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informal claim, taxpayers may file ‘protec- (4) identify the specific year or years to preserve their refund claim within
tive claims,’ which ‘preserve the taxpayers’ for which a refund is sought (CCA two years of the filing of the protec-
right to claim a refund when the taxpay- 201136021).The protective refund claim tive AAR.
ers’ right to the refund is contingent on does not need to state a particular dollar
future events and may not be determin- amount or demand an immediate refund Reasons for refund claims
able until after the statute of limitations (id.). Once the contingency is resolved, IRM Section 21.5.3.4.7.3(1) notes
expires’ ”) (citing IRS Chief Counsel the taxpayer must perfect the protective that protective claims are “normally”
Advice (CCA) 200848045; see also CCA refund claim by filing a formal claim for based on expected changes in current
200547011)). refund. See Commercial National Bank regulations, pending legislation, or cur-
of Peoria, 874 F.2d 1165, 1170 (7th Cir. rent litigation. However, taxpayers also
Protective claims generally 1989) (“[U]nder certain special circum- frequently file protective refund claims
A protective refund claim suspends the stances a timely ‘informal’ refund claim while waiting for determinations from
refund statute of limitation until the may serve to toll the statute of limita- the IRS or (as discussed below) from
taxpayer can file a complete refund claim tions until the taxpayers properly can file other taxing authorities. See Pala, 234
after the occurrence of the contingency a formal refund request.”). F.3d at 880 (noting that the taxpayer
(see CCA 201136021 (“a valid protective IRM Section 21.5.3.4.7.3(2) states, could have filed a protective claim while
claim contains a present claim that the “A protective claim will be identified the IRS considered a request for a
Service may immediately allow or disal- with a literal ‘protective claim’ or similar determination that a plan was qualified
low once the contingency is resolved”)). language or verbiage related to current as a tax-exempt profit sharing plan);
Neither the Code nor Treasury regu- regulation or pending or current litiga- see also Rev. Proc. 2015-40, Section 11
lations mention protective refund claims, tion on the claim itself.” However, just (noting that taxpayers may file protec-
but the Supreme Court has established because a taxpayer writes “protective tive claims when seeking assistance
the right of taxpayers to file such a claim” on its Form 1120-X, Amended from the U.S. competent authority).
claim, and the IRS has recognized the U.S. Corporation Income Tax Return, Contingency vs. reserving right:
practice. See Kales, 314 U.S. 186 (1941), does not make the form a valid protec- To be valid, a protective refund claim
holding that a refund claim was suffi- tive claim. See CCA 201136021 (“A must actually be contingent on a future
cient even though written in future tense claim cannot be viewed as a protective event — a taxpayer cannot file a protec-
(e.g., “will claim”) and was contingent claim merely because a taxpayer labels tive refund claim merely to reserve its
on a future event. See also IRM Section it as such.”). right to make a refund claim in the
21.5.3.2(1), defining a refund claim as Critically, a taxpayer must perfect a future (see CCA 201136021 (conclud-
“a request for refund, or a request for protective claim once the contingency ing a claim was not a valid refund claim
an adjustment of tax paid or credit not has been resolved (see Pala, 234 F.3d at because it did not contain “a claim that
previously reported or allowed. This in- 880 (holding that the informal-claim is contingent” but merely informed
cludes protective claims and requests for doctrine is “predicated on an expecta- the IRS that the taxpayer wanted “to
abatement of interest/penalty.” Protec- tion that these formal deficiencies will reserve the right to make a claim in
tive claims filed with the IRS are gener- at some point be corrected”)). That is, the future”)). It is unclear whether a
ally put into suspense status, meaning following the occurrence of the contin- “contingency” that is within the control
that no action is taken on the protective gency, a taxpayer must amend a protec- of a taxpayer is grounds for a protec-
claim until the contingency is resolved tive refund claim to include the specific tive claim.
(IRM §4.10.11.2.1.3). dollar amount requested. In Field Service Advice (FSA) 392,
Taxpayers with partnership years sub- the IRS said courts have accepted protec-
Form of protective refund claim ject to the TEFRA audit regime need to tive refund claims when “the taxpayer
To be a valid protective refund claim, also consider the deadline to petition for merely needed additional time to provide
the claim must still comply with the a court redetermination. Under TEFRA, exact data.” However, both cases cited by
specificity requirement in Regs. Sec. a partnership must petition a court for a the FSA involve unique circumstances. In
301.6402-2. That is, the protective claim refund within two years of filing its ad- one case, shortly before the refund statute
must (1) have a written component; (2) ministrative adjustment request (AAR) of limitation expired, the taxpayer discov-
identify and describe the contingencies (former Sec. 6228(a)(2)). If the IRS does ered that his longtime bookkeeper may
affecting the claim; (3) be sufficiently not consent to extend the refund statute have been embezzling from him and that
clear and definitive to alert the IRS to of limitation, the partnership and its his tax returns may have been incorrect
the essential nature of the claim; and partners will need to file a court petition (Cochran, 62 F. Supp. 872 (Ct. Cl. 1945)).

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