Supreme Court Denies Review in Highly Contested Foreign Tax Credit Case

By and on April 19, 2016

On April 18, 2016, the Supreme Court denied certiorari in the foreign tax credit dispute involving Albemarle Corp.  We have previously written about the case here, here, and here, which involved the timeliness of claims for refund pursuant to Internal Revenue Code (IRC) section 6511(d)(3)(A)’s 10-year limitations period.

Generally, a taxpayer must file a claim for refund within the later of three years from the time the original return was filed, or two years from the time the tax was paid.  Congress extended this period for refund claims related to foreign tax credits (FTC).   IRC section 6511(d)(3)(A) extends the refund limitation period to “10 years from the date prescribed by law for filing the return for the year in which such taxes were actually paid or accrued.” Before IRC section 6511(d)(3)(A) was amended in 1997, the statute required that refund claims be made within 10 years from the date prescribed by law for filing the return for the year with respect to which the claim was made.

In the Albemarle case, the taxpayer filed refund claims related to foreign taxes paid that were more than 10 years after the date the tax returns for the years were due, without extension.  The taxpayer argued that the plain language of the statute permitted it to file a claim for refund within 10 years from the date the payment was in fact (actually) made, which was less than 10 years before the claims were filed.  Both the US Court of Federal Claims and the Federal Circuit disagreed, with the latter holding that the term “actually … accrued” is ambiguous and that Congress intended that the relevant period commenced on the due date of the original returns.

Taxpayers with a similar fact pattern to Albemarle, and who desire to dispute the holding in that case, will want to file suit in local district court to avoid the negative precedent and hope that a court not bound by the Federal Circuit will reach a different decision.  Taxpayers may also want to consider filing protective refund claims in situations where it does not appear that a tax payment to a foreign jurisdiction will actually be made (and there will be enough time to file a formal refund claim with the IRS) within 10 years from the date the US federal income tax return was filed to avoid the situation in Albemarle.

Andrew R. Roberson
Andrew (Andy) R. Roberson focuses his practice on tax controversy and litigation matters. He represents clients before the Internal Revenue Service (IRS) Examination Division and Appeals Office and has been involved in over 75 matters at all levels of the federal court system, including the US Tax Court and Federal District Courts, several US Courts of Appeal and the Supreme Court. Andy has experience settling tax disputes through alternative dispute resolution procedures, including Fast Track Settlement and Post-Appeals Mediation, and in representing clients in Compliance Assurance Process (CAP) audits. In addition to representing corporations and partnerships in tax disputes, he also represents high net-worth individuals and assists taxpayers needing to make voluntary disclosures. Read Andy Roberson's full bio.

Damon M. Lyon
Damon M. Lyon focuses his practice on cross-border mergers and acquisitions, global planning and international controversies for multinational companies. He advises clients on a broad range of tax issues, including tax-efficient structuring of acquisitions, dispositions, financings, internal reorganizations and joint ventures. Damon also provides advice concerning multi-jurisdictional business structures, such as intangible holding companies and finance company structures. Read Damon M. Lyon's full bio.