Issuance of tax refund after expiration of Sec. 6532 time limit

By Alina Solodchikova, J.D., LL.M., and Whitney Brady, J.D., LL.M., Washington, D.C.

Editor: Lori Anne Johnston, CPA, J.D.

Taxpayers that make a claim for refund or credit may have that claim denied by the IRS for a variety of reasons. The IRS notices denying the refund claim can be divided into two types — statutory and nonstatutory (see National Taxpayer Advocate, 2014 Annual Report to Congress, vol. 1, pp. 173-75). The Service can also issue "no consideration" letters, which are not considered a claim disallowance notice (id). The issuance of a statutory notice of claim disallowance by the IRS requires taxpayers and tax practitioners to monitor statutes of limitation and can affect a taxpayer's ability to preserve its claim.

Statutory notices are required by Sec. 6532(a) because they commence a two-year statute for filing a refund suit to challenge the disallowance of a refund claim in either a U.S. district court or the Court of Federal Claims. A statutory notice of claim disallowance is usually issued in the form of Letter 105C, Claim Disallowed, or 106C, Claim Partially Disallowed (see Internal Revenue Manual (IRM) § (10/1/20)). These notices must explain the reasons for claim disallowance and inform the taxpayer of the right to file suit in court. Once the IRS issues a Letter 105C or 106C, the two-year period under Sec. 6532(a)(1) for filing a suit begins to run.

Alternatively, the notice informs the taxpayer of the right to appeal the determination with the IRS Independent Office of Appeals (Appeals). However, a Letter 105C will not inform the recipient that an appeal is also subject to the two-year statute. The timely filing of an appeal does not stop or extend the time to file suit (seeSec. 6532(a)(4)). Based on the IRS's interpretation of the statute, Appeals may not review an appeal submission or make a determination after the expiration of the two-year statute. This is because Sec. 6514(a) provides that any refund issued upon the expiration of the period of limitation for filing suit is considered erroneous.

Although two years may seem like sufficient time for a case review, frequently, appeal requests are not resolved within that two-year period. In many cases, it takes six months to a year to get an Appeals officer assigned to a case. A government shutdown can delay the assignment even longer. It is unclear how the COVID-19 pandemic has affected the assignment of cases. Given that the IRS has had a severe backlog of mail at its service centers and continues to experience delays in processing it, the pandemic may result in even longer case assignment delays (seethe IRS webpage "IRS Operations During COVID-19: Mission-Critical Functions Continue," available at No internal IRS procedures require Appeals to adhere to a specific timeline to process a request, assign an Appeals officer, or make a final determination. Therefore, the delay in processing timely filed appeal requests may mean that the two-year statute expires before Appeals makes a determination or, in some cases, before the case is even reviewed. The statute expiration will result in the Service being barred from issuing a refund due to Sec. 6514(a), even if an Appeals officer ultimately decides in favor of the taxpayer.

The IRS Office of Chief Counsel analyzed this issue in two memoranda in 2010. In the first memo, dated Aug. 5, 2010, Chief Counsel concluded that "Appeals may allow a claim for refund after the 2-year period for filing a refund suit under section 6532 has expired" (Chief Counsel Advice (CCA) 201048030). In this CCA, the Office of Chief Counsel stated that nothing in the Code or regulations prevents the IRS from allowing a claim for refund after the expiration of the two-year period for bringing a refund suit, as long as the taxpayer timely filed the claim with the Service under Sec. 6511(a). But only a few months later, the Chief Counsel reversed this conclusion with the second memorandum, dated Oct. 28, 2010, and determined that "the Office of Appeals cannot allow a claim for refund after the 2-year period for filing suit has expired" (CCA 201110011). In this CCA, the office of Chief Counsel determined that "where the taxpayer timely files a claim, but does not timely file suit, [Sec.] 6514(a) declares any refund made [upon the expiration of the statute per Sec. 6532] as erroneous and any credit given as void." The Chief Counsel concluded that, in determining whether Appeals can issue the refund upon the expiration of the two-year statute, consideration must be given to both Secs. 6532 and 6514.

Based on the IRS's current interpretation and application of the law, even if Appeals decides in favor of the taxpayer, Appeals is precluded from issuing a refund if the Sec. 6532(a)(1) statute has expired. Therefore, a taxpayer that has already filed an administrative appeal but is approaching the two-year statute closing date may ultimately need to file suit in court to protect the claim for credit. Filing suit in the appropriate district court or with the Court of Federal Claims tolls the running of the statute of limitation but does not prevent Appeals from continuing to review and decide the administrative appeal.

One alternative option to extend the statute for review by Appeals, and preserve the taxpayer's right to file suit, is by executing an agreement to extend the time to bring suit. The two-year period can be extended as agreed upon in writing between the taxpayer and the Service (Sec. 6532(a)(2)). Form 907, Agreement to Extend the Time to Bring Suit, is generally used to satisfy the extension provision of Sec. 6532(a)(2) (IRM § (12/17/19)). Extension of the two-year statute allows the IRS to review the taxpayer's appeal request and gives the taxpayer additional time to file suit should Appeals ultimately decide in favor of the government. Multiple Forms 907 can be executed by the taxpayer and the IRS to extend the statute under Sec. 6532(a)(2), as long as each extension is executed before the prior period has expired. The IRS will not sign the Form 907 if it decides that the refund claim was not timely made.

The Letter 105C or 106C will inform the recipient taxpayer of the option to use Form 907 to extend the statute. However, the notice will not provide the taxpayer instructions on how to get the form executed by the IRS. The IRM provides limited guidance regarding the execution of the Form 907. "Form 907 must be signed by the taxpayer or by an attorney, agent, trustee, or other fiduciary acting on the taxpayer's behalf pursuant to Form 2848, Power of Attorney," and "Appeals Area Directors are authorized to execute Form 907 to extend the time for filing suit" (IRM §§ and (6) (12/17/19)). The listed bases for agreeing to extend the statute with Form 907 are also limited to situations in which "the disposition of a request for reconsideration of a disallowed claim is contingent on a pending court decision," "[t]he Service had under consideration a change in position requiring the suspension of action in all similar cases," and "[w]hen an extension will prevent possible inequities to taxpayers" (IRM § (12/17/19)).

The IRM does not seem to cover situations of unassigned and not yet reviewed cases by the IRS, where the taxpayer is the one initiating the statute extension. Based on this lack of guidance, it appears that the Service considers Form 907 to be an internal form, the signing of which is intended to be initiated by the IRS's employees. There are no procedures for the taxpayers to contact an Appeals area director. In these situations where expiration of the statute under Sec. 6532(a)(1) is imminent, the taxpayer may need to seek assistance from the Taxpayer Advocate Service (TAS) to communicate with the IRS regarding the need to extend the statute by executing a Form 907. The process of getting the IRS to sign a Form 907 is not easy or quick, so a case needs to be initiated with the TAS at least several months before the statute is set to expire to afford the TAS time to communicate with the IRS.

Taxpayers need to be mindful of the two-year statute after filing an appeal request for reconsideration of the denial of a refund claim. The expiration of the statute, even with a timely filed administrative appeal, can still result in the Service's inability to issue the refund. Due to the IRS shutdowns, mail backlog, and modified working procedures for IRS employees caused by the COVID-19 pandemic, it is likely that delays in the IRS's case assignment will increase for paper submissions across the board, not just requests to Appeals. Therefore, taxpayers and tax practitioners need to be mindful of the date on which the two-year statute closes and be prepared to either work quickly to extend the statute with Form 907 or file suit in court.


Lori Anne Johnston, CPA, J.D., is a manager, Washington National Tax for RSM US LLP.

For additional information about these items, contact the authors at or

Contributors are members of or associated with RSM US LLP.

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