Chief Counsel Advice 201921013
In Chief Counsel Advice (CCA), IRS has held that Form 4549, Income Tax Examination Changes, i.e., the form IRS issued at the end of its audit, was an informal refund claim. IRS also ruled on other issues, including whether a refund claim made after the taxpayer signed the Form 4549 was a separate refund claim from that made on the Form 4549.
Background. At the end of an audit, IRS sends the taxpayer a letter along with Form 4549, explaining the proposed changes to the audited tax return.
A taxpayer must file a timely refund claim with IRS before bringing a refund suit. (Code Sec. 7422(a)) To be timely, a refund claim must be filed within “three years of the time the [taxpayer’s tax] return was filed or two years of the time the tax was paid, whichever is later.” (Code Sec. 6511(a))
The regs under Code Sec. 6402 set forth the formal requirements for filing a refund claim. However, an informal claim for refund may suffice. (Kales, (S Ct 1941) 27 AFTR 309) A valid informal claim for refund must have a written component (written by either the taxpayer or IRS); must include a timely request for a refund/credit for certain years or periods; and must inform IRS of the basis for the overpayment with sufficient information as to the tax and year to allow IRS to examine the claim. (Pala, Inc. Employees Profit Sharing Plan & Trust Agreement, (CA 5 2000) 86 AFTR 2d 2000-7079)
Code Sec. 6532(a) provides that no suit may begin after the expiration of 2 years from the date of mailing by certified mail or registered mail to the taxpayer of a notice of the disallowance of the part of the claim to which the suit or proceeding relates.
Facts. Taxpayers’ return was selected for review by both IRS’s automated underreporting program (AUR) and it’s regular field audit program. After the field examiner’s review, the taxpayers’ representative signed a Form 4549 that showed a refund due principally to a loss on a sale. However, thereafter, as a result of the other audit, IRS assessed additional tax based on cancellation of indebtedness income, and the refund that it sent the taxpayers was less than the amount shown on the Form 4549.
Thereafter, the taxpayers met with the IRS Taxpayer Advocate, and the Taxpayer Advocate submitted a Form 982 (Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)) in order to obtain the balance of the refund. IRS then sent the taxpayers a Letter 105C, Claim Disallowed.
Form 4549 constituted an informal claim for refund. The CCA concluded that the 4549 qualified as an informal claim for refund.
The CCA noted that the purpose behind the requirement of an adequate informal refund claim is to prevent surprise by giving adequate notice of the nature of the claim, as well as of its factual basis, so that IRS may begin an investigation into the claim. And it cited Rev Rul 68-65, 1968-1 CB 555, which held that a Form 870 waiver on which a taxpayer agrees to an overassessment will be considered a valid refund claim.
Stating that it was not aware of any case law directly considering whether a Form 4549 can be considered an informal claim, the CCA concluded that a Form 4549 that reflects an overpayment on line 16 (Balance Due or Overpayment) of the form, can be considered a valid refund claim because it put IRS on notice that a refund claim was being made.
Form 982 constituted an additional informal claim. The CCA then concluded that the Form 982 constituted an additional informal claim and, thus, started its own separate two-year period of limitations to file suit under Code Sec. 6532.
The CCA said that the grounds for the Form 4549 claim stemmed from a recalculation of taxable income due to a loss from the sale of property. The Form 982 claim, on the other hand, dealt with the taxpayers’ cancellation of indebtedness income; it was a claim to recalculate the taxpayers’ taxable income, without taking that income into account. The grounds for the Form 982 claim were to dispute the inclusion of cancellation of indebtedness income in the taxpayers’ taxable income due to the taxpayers’ insolvency stemming from their loss from the sale of that property. The form and the supporting documents were sent to substantiate the taxpayers’ insolvency and were not sent to substantiate or amend the previous Form 4549 claim or its grounds for refund.
The effect of the Letter 105C on the two-year refund suit limitations period. The CCA then looked to whether the letter 105C was a denial of both of the claims, just one of the claims, or neither claim.
The CCA concluded that the Letter 105C was issued in response to the Form 982 claim and supporting documentation as opposed to the Form 4549 claim. While the year at issue for both claims was the same, the Letter 105C explicitly disallowed a claim dated XX, i.e., the date of the Form 982 claim. The letter 105C did not reference the Form 4549 claim or any other prior claim or date. Without more information, the Letter 105C could only be read as a disallowance of the claim it explicitly referenced, the Form 982 claim. Thus, the CCA concluded that the Form 4549 claim was never disallowed and, therefore, the Code Sec. 6532 period with respect to that claim never began to run.
References: For Form 4549, see FTC 2d/FIN ¶T-1605; United States Tax Reporter ¶65,324.01.
