It’s important to file your tax return both on time and correctly. Generally, this happens simultaneously. However, in certain circumstances a taxpayer may have to file either a superseding return or an amended return. Taxpayers need to understand how each of these returns may affect both the assessment and refund claim dates.

IRS Counsel Reverses Course: Superseding Returns Filed on Extension Don’t Supersede for Purposes of Which Return Controls Assessment and Refund Claim Dates

The IRS must assess tax within three years after the return for that year was filed unless extended by one of the exceptions in IRC § 6501. A taxpayer must file a claim for refund of any tax within three years from the time “the return” was filed, or two years from the time the tax was paid, whichever period expires later (unless the taxpayer and the IRS agree to extend the period). In situations where a taxpayer files a second return before the filing deadline, the second return will be referred to as a superseding return (see NTA’s blog on superseding returns), a term used regardless of whether the second return is filed before the original deadline or before an extended deadline. A taxpayer who files a second return after the due date (whether original or extended) has filed an amended return (i.e., IRS Form 1040-X, Amended U.S. Individual Income Tax Return). Each year, approximately 20,000 superseding returns are filed on or before extended deadlines. In these situations, which date starts the assessment and refund clocks:  the filing date of the first (i.e., original) return, or the date the superseding return was filed? And what if the taxpayer subsequently files an amended return?

Make Sure Your Claims for Refunds Are Timely

First, let’s deal with amended returns. This question can easily be disposed of, as the filing of an amended return does not impact the assessment or refund statutes. Now let’s analyze how a superseding return may affect the time for filing a refund claim. A superseding return corrects the initial return, and those corrections are, in effect, incorporated into and treated as relating back to and modifying the original return. If the superseding return is filed on or before the original due date, it is deemed filed on the last day prescribed for filing. See IRC §§ 6501(b)(1) and 6513(a). Thus, the periods for the IRS to make an assessment and for the taxpayer to claim a refund will begin to run on the original due date, even if that day falls on a weekend or holiday. Generally, when a return is filed during an extension period, the return is treated as filed on the day it is received. So the question as to which return controls for purposes of filing a refund claim becomes a bit more complex when the taxpayer has filed for an extension, timely files a return, and then, before the extended deadline, files one or two superseding returns correcting the original return.

Spoiler Alert: The IRS’s position is that the original return, not the superseding return filed during the extended period, controls the statutory period both for assessment and for filing a refund claim.

Until this past summer, the IRS was inconsistent in whether it treated the original return or  superseding return as the controlling return for statutory assessment and refund purposes when both were filed before an extended due date. In June 2020, IRS Chief Counsel released advice providing that the original return controlled the statutory periods for assessment and refund. In October 2020, Internal Revenue Manual (IRM) 25.6.1.6.15, When a Document Is Treated As Filed Under the IRC, was updated to reflect the IRS’s change of position, providing that “neither the ASED (Assessment Statute of Expiration Date) nor the RSED (Refund Statute of Expiration Date) should be reset by the filing of a superseding return during the period of extension to file a return.” So even though a superseding return is considered “the return” for many reasons, it is still viewed as supplementing an already-filed return for purposes of statutes of limitation.

In Light of This Change, the First Valid Return Filed After the Prescribed Due Date but Before an Extended Due Date Controls the Period for Assessment and Timely Filed Refund Claim

Let’s consider an example where a taxpayer received an extension to file his 2018 tax return until October 15, 2019. On September 20, 2019, he timely files an original return, and then files a timely superseding return on October 15, 2019. Under the new Chief Counsel advice and IRM, the original return filed on September 20, 2019, would start both the assessment and refund claims periods, provided the return was valid. An invalid return — for example, one missing a signature — would not begin the statutory periods.

Note: a return is deemed invalid if it is missing one of the following four elements:

1. the information on the return is sufficient for the IRS to calculate the tax liability;
2. the filed document purports to be a tax return;
3. the return makes an honest and reasonable attempt to comply with the tax laws; and
4. the taxpayer executes the return under penalties of perjury.

The validity of such returns is considered under the facts and circumstances and may prove essential to determining statutory deadlines going forward.

Part Two: The “Look-back” Rule Limits the Amount of Refund Paid

A word of caution. When a taxpayer relies on the three-year period under IRC § 6511(a) for filing a refund claim, the refund is limited or prohibited by the “look-back” rule, even when a refund claim is timely filed. The look-back rule can be confusing. Where the taxpayer relies on the three-year period under IRC § 6511(b)(2)(A), the amount that can be refunded to the taxpayer is limited to the tax paid during the three-year period immediately preceding filing the claim, plus any extension of time for filing the return. If the taxpayer relies on the two-year period under IRC § 6511(a) (that is, two years after the tax is paid), the refund is limited to the tax paid within two years from the filing of the claim. There are additional complexities when the taxpayer agrees to extend the statute. An upcoming blog will explore this issue in greater depth.

So, What Does This All Mean?

If your head is still spinning, there is good reason. The statutory deadlines for the IRS to assess a tax liability and for a taxpayer to claim a refund are two of the most important time periods for taxpayers to consider. Once these periods have passed, the tax year, in most circumstances, is closed from both the IRS’s and taxpayer’s positions. Therefore, knowing the controlling date for when these will occur is critical. I urge taxpayers who filed superseding returns to pay close attention to how the IRS’s recent change regarding superseding returns affects these time periods for assessment and filing a refund claim, and how the look-back rule may impact your particular circumstances.

Considering the complexity surrounding these time periods, be sure to consult a tax professional about when exactly you need to file. Some taxpayers may qualify for free tax preparation through the Volunteer Income Tax Assistance program or free legal representation through a Low Income Taxpayer Clinic.