refund unless it is based on one or more of the grounds set forth in a claim that was filed prior to the expiration of the refund limitation period. This requirement is known as the variance doctrine, which provides that “a ground for a refund that is neither specifically raised by a timely claim for a refund, nor comprised within the general language of the claim, cannot be considered by a court in a subsequent suit for a refund” (Mobil Corp., 52 Fed. Cl. 327, 331 (2002), quoting Ottawa Silica Co., 699 F.2d 1124, 1138 (Fed. Cir. 1983)).
The issue then becomes what distinguishes an amended claim from a new claim. This distinction is important because it determines whether a refund is allowed or disallowed. Note that the discussion below pertains to supplemental claims for refund filed outside the statute of limitation period.
Amendment or New Claim?
Courts have generally established a two-part test for determining whether a supplemental claim is an amendment of an existing claim or a new claim. A supplemental claim is deemed to be an amendment to a properly filed refund claim (and permitted after the expiration of the statute of limitation period for filing the refund claim) if:
- The amendment is “germane” to the original claim; and
- The amendment is presented before the original claim is resolved (Andrews, 302 U.S. 517, 524 (1938)).
Some courts analyze amendments to claims under two distinct doctrines: the general claim doctrine and the germaneness doctrine. The general claim doctrine may apply where (1) the taxpayer has filed a formal general claim within the limitation period and (2) an amendment is filed outside the limitation period that makes the general claim more specific. The germaneness doctrine may apply where (1) the taxpayer files a formal claim within the limitation period, making a specific claim, and (2) after the limitation period, but while the IRS still has jurisdiction over the claim, the taxpayer files a formal amendment raising a new legal theory (not specifically raised in the original claim) that is germane to the original claim. See Computervision Corp., 445 F.3d 1355 (Fed. Cir. 2006).
A supplemental claim will be deemed a new claim if it requires investigating new matters that would not have been disclosed by investigating the original claim. In Andrews, the Supreme Court explained:
Where a claim which the Commissioner could have rejected as too general, and as omitting to specify the matters needing investigation, has not misled him but has been the basis of an investigation which has disclosed facts necessary to his action in making a refund, an amendment which merely makes more definite the matters already within his knowledge, or which, in the course of his investigation, he would naturally have ascertained, is permissible. On the other hand, a claim which demands relief upon one asserted fact situation, and asks an investigation of the elements appropriate to the requested relief, cannot be amended to discard that basis and invoke action requiring examination of other matters not germane to the first claim. [Andrews, 302 U.S. at 524]
The purpose of requiring the amended claim to be germane to the original claim is to prevent surprise and to give the IRS adequate notice of the nature of the claim (Parker Hannifin Corp., 71 Fed. Cl. 231, 235 (2006)). “Without adherence to this principle of germaneness, a taxpayer might be permitted to amend any refund claim in perpetuity” (Larson, 89 Fed. Cl. 363, 387 (2009)).
An illustration of an amendment that is germane to the original claim can be found in Addressograph-Multigraph Corp., 78 F. Supp. 111 (Ct. Cl. 1948). In this case, the taxpayer filed claims for refund for an alleged overpayment in taxes. As one ground for recovery, the taxpayer requested additional depreciation on cost values of plant properties based on a previously conducted appraisal. While the claims were pending, but after the statute of limitation for filing refund claims had expired, the taxpayer filed amended claims for refund, which included deductions related to the amortization of engineering expenses. Although the taxpayer made no claim in its original refund claim of a right to amortize engineering expenses, it did claim depreciation on other items, and in the course of the investigation by the Internal Revenue Bureau, the revenue agent concluded that the taxpayer was entitled to such a deduction. Because of the close relationship to the original claims, the court concluded: “Under these circumstances we must conclude that the amendment merely made more definite the matters already within the knowledge of the Commissioner, which in the course of his investigation he actually did ascertain” (Addressograph-Multigraph Corp., 78 F. Supp. at 122–23).
Once the IRS has taken final action on the original claim, the supplemental claim is considered a new claim because there is no previous claim left to amend. As such, if the taxpayer files this claim outside the statute of limitation, it is untimely and will likely be disallowed. Final action generally is defined as occurring when the IRS concludes the claim by either denying or allowing it (Service Center Advice 199941039). “An amendment to a refund claim submitted after the expiration of the applicable statute of limitations may only be made if the original claim is still pending” (Larson, 89 Fed. Cl. at 385). For much the same reason that an amended claim is required to be germane to the original claim, absent such a principle a taxpayer could amend any refund claim in perpetuity.
It is important to note that courts have allowed supplemental claims even though the IRS took final action. In Mutual Assurance, Inc., 56 F.3d 1353 (11th Cir. 1995), the court permitted the taxpayer to submit a supplemental claim to correct a computational error and obtain an additional refund. In this case, the IRS had sufficient information to compute the correct amount of the overpayment but failed to do so. Instead, the IRS issued a refund for an improperly computed overpayment amount stated in the original claim. The original claim filed by the taxpayer provided all the information the IRS needed to compute the correct amount of the refund. In response to this decision, the IRS issued Action on Decision 1999-014, expressing its nonacquiesence. The chief counsel recognized that the Mutual Assurance case is legal precedent in cases that would be appealable to the Eleventh Circuit and further stated that the IRS would continue to litigate its position in other circuits as well as in cases appealable to the Eleventh Circuit that can be meaningfully distinguished.
The flowchart in the exhibit summarizes those rules applicable to taxpayers that wish to file an amendment to a previous timely filed amended return.
Example 1: Taxpayer A files a Form 1120, U.S. Corporation Income Tax Return, on September 15, 2005. On September 10, 2008, prior to the expiration of the statute of limitation, A files a Form 1120X, Amended U.S. Corporation Income Tax Return, amending the Form 1120. A discovers a mathematical error and files a second claim on October 30, 2008. The original claim filed gave the IRS all the information it needed to compute the correct amount of the refund.
Under these facts, the second claim would be deemed to be a revised supplemental claim and considered a timely amendment to A’s Form 1120X because the IRS had not taken final action on the original claim, and the IRS’s investigation into the revised supplemental claim would have revealed the correct amount of the loss.
Example 2: The facts are the same as in Example 1, except that A’s second amended return filed on October 30, 2008, does not relate to a mathematical error. Instead, A wants to assert that she is entitled to a refund based on a new ground for recovery that was not mentioned in the original refund claim and that is unrelated to the issue for which recovery was sought in the original timely filed refund claim.
The second amended return would be deemed to be a new claim because it is raising new issues and grounds for the claim. Since A submitted it outside the statute of limitation period for refund claims, it would be barred, and A would not be eligible to receive her refund related to the second claim.
Example 3: The facts are the same as in Example 1, except A files the second claim on September 14, 2008, prior to the expiration of the statute of limitation for refund claims.
Since A filed the second claim within the statute of limitation period, it is allowable (assuming it meets all other requirements) and can establish new grounds for the claim.
Taxpayers may want or need to supplement previously filed claims. They may discover errors that need correction or discover opportunities for additional refunds. It is important, however, for taxpayers to be mindful of the statute of limitation when filing these supplemental claims because it can affect the acceptability of the claim. Based on the foregoing, if an amendment to a properly filed refund claim is filed outside the statute of limitation period in Sec. 6511(a), it needs to be germane to the original claim and presented before the original claim is resolved in order for the IRS to consider it timely.
Jon Almeras is a tax manager with Deloitte Tax LLP in Washington, DC.
For additional information about these items, contact Mr. Almeras at (202) 758-1437 or email@example.com.
Unless otherwise noted, contributors are members of or associated with Deloitte Tax LLP.