Taxpayers need to know their limitations

When does the three-year assessment period in Sec. 6501(a) begin? How long does a taxpayer have to file a claim for refund under Sec. 6511(a)? What if a taxpayer has an approved extension to Oct. 15, 2020? What if the Oct. 15, 2020, extension was postponed for a natural disaster? These questions can vex practitioners in a normal year, but in 2020, the IRS postponed the April 15 statutory filing and payment deadline to July 15, 2020 (see Notice 2020-23). How does this unusual postponement affect the start date for the assessment or refund claim statute of limitation period? It is critical to know how and from what start date to count because the authority to assess tax and the taxpayer’s ability to file a timely refund claim for paid tax is calculated based upon when these statutes commence. This column reviews the basic rules of statutory due dates, extensions, refund limitations, and postponements, and how to determine the statute of limitation in the context of taxpayer deadlines affected by the events of calendar year 2020.

Statutory due dates: Extensions, Saturday, Sunday, or legal holiday

A taxpayer must first distinguish between the basic statutory due date and extended filing dates. Federal income tax returns for calendar-year filers are due April 15 of the year following the close of the calendar year (Sec. 6072(a); see also Regs. Sec. 1.6072-1(a)). This statutory due date cannot be changed by the IRS. However, the IRS may grant an extension of time to file a return to Oct. 15 (Sec. 6081; see also Regs. Sec. 1.6081-1). The extension does not change the April 15 statutory due date, but rather it means such a return is still considered timely filed if it is filed within the approved extension period. If the statutory due date or authorized extended filing date falls on a Saturday, Sunday, or legal holiday, then a return is considered timely filed on the next day that is not a Saturday, Sunday, or legal holiday (see Sec. 7503; Internal Revenue Manual §25.6.1.6.18 contains the list of legal holidays recognized by the IRS, which include state holidays (e.g., Patriots Day in Massachusetts and Maine and Emancipation Day in the District of Columbia)). For example, if April 15 falls on a Sunday, the due date for timely filing becomes Monday, April 16. If Monday, April 16 is also Emancipation Day in the District of Columbia, then all taxpayers have until Tuesday, April 17 for timely filing. If the statutory due date (April 15) is extended by a weekend or holiday, this does not add time to an authorized extended filing date of Oct. 15. It remains Oct. 15 unless that date also falls on a weekend or legal holiday.

Sec. 6501(a): Limitations on assessment and collection

A common misunderstanding is that the three-year assessment statute of limitation period commences from an extended filing date — whether caused by a weekend, legal holiday, or authorized extension. However, the general rule is that the assessment period under Sec. 6501(a) begins on the date the return is “actually filed” regardless of the statutorily prescribed due date or an extended filing date. The only exception is for an early-filed return, which is deemed to be filed on the last statutorily prescribed day (Sec. 6501(b)(1)). In the above example, this means a return filed April 1 is deemed to have been filed on April 15, regardless of whether April 15 is a weekend or a legal holiday. But if the return is filed on Tuesday, April 17 (because April 15 is a Sunday and April 16 is a legal holiday), then it is considered timely filed for purposes of the statutory due date, but the three-year assessment period runs from April 17 — the date of actual filing. If the taxpayer in this example had an authorized six-month extension to Oct. 15 but filed on June 1, then the three-year assessment period runs from June 1. It does not run from Oct. 15, April 17, or April 15.

Sec. 6511: Limitations on credit or refund

The start date for counting the Sec. 6501(a) assessment statute of limitation period also tells the taxpayer the general three-year statute of limitation for filing a refund claim under Sec. 6511(a). A claim for refund must be filed within three years from the date “the return was filed” or two years from the time the tax was paid, whichever is later (Sec. 6511(a)). Considering the above examples, a return filed April 1 would have a filed date of April 15, and therefore a refund claim must be filed by April 15 of the third year (see Sec. 6513(a), which provides that for Sec. 6511, early-filed returns and early payments are deemed filed on the statutory due date, without regard to any extension). A return filed on Tuesday, April 17 (because April 15 is a Sunday and April 16 is a legal holiday) would have a filed date of April 17, and a refund claim must be filed by April 17 of the third year. A claim for refund for a return filed during a period of authorized extension would likewise be due three years from the actual date filed, not from the extended Oct. 15 date, unless the return was actually filed on Oct. 15. For example, a refund claim for a return filed June 1 within an approved extension period is timely if filed by June 1 of the third year.

Sec. 6511(b) imposes a second limitation statute called the “lookback,” which limits the amount of allowable refund to the amount of tax paid within the three-year period (plus the period of extension to file) preceding the filing of the claim (Sec. 6511(b)). It means that a taxpayer must not only consider the actual date the refund claim is filed and count back three years, but the taxpayer must also analyze the dates when tax payments were actually made. Any tax paid prior to this three-year lookback period cannot be paid by the IRS, even if the refund claim is timely filed. For example, assume all the tax was deemed paid by the April 15 deadline and the return was filed on June 1. A refund claim would be timely filed by June 1of year 3 regardless of an approved extension. But the tax deemed paid on April 15 would be outside of the three-year lookback period unless there is an approved extension. The lookback period includes extension time to allow the taxpayer to reach the tax deemed paid. If the return was filed late on June 1, a refund claim may be timely filed on June 1 of year 3, but the actual refund of tax would be outside the three-year lookback period. Practitioners should always file an extension.

Sec. 7508A postponement: Calendar year 2020

In 2020, the IRS postponed the April 15, 2020, statutory due date for filing returns and paying taxes due for tax year 2019 to July 15, 2020. A postponement under Sec. 7508A is another form of authorized delay, but it is not an extension. The IRS may specify a period of up to one year that may be disregarded in performing certain acts for taxpayers affected by a federally declared disaster (Sec. 7508A; see also Rev. Proc. 2018-58). Like a weekend, legal holiday, or authorized extension, a postponed date under Sec. 7508A allows a return or a refund claim to be considered timely filed if it is filed by the postponed date (Regs. Sec. 301.7508A-1(b)(4)).

When would the three-year assessment period begin, and when is a refund claim timely for tax year 2019? Returns filed before April 15, 2020, are deemed filed on that date, so both the assessment and refund filing statutes would begin April 15, 2020, regardless of the postponement or any authorized extension. A refund claim must be filed by April 17, 2023 (because April 15, 2023, falls on a Saturday). If the initial return is filed between April 16 and July 15, 2020, then both statutes begin on the exact date the return is filed. (The return for purposes of Sec. 6511 is the initial return. Neither a superseding original return nor an amended return tolls the statute (see Chief Counsel Advice Memorandum (CCA) 202026002).) However, as explained above, the refund claim lookback statute only considers extensions, not postponements, when counting back. Therefore, a taxpayer who relied on the postponement and filed a return on July 15, 2020, should recognize that although a refund claim might be timely filed by July 17, 2023 (July 15 falls on a Saturday), the three-year lookback period will not reach taxes paid prior to (and deemed paid on) April 15, 2020. This taxpayer should file a claim by April 17, 2023.

What if the same taxpayer filed on July 15 but had an authorized extension to Oct. 15, 2020, in addition to the Sec. 7508A postponement? In this case, the assessment and refund claim filing statutes still begin on July 15, 2020, the date the return is filed, but because there is an extension, a refund claim filed on July 17, 2023, would reach back to April 15, 2020, because the lookback adds the extension time. The same would be true if the initial return was filed on any date up to and including Oct. 15, 2020, provided there is an approved extension.

What if the Oct. 15, 2020, extended due date was postponed under Sec. 7508A to Jan. 15, 2021, due to a natural disaster affecting the taxpayer? In this situation, the assessment and refund filing limitation statutes will still run from the actual date filed, even if Jan. 15, 2021, becomes an authorized date for a timely filed tax year 2019 return. A taxpayer who files on Jan. 15, 2021, could file a timely claim for refund by Jan. 16, 2024 (Jan. 15 is a legal holiday), but as with the taxpayer who filed on July 15, 2020, without an extension, the claim would be outside the lookback period for taxes deemed paid on April 15, 2020. This taxpayer needs to file a refund claim by Oct. 16, 2023, (Oct. 15 is a Sunday) to fall within the lookback period. It is important to reiterate that the three-year assessment and refund limitation statutes do not automatically begin on the Jan. 15, 2021, postponed date, but rather only if the return is filed on that date.

This brief review of the basic rules of statutory due dates, extensions, refund limitations, postponements, and how to determine the statute of limitation should assist practitioners in navigating the complicated events affecting due dates in 2020 and beyond.