Rev. Rul. 56-323

Advice has been requested whether taxes paid by a serviceman, who died while a prisoner of war in Korea, may be refunded without regard to the period of limitations for filing claims for refund as provided by section 322 of the Internal Revenue Code of 1939.

In the instant case, the Department of Defense on February 3, 1955, officially notified the next of kin that the serviceman had died on January 21, 1952, while a prisoner of war. On October 22, 1955, the Army Finance Office advised that tax had been withheld from the deceased serviceman's pay for the calendar year 1951. Thereafter, on November 4, 1955, a proper claim for refund was filed by the beneficiary of the deceased.

Section 154 of the 1939 Code, pertaining to income taxes of deceased servicemen, provides as follows:

In the case of any individual who dies after June 24, 1950, and prior to January 1, 1955, while in active service as a member of the Armed Forces of the United States, if such death occurred while serving in a combat zone (as determined under section 22(b)(13)) or as a result of wounds, disease, or injury incurred while so serving-

(a) the tax imposed by this subtitle shall not apply with respect to the taxable year in which falls the date of his death, or with respect to any prior taxable year ending on or after the first day he so served in a combat zone after June 24, 1950; and

(b) the tax under this chapter and under the corresponding title of each prior revenue law for taxable years preceding those specified in clause (a) which is unpaid at the date of his death (including interest, additions to the tax, and additional amounts) shall not be assessed, and if so assessed the assessment shall be abated, and if collected shall be credited or refunded as an overpayment.

Section 322 of the 1939 Code provides in part as follows:

(b) LIMITATION ON ALLOWANCE-

(1) PERIOD OF LIMITATION-Unless a claim for credit or refund is filed by the taxpayer within three years from the time the return was filed by the taxpayer or within two years from the time the tax was paid, no credit or refund shall be allowed or made after the expiration of whichever of such periods expires the later. If no return is filed by the taxpayer, then no credit or refund shall be allowed or made after two years from the time the tax was paid, unless before the expiration of such period a claim therefor is filed by the taxpayer.

Section 421 which was the forerunner of section 154 of the 1939 Code, provided as follows:

In the case of an individual who dies on or after December 7, 1941, while in active service as a member of the military or naval forces of the United States or any of the other United Nations and prior to January 1, 1948-

(a) the tax imposed by this chapter shall not apply with respect to the taxable year in which falls the date of the death, or with respect to any prior taxable year (ending on or after December 7, 1941) during any part of which he was a member of such forces; and

(b) the tax under this chapter and under the corresponding titles of such prior revenue law for taxable years preceding those specified in clause (a) which is unpaid at the date of his death (including interest, additions to the tax, and additional amounts) shall not be assessed, and if assessed, the assessment shall be abated, and if collected, shall be credited or refunded as an overpayment.

Section 2 of Public Law 367, 80th Congress, 61 Stat. 778, 26 U.S. Code 421, C.B. 1947-2, 346, which Law amended the provisions of section 421, provided as follows:

If at any time and prior to January 1, 1948, the allowance of a credit or refund of an overpayment of the tax for any taxable year specified in section 421(a) of the Internal Revenue Code (as amended by this Act) is prevented (except for the provisions of section 3801) by the operation of any law or rule of law a credit or refund of the overpayment of such tax to the extent that the overpayment is attributable to a change of law made by this Act may, nevertheless, be allowed or made if a claim therefor is filed before January 1, 1949.

Although section 2 of Public Law 367, supra , extended the time until January 1, 1949, within which claims could be filed for refund of income taxes paid by members of the Armed Forces dying in service which would otherwise be barred, the effective provisions of the Act were not applicable to claims filed subsequent to the period provided therein. Therefore, with respect to claims filed under section 421 subsequent to January 1, 1949, the limiting provisions of section 322(b) of the 1939 Code remain applicable. It follows that the period of limitation contained in section 322 of the 1939 Code is likewise applicable to claims filed under the comparable provisions of section 154 of the 1939 Code.

However, in the case of a serviceman serving in a combat zone, it is also necessary to take into account the provisions of section 3804(f) of the 1939 Code in ascertaining whether a claim for refund has been filed within the statutory period provided by section 322 of the Code. There is no further authority under existing law for the extension or waiver of the statutory period of limitations in cases such as herein considered.

Section 3804(f) of the 1939 Code provides as follows:

In the case of an individual serving in the Armed Forces of the United States, or serving in support of such Armed Forces, in an area designated by the President of the United States by Executive order as a `combat zone' for the purposes of section 22(b)(13), at any time during the period of combatant activities in such zone for the purposes of such section, or hospitalized outside the States of the Union and the District of Columbia as a result of injury received while serving in such an area during such time, the period of time disregarded under this section, notwithstanding the limitations of subsections (a) and (c), shall include the period of service in such area, plus the period of continuous hospitalization outside the States of the Union and the District of Columbia attributable to such injury, and the next one hundred and eighty days thereafter.

Accordingly, in order for taxes paid by a serviceman, who died while serving in a combat zone, to be refunded by reason of the provisions of section 154 of the Internal Revenue Code of 1939, a proper claim for refund must be filed within the statutory period provided by section 322 of the 1939 Code, taking into account the provisions of section 3804(f) of the Code.