Rev. Rul. 65-281

Advice has been requested whether a claim for credit or refund based upon a net operating loss carryback is valid under the circumstances described below.

The taxpayer filed a claim for refund of an overpayment of income tax attributable to a net operating loss carryback, as provided in section 172 of the Internal Revenue Code of 1954. The period of limitation provided by section 6511(d)(2)(A) of the Code, within which a valid claim for credit or refund based upon the carryback could be filed, had expired. However, an agreement with respect to the year to which the net operating loss was to be carried back had been executed under section 6501(c)(4) of the Code, and the period specified in the agreement had not expired. The taxpayer's liability for that year had been determined by a final decision of the Tax Court of the United States, but the tax had not been paid.

The specific issue in this case is whether, under the stated facts, a claim for refund based upon a net operating loss carryback is valid if filed after the expiration of the period specified in section 6511(d)(2)(A) of the Code.

Section 6511 of the Code prescribes the periods of limitation on filing claims for credit or refund. Section 6511(a) provides, in general, the period of time within which a claim for credit or refund may be filed by a taxpayer. This period is 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.

An exception to this general rule is contained in section 6511(c) of the Code, which extends the period for filing claims for credit or refund for 6 months after the expiration of the period within which an assessment may be made pursuant to any agreement or extension thereof entered into under the provisions of section 6501(c)(4) of the Code prior to the expiration of the period under the general limitation provisions. In the instant case, such an agreement had been executed and the period specified therein had not expired when the taxpayer claimed a refund of an overpayment due to a net operating loss carryback.

Section 6511(d)(2) of the Code, however, provides a special period of limitation with respect to claims for credit or refund of an overpayment attributable to a net operating loss carryback. This special period terminates with the expiration of the 15th day of the 40th month (39th month in the case of a corporation) following the end of the taxable year of the net operating loss which resulted in the carryback or, alternatively, with the expiration of the period prescribed in section 6511(c) of the Code in respect to such taxable year , whichever expires later. Section 301.6511(d)-2 of the Regulations on Procedure and Administration provides, in part, that the alternative period ends with the expiration of the period prescribed in section 6511(c) of the Code (within which a claim for credit or refund may be filed) with respect to the taxable year of the net operating loss which resulted in the carryback . Thus, the period specified in the provisions of section 6511(d)(2) of the Code relates to the year in which the net operating loss was incurred. See Brad Foote Gear Works, Inc. v. United States , 288 Fed. (2d) 894 (1961).

As the taxpayer's liability for the year to which the loss was to be carried had been determined as the result of a final decision of the Tax Court, the taxpayer had become barred from claiming a refund of an overpayment of tax for that year on account of the carryback by the application of section 6512(a) of the Code, unless the claim was filed within the period specified in section 6511(d)(2)(A) of the Code, thus making the provisions of section 6511(d)(2)(B) of the Code applicable.

Since the taxpayer did not file a claim within the period prescribed in section 6511(d)(2)(A) of the Code, it was therefore not valid.

A related question to be considered in this connection is whether, in a situation where (1) the taxpayer has not petitioned the Tax Court and no final judicial determination of his tax liability has been made for the year to which the loss is carried, and (2) claim for credit or refund is not otherwise barred, a claim based upon a carryback filed after the expiration of the period prescribed in section 6511(d)(2)(A) of the Code, but within 2 years from the time the tax for the prior year was paid, or within the period agreed upon in an extension agreement executed under section 6501(c)(4) of the Code with respect to such prior year, would be considered valid. Under these circumstances such a claim would be valid. This is so because the period provided in section 6511(d)(2)(A) of the Code was intended to constitute an additional period within which a claim for credit or refund of an overpayment of tax for the year to which the loss is carried might be made rather than a substitution for the periods provided in section 6511(a) of the Code. The additional period was designed to preclude the barring of a claim for credit or refund based on a net operating loss carryback in cases where the normal 3-year period of limitation within which a claim would have to be filed for the prior year, would expire before it would be possible to determine whether there would be a net operating loss in a subsequent year.

Accordingly, it is held that a claim for credit or refund based on a net operating loss carryback, which is filed after expiration of the period provided by section 6511(d)(2)(A) of the Code, is not valid in any case where the taxpayer's liability for the year to which the loss is to be carried back was finally determined by a court prior to the filing of the claim, even though an agreement under section 6501(c)(4) of the Code had been executed for the earlier year and the period specified in the agreement had not expired. However, if a final determination of the taxpayer's liability for the earlier year has not been made, a claim filed after expiration of the period prescribed in section 6511(d)(2)(A) of the Code, but within the period agreed upon in an extension agreement or within 2 years from the date the tax was paid, is to be considered timely and valid.