Rev. Rul. 81-87
1981-1 C.B. 580, 1981-11 I.R.B. 47.
Internal Revenue Service
Revenue Ruling
REFUNDS AND CREDITS; CLAIMS; REQUIRED ADJUSTMENTS
Published: March 16, 1981
26 CFR 301.6402-2: Claim for credit or refund
(Also Section 6511; 301.6511(a)-1.)
Refunds and credits; claims; required adjustments. All adjustments that increase or decrease taxable income, even those barred by the period of limitations, must be taken into account in determining the amount of an overpayment of tax, but the overpayment will be credited or refunded only to the extent that adjustments decreasing the tax are covered by timely claims. G.C.M. 9800 superseded.
ISSUE
Must all adjustments that increase or decrease taxable income be taken into account when determining the amount of an allowable credit or refund?
FACTS
Situation 1
Situation 1
Taxable income reported on Form 1120, U.S.
Corporation Income Tax Return ............................. $ 800.00
Adjustments increasing taxable income: 270.00
(1) Decrease in deductions for bad debts ............... -----------
$1,070.000
Adjustments decreasing taxable income:
(2) Additional office expenses ................ $720.00
(3) Additional depreciation .................... 100.00
(4) Additional interest expense ................ 425.00 1,245.00
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Corrected taxable income (loss) ............................ $(175.00)
No deficiency based on adjustment (1) has been assessed or collected and the time for assessing or collecting such a deficiency has expired. Adjustment (2) is covered by a timely claim for credit or refund, but adjustments (3) and (4) are not covered by a claim and the period for filing claims has expired.
Situation 2
Situation 2
Taxable income reported on Form 1120, U.S. Corporation
Income Tax Return ................................................. $1,280.00
Adjustments increasing taxable income:
(1) Increases in sales ................................... $274.00
(2) Furniture and fixtures disallowed as an expense ....... 92.00
(3) Decrease in deduction for bas debts .................... 41.00 407.00
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$1,687.00
Adjustments decreasing taxable income:
(4) Additional office expenses ........................... $740.00
(5) Additional depreciation ............................... 68.00 808.00
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Corrected taxable income .............................................. $879.00
No deficiency based on adjustments (1), (2) or (3) has been assessed or collected and the time for assessing or collecting such a deficiency has expired. Adjustment (4) is covered by a timely claim for credit or refund, but adjustment (5) is not covered by a claim and the period for filing claims has expired.
LAW AND ANALYSIS
Section 6402(a) of the Internal Revenue Code provides that in the case of any overpayment, the Secretary, within the applicable period of limitations, may credit the amount of such overpayment against any outstanding liability for any internal revenue tax owed by the person who made the overpayment and shall refund the balance to such person.
Section 6511(a) of the Code provides that a claim for credit or refund of an overpayment of any tax imposed by the Code in respect of which tax the taxpayer is required to file a return shall be filed by the taxpayer within three years from the time the return was filed or two years from the time the tax was paid, whichever of such periods expires the later.
Section 6511(b)(1) of the Code provides that no credit or refund may be allowed or made after the expiration of the period of limitation for filing a claim for credit or refund, unless such a claim is filed by the taxpayer within the period prescribed in section 6511(a).
Section 301.6402-2(b)(1) of the Regulations on Procedure and Administration provides that no refund or credit will be allowed after the expiration of the period of limitations applicable to the filing of a claim therefore 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 of the claim.
A taxpayer is not entitled to a refund unless the taxpayer has in fact overpaid the tax. In Lewis v. Reynolds, 284 U.S. 281 (1932), XI-1 C.B. 130, the Supreme Court affirmed the Court of Appeals' holding that, in determining whether a taxpayer has overpaid, it is proper for the Service to redetermine the taxpayer's entire tax liability, although the applicable statute of limitations bars the assessment and collection of any additional tax. The court recognized that, in order to ascertain whether there has been an overpayment of tax, adjustments that decrease the tax must be considered as well as adjustments that increase the tax. The opinion of the court affords no basis for assuming that the tax and overpayment may be computed to the detriment of the taxpayer by including only adjustments that increase the tax.
In view of the above-mentioned statutes and Lewis v. Reynolds, the correct tax is to be determined by including all adjustments, regardless of the expiration of the periods of limitation. Any excess of tax actually paid over the correct tax is an overpayment and will be credited or refunded to the extent that adjustments decreasing the tax are covered by timely claims.
HOLDINGS
Situation 1. The correct tax is to be determined without regard to any period of limitation. To determine the excess amount of income on which tax was paid, the "corrected taxable income" should be subtracted from the "taxable income reported on the return". Credit or refund will be made of the tax paid on the excess amount to the extent that adjustments decreasing taxable income are covered by a timely claim. Therefore, the credit or refund must be determined as follows:
Taxable income reported on Form 1120 ..... $800.00
Corrected taxable income (Loss $175.00) ..... 0.00
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Income on which excess tax paid .......... $800.00
Income on which covered by a claim ....... $720.00
Income not covered by a claim ............. $80.00
Since the amount of income on which excess tax was paid, $800, exceeds the amount of income covered by a claim, $720, the tax paid on the $720 may be credited or refunded. The tax paid on $80 was not covered by a timely filed claim and may not be credited or refunded.
Situation 2. The credit or refund will be determined as follows:
Taxable income reported on Form 1120 .. $1,280.000
Corrected taxable income .................. 879.00
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Income on which excess tax was paid ...... $401.00
Income covered by a claim ................ $740.00
Since the amount of income covered by a claim, $740, exceeds the amount of income on which excess tax was paid, $401, only the tax on the $401 may be credited or refunded.
For the purpose of determining the overpayment attributable to the carryback of a net operating loss to a year in which the allowance of an unclaimed deduction is barred by the statute of limitations under section 6511 of the Code, see Rev. Rul. 81-88, page, this Bulletin.
EFFECT ON OTHER DOCUMENTS
G.C.M. 9800, X-2 C.B. 271 (1931) is superseded, since the position set forth therein is restated under current law in this revenue ruling.
Rev. Rul. 81-87, 1981-1 C.B. 580, 1981-11 I.R.B. 47.