H. Jacob Lager


In Uncategorized on February 11, 2012 at 12:16 am

Some tax professionals are true artists. With poetic grace, they can demonstrate a client’s investment intent, business purpose, reasonable cause, or lack of willfulness.

One thing they can’t do is change the English language.

Which is what one taxpayer sadly realized last week, when the IRS published Chief Counsel Advice 201204008. There, the Service ruled that a taxpayer’s amended return/claim for refund was not timely where the taxpayer later elected to deduct instead of credit foreign taxes paid in an earlier year, thereby generating an increased net operating loss carryback from the earlier year.

In an inspired (?) bit of creativity, the taxpayer attempted to invoke Section 6511(d)(3)(A) to extend the normal three year statute of limitations for filing amended returns to ten years since that section is effective for refund claims related to foreign tax credits “allowable” to the taxpayer.

Unfortunately, the statute actually only applies to foreign tax credits that were “allowed” (i.e. taken by) the taxpayer. Citing the Dictionary (not even Black’s Legal Dictionary; just the regular old Dictionary), the Service noted the difference:

“The distinction between an ‘allowed’ credit and an ‘allowable’ credit is an important one. The term ‘allowable’ is defined as ‘that which may be allowed, legitimate, permissible.’ Random House Dictionary, Random House, Inc. 2011. The term ‘allowed,’ on the other hand, is defined as that which is permitted.”

Here, because the taxpayer filed an amended return in which it affirmatively elected to claim a foreign tax deduction, the option to use a credit was no longer “allowed.” No tax credit, no ten year statute of limitations, no net operating loss. Good day, Sir.

Care to test your reading comprehension? Like this post (include email address) and I’ll send you a copy of the ruling.


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