<div>    CC:PA:01:AGriffin POSTF-104193-14 POSTF-115538-14 Via Email date: July 8, 2014 to; Daniel N. Price Associate Area Counsel (Austin. Group 2) (Small Business/Self-Employed) . from: Elizabeth Girafalco Chirich Branch Chief (Procedure &amp; Administration)   subject: Claims for refund after opting out of the 2011 Offshore Voluntary Disclosure Initiative Issues 1, Whether the taxpayers who opted out of the 2011 Offshore Voluntary Disclosure Initiative (OVDI) and requested return of payments made upon entry into the program have made claims for refund that are timely under section 6511(a). 2, How should the Service evaluate whether there is an overpayment for disclosed tax years? Conclusions 1. In both factual scenarios presented, the taxpayers made timely claims for refund of payments made within the OVDI. 2, The Service should evaluate whether the assessment period of limitations was open for each disclosed year on the date the payment was made. In so doing, the Service should be careful to consider whether any exceptions to the three- year period of limitations on assessment apply to the years in question. In particular, the Service should consider the six-year periods available under sections 6501(c)(8) and 6501(e).   Facts Case Scenario 1 (collectively referred to as are United States residents living in They applied to the OVDI shortly before the disclosure initiative closed. Their voluntary disclosure included tax years   According to their IDRS transcripts, filed their original Form 1040 returns for the tax years included in their voluntary submission as follows;   On during the certification process, paid Initially, the revenue agent posted the payment to an MFT 30 module for tax year Later, he prepared a Form 906, Specific Matters Closing Agreement, for the case, and allocated the to tax years as shown as due on amended returns, as follows:   Each amount was then posted with a transaction code 640 (advance payment of______ determined deficiency or underreporter proposal), with an effective date of After reviewing the proposed closing agreement, decided to not accept the civil timely requested an extension of time to file for tax year as indicated by transaction code dated , but the return appears to have been delinquently filed, requested an extension of time to file for tax year as indicated by transaction code 460 date but the return appears to have been delinquently filed. timely requested an extension of time to file for tax year indicated by transaction code 46 dated 4 timely requested an extension of time to file for tax year as indicated by transaction code 46 dated We cannot determine from the IDRS transcripts alone whether the return was delinquently filed as the transcript does not indicate the postmark date.   settlement structure of the 2011 OVDI and opted out of the program? The revenue agent is proceeding with civil income tax examinations for all years identified with open assessment statutes of limitation. Her initial determinations based on information gleaned during the certification process indicate have total liabilities for tax, accuracy related penalties, and interest for tax years in the amount of On the revenue agent received a Form 843, Claim for Refund and Request for Abatement, signed by 171. On this form, in field 2, "Amount to be refunded or abated, entered and specified tax year In field 4 "Type of Penalty,” they specified “MISC OVDI PENALTY.” In field 7 “Explanation,” provided the following:   Case Scenario 2 (collectively, are United States residents living in They applied to the 2011 OVDI shortly before that disclosure initiative closed. Their voluntary disclosure included tax years through   5 The Opt-out and Removal Committee approved request to opt-out on 6 The stated in their OVD disclosures that holds passport and a United States green card, while holds a passport.   Based on IDRS transcripts, filed their original Form 1040 returns for the tax years included in their voluntary disclosure as follows;   During the certification process,______submitted amended returns and made 5 ' advance payments of tax. According to representative, they paid on .IDRS records show the following payments posted on :   The allocation of funds is based on the taxpayers' amended returns; the payments are reflected as transactions posted on with transaction code 640 for each (advance payment of determined deficiency or underreporter proposal). Additionally, paid on , and IDRS records show that amount posted to the MFT 55 module on The revenue agent determined! liabilities for income taxes, accuracy-related   requested an extension of time to file for tax year as indicated by transaction "code 460 dated L I ........ ..................... ^1 timely requested an extension of time to file for tax year as indicated by transaction code 460 dated 9 timely requested an extension of time to file for tax year as indicated by transaction code 460 dated   penalties, and the Title 26 miscellaneous offshore penalty and provided to representative Forms 4549 showing the tax and accuracy related penalty computations along with a Form 906, Specific Matters Closing Agreement, After reviewing the proposed closing agreement, representative wrote a detailed letter dated rejecting the civil settlement structure of the 2011 OVD I and (b) requesting to “opt out” of the program. The letter also explicitly made a claim for refund. On page 18, (b) I ' representative stated the following: (b)   Further, on through a representative, formalized their claim for refund of the Title 26 miscellaneous offshore penalty by filing a Form 843. In field 7 of that form, they stated: P"   After the opt out was approved, the case was reassigned to another revenue agent, who handled the civil income tax examinations for all years identified with open assessment statutes of limitation and the related Title 31 FBAR examinations. It appears that the second revenue agent accepted the Form 1040X for tax year and secured an agreement concerning tax and penalties for tax year On the and their representative signed a Form 4549 agreeing to the assessment for tax year in the amount of   Law Timeliness of a Claim for Refund A claim for credit or refund of an overpayment of any tax imposed by title 26 in respect of which 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 later. I.R.C. § 6511(a). If no return was filed by 1° The Opt-Out and Removal Committee approved request to opt-out on 11 On page 5 of the letter, representative defined the term "Open Tax Years" as tax years did not submit the usual Form 872 with their original 2011 OVDI package. We cannot determine why the usual 2011 OVDI Form 872 was not provided or later solicited by the revenue agent. See 2011 OVDI FAQ 25 (fifth bullet point).   the taxpayer, the claim must be made within two years from the time the tax was paid. If the Service and the taxpayer execute an agreement to extend the period for assessment (Form 872, Consent to Extend the Time to Assess Tax), the period for filing a refund claim does not expire before six months after the expiration of the period during which assessment could be made pursuant to the agreement or any extension thereof under section 6501(c)(4). I.R.C. § 6511(c)(1). Additions to tax, additional amounts, and penalties provided by chapter 68 shall be assessed, collected, and paid in the same manner as taxes. I.R.C. § 6665(a). Further, any reference in title 26 to "tax” imposed by the title shall be deemed to also refer to the additions to the tax, additional amounts, and penalties. In the case of any overpayment, the Secretary or his delegate, within the applicable period of limitations, may credit the amount of such overpayment, including any interest allowed thereon, against any liability in respect of an internal revenue tax on the part of the person who made the overpayment and shall refund any balance to such person. I.R.C, § 6402(a). Section 6514 prohibits the Service from making a refund or credit of any portion of an internal revenue tax after the expiration of the period of limitation for filing a claim therefor, unless a claim was actually filed within that period. Claims 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 thereof. Treas. Reg. § 301.6402-2(b)(1). Any claim must include a written declaration made under penalties of perjury. Claims for refund of income tax should be made on Form 1040X; claims for penalties and additions to tax on Form 843. Treas. Reg. §§ 301.6402-1 (c) and 301.6402-2(a)(2). Notwithstanding the requirement to file claims for refund with specific information on specific forms, courts have long recognized that a technically deficient claim may serve as an informal claim for refund that is timely under section 6511(a). United States y. Kales. 314 U.S. 186,194 (1941). To be an informal claim or refund, a taxpayer’s submission must be in writing and must be delivered to Service before expiration of the section 6511 period. Id. at 194. That writing, in conjunction with surrounding circumstances, must adequately notify the Service that the taxpayer is claiming a refund and the basis therefore, jd. Finally, the technical defects will be waived once the Service waives them by considering the refund claim on its merits, or the taxpayer perfects the informal claim before the Service rejects the informal claim, for example by filing a Form 1040X or Form 843. Overpayments and the Period of Limitations on Assessment Section 6501(a) generally requires that the Service make an assessment within three years of the date the taxpayer files a return. There are several exceptions to this three- year period including, but not limited to: 1. Section 6501(e)(1)(A)(i) six-year period when the taxpayer omits from gross income an amount properly includible therein that exceeds 25 percent of the amount of gross income reported on the return;   2, Section 6501(e)(1)(A)(ii) six-year period when the taxpayer omits from gross income an amount properly includible therein that is attributable to one or more assets with respect to which information is required to be reported under section 6038D and is in excess of $5,000 for a substantial omission of items; 3. Section 6501(c)(8) six-year period when the taxpayer fails to notify the Secretary of certain foreign transfers. The term ‘overpayment’ includes that part of the amount of the payment of any internal revenue tax which is assessed and collected after the expiration of the period of limitations, I.R.C. § 6401(a). The purpose of an assessment, however, is only to place the taxes owed on the Government’s books. Hibbs v. Winn. 542 U.S. 88, 100 (2004). The taxpayer’s obligation to pay the tax does not depend on whether the assessment has been made. United States v. Kelley, 539 F.2d 1199, 1203 (9th Cir. 1976), cert. denied, 429 U.S. 963, 97 S.Ct. 393, 50 L.Ed.2d 332 (1976) (“Tax liability is imposed by statute independent of any administrative assessment,’’). Therefore payments made before the assessment statute expired are not overpayments, even if no assessment is ever made. See Principal Life Ins. Co. v. United States, 95 Fed. Cl. 786 (2010); Rev. Rul. 85-67, 1985-21 I.R.B. 12. ("Where taxes and interest legally due have been paid before the expiration of the period of limitations for assessment... they cannot be recovered by the taxpayer merely because they have not been formally assessed.’’) See also Lewis v. Reynolds. 284 U.S. 281, 283 (1932) (“Although the statute of limitations may have barred the assessment and collection of any additional sum, it does not obliterate the right of the United States to retain payments already received when they do not exceed the amount which might have been properly assessed and demanded.’’). When taxpayers enter OVDI and disclose additional tax liabilities, they make payments of income tax due on each year disclosed. It is possible that, when the payments are made, the assessment statute has already expired on one or more of the disclosed years. Refunds should be made only for those years that were already barred when the payment was made, provided that a timely refund claim was filed. Discussion Scenario 1 ------------- On made payments totaling which were applied to (81- their liabilities for income tax and the offshore miscellaneous penalty. On the Service approved request to opt out of the OVDI. On [Filed a Form 843 requesting a refund of the entire amount paid while acknowledging that I ■ - This claim is technically deficient in several ways. For example, to the extent it is for a refund of individual income taxes, the claim should have been on a Form 1040X. Further, listed as the year to which the claim related, even though they made disclosures and payments for tax years and even though a large portion of the funds were posted to I Ito satisfy the miscellaneous (•’X penalty. In our view, however, this submission should be considered a valid informal claim. It provided the Service with written notice that a refund was being sought. In   conjunction with the fact that had recently opted out of the OVDl, it provided a sufficient basis for the claim, namely that was requesting a refund for liabilities they would not owe once the civil examination was complete. Thus for section 6511 (a) purposes, the claim for refund was filed on which is within two years nfl 1 the date payment was made. The claim is timely and should considered by the Service. The Service has determined that assessments for tax and penalties could be made for tax years We agree with this conclusion. We also recommend that the revenue agent reconsider tax year . filed their return on Under section 6501(a), the period of limitations on assessment would have expired on If any of the six-year periods of limitation apply to that year the period of limitations would be extended to Because made the payment for on , the six-year period would have been'open at that time. Although an assessment cannot be made at this time, the Service should not refund the payment if a six-year limitations period applies to that year. Scenario 2 I J made payments in the amount of I Joni 1 .... for a total of On the taxpayers sent letter to the Service to opt out of the OVDl. This letter included a request for a refund in the amount of This amount was based on claim that their total tax liability for open tax years was This claim was technically deficient, in that it was not filed on a proper form or signed under penalties of perjury. Nevertheless, it serves as an informal claim for refund because it is in writing and because it apprises the Service that the taxpayers are seeking a refund of liabilities they believe they will not owe once they opt out of the program. Finally, perfected a claim for a refund of the miscellaneous penalty payments by filing a Form 843, The letter was received by the Service on which is less than two years from the date of both payments. Therefore, has made a timely claim under section 6511 (a). With respect to the revenue agent’s decision to examine only tax year your office has already advised the agent to reconsider tax years I 1. We agree with that recommendation. In addition, we recommend that the revenue agent also consider whether refunds should be made for filed their return on Although the three-year period of limitations on assessment would have expired on a six-year period of limitations would not have expired until Because made a payment for on(: the assessment period of limitations may not have been expired on that date. For filed the return on . Although the three-year period of limitations on assessment would have expired on I j a six-year (b)(' period would not have expired until . Again, because made a payment for on , the assessment period of limitations on assessment may not have been expired on that date. Although no assessments for can be made at this time, the Service should hot refund the and payments if the six-year limitations period applies to those years: (b)(</div>

Refund Claims for Payments Made Within 2011 OVDI Were Timely

Refund Claims for Payments Made Within 2011 OVDI Were Timely

Internal Revenue Service

In a legal memorandum, the IRS concluded that taxpayers in two different scenarios in which they opted out of the 2011 offshore voluntary disclosure initiative and requested a return of payments made upon entry into the program made a timely claim for refund.

In a legal memorandum, the IRS concluded that taxpayers in two different scenarios in which they opted out of the 2011 offshore voluntary disclosure initiative and requested a return of payments made upon entry into the program made a timely claim for refund.

In a legal memorandum, the IRS concluded that taxpayers in two different scenarios in which they opted out of the 2011 offshore voluntary disclosure initiative and requested a return of payments made upon entry into the program made a timely claim for refund. For purposes of determining whether there is an overpayment for disclosed tax years, the IRS concluded that it must evaluate whether the assessment period of limitations was open for each disclosed year on the date the payment was made.

In a legal memorandum, the IRS concluded that taxpayers in two different scenarios in which they opted out of the 2011 offshore voluntary disclosure initiative and requested a return of payments made upon entry into the program made a timely claim for refund. For purposes of determining whether there is an overpayment for disclosed tax years, the IRS concluded that it must evaluate whether the assessment period of limitations was open for each disclosed year on the date the payment was made.