Procedure & Administration
When a taxpayer files an amended return reporting additional tax within 60 days before expiration of the assessment limitation period, Sec. 6501(c)(7) provides that the period within which the IRS can assess the additional tax does not expire before the 60th day after the day on which it receives the amended return. This extension of the assessment limitation period applies only to the additional tax reported on the amended return.
The legislative history of Sec. 6501(c)(7) states that the extension is intended solely to allow the IRS to process the amended return and to assess and collect the additional tax due as reported by the taxpayer. Therefore, even if, as a result of processing or inspecting the amended return, the IRS identifies other items or issues that would increase the taxpayer's liability, the additional tax attributable to those items or issues cannot be assessed after the normal assessment limitation period expires (unless some other exception to the normal three-year statute of limitation applies, such as fraud or a substantial omission of gross income).
For Sec. 6501(c)(7) to apply, the IRS must actually receive the amended return before the normal assessment limitation period expires. The IRS takes the position, as set forth in Chief Counsel Advice (CCA) 201052003, that the mailbox rule (timely mailing equals timely filing) of Sec. 7502 does not apply to an amended return reporting additional tax that is mailed on or before the last day of the limitation period but received after that date. According to the CCA, that is because Sec. 7502 applies only to returns "required to be filed," while "amended returns that show additional tax due . . . are not 'required to be filed' by any internal revenue laws." Thus, if in particular circumstances a taxpayer wishes the additional tax to be assessed, the taxpayer must arrange for the IRS to actually receive the amended return before the normal assessment limitation period expires.
Note: The IRS recognizes that the Sec. 7502 mailbox rule does apply to an amended return on which the taxpayer claims a refund or credit if the taxpayer mails the amended return on or before, but the IRS receives it after, the last day of the Sec. 6511 limitation period for refund or credit. The regulatory authority for that position is found in Regs. Secs. 301.6402-3(a)(5) and 301.7502-1(b)(2).
Payments of the Additional Tax Reported on an Amended Return
Assume that a check or money order is included with an amended return that is mailed on or before the last day of the assessment limitation period but the IRS receives the return and payment after that date. As discussed above, the additional tax cannot be assessed under Sec. 6501(c)(7); thus, the payment is a statutory overpayment within the meaning of Sec. 6401(a) as an amount collected after expiration of the limitation period and must be refunded to the taxpayer (see CCA 201052003). Because an amended return reporting additional tax is a document that is not required to be filed, it follows that a check or money order accompanying the return is not a payment required to be made.
By contrast, if the payment is made while the assessment limitation period is still open—e.g., by the Electronic Federal Tax Payment System, wire, or a check or money order mailed separately from (and presumably prior to) the amended return—but the return is received after the limitation period has expired, the IRS's inability to assess the additional tax shown on the return would not be grounds for the taxpayer to obtain a refund. Instead, under the doctrine of Lewis v. Reynolds, 284 U.S. 281 (1932), the IRS could conclude that despite the lack of a timely assessment, the taxpayer's tax liability for the year in question was not overpaid. In other words, there would be no overpayment because the taxpayer did not pay more than what it owed, as shown on its amended return, and the taxpayer could not claim a refund of that payment.
As stated in Rev. Rul. 85-67, expiration of the limitation period does not bar the IRS from retaining payments already received that do not exceed the amount that might have been properly assessed and demanded. Rev. Rul. 85-67 concludes that when a taxpayer pays taxes and interest legally due before the assessment limitation period expires, the taxpayer cannot recover them merely because they have not been formally assessed. That ruling distinguishes Rev. Rul. 74-580, which states that payments made after the assessment statute expires are refundable.
Annette Smith is a partner with PricewaterhouseCoopers LLP, Washington National Tax Services, in Washington.
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