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TAX CLINIC

To be valid, a protective refund claim must actually be contingent on a
future event — a taxpayer cannot file a protective refund claim merely
to reserve its right to make a refund claim in the future.

The taxpayer filed a protective refund is resolved, and the taxpayer owes an issue on which the taxpayer may request

claim saying he would furnish the “exact additional $3 million in foreign taxes. competent authority assistance (id.,
data” relating to his refund claim after his The corporation cannot amend its §11.03(1)). Like all refund claims, the
books were audited and the extent of the 2018 return to take a credit for those protective refund claim must satisfy the
bookkeeper’s misconduct discovered. The additional foreign taxes, unless it had requirements of Sec. 6402 and Regs. Sec.
court held that the informal claim, later filed a protective claim. 301.6402-3; i.e., it must “(a) fully advise
perfected, was sufficient to toll the refund the IRS of the grounds on which the
statute of limitation. Accordingly, taxpayers involved in credit or refund is claimed, (b) contain
In the other case, the taxpayer filed foreign tax audits should consider filing sufficient facts to apprise the IRS of the
a protective refund suit stating that she protective refund claims with the IRS exact basis of the claim, (c) describe and
believed her deceased husband had paid with respect to the potential future pay- identify the contingencies affecting the
a tax in 1948 that was also paid by his ment of foreign taxes for the year at issue. claim, (d) state the year for which the
estate in 1954 (Caswell, 190 F. Supp. (See also an Office of Chief Counsel claim is being made, (e) be verified by
591 (N.D. Cal. 1960)). In the refund memo, Legal Advice Issued by Field At- written declaration made under penal-
claim, the taxpayer said she was filing a torneys (LAFA) 20125202F, concluding ties of perjury, and (f) be filed before the
protective claim to allow more time to that a taxpayer filed a valid protective expiration of the applicable period of
look for proof of payment. Again, the claim pending the resolution of a foreign limitation to which the claim relates” (id.,
court held the protective refund claim to tax dispute on the withholding taxes of §11.02(3)).
be sufficient. constructive dividends.)
Foreign tax credit redetermina- If the taxpayer is working with the Analyze the facts
tions: One common reason for protec- U.S. competent authority to resolve the and circumstances
tive refund claims involves the foreign foreign tax dispute through the mutual Taxpayers with contingent refund claims
tax credit. Under Sec. 901(a), taxpayers agreement procedures (MAP), the IRS should consider filing protective refund
are allowed a credit for foreign taxes paid. instructs taxpayers to file protective claims before the refund statute of limita-
However, taxpayers can claim foreign refund claims: “A taxpayer may make a tion expires. Although protective claims
tax credits only within 10 years of the protective claim to protect its right to a do not require a dollar amount or imme-
due date for filing the return for the year potential credit or refund in the event diate demand for refund, they should still
in which the tax was paid or accrued that a competent authority resolution is comply with the regulatory requirements
(Sec. 6511(d)(3)(A)). It is critical that reached and to retain its rights of access for refund claims (e.g., the specificity re-
taxpayers note that this period runs from to any alternative remedies available out- quirement). In addition, taxpayers should
the unextended due date of the return for side of the competent authority process amend their protective refund claims as
the year to which the taxes relate (Regs. under the Code or regulations” (Rev. soon as practical after the contingency
Sec. 301.6511(d)-3(a)). So, although 10 Proc. 2015-40, §11.02(1)). The revenue is resolved.
years may seem like a long time to claim procedure states that, generally, taxpayers From Matt Cooper, J.D.; Howard
a refund, it may in fact be relatively short, should file the protective claim when they Berman, J.D.; and Teresa Abney, J.D.,
considering how long foreign audits may have “reason to believe that an action of Washington, D.C. ■
take to resolve. a tax authority has resulted or is likely to
result in a competent authority issue” (id., Editor
Example: In 2022, a foreign tax §11.02(2)).
authority audits a corporation’s 2018 To file the protective refund claim, the Alexander J. Brosseau, J.D., CPA,
taxes. The audit concludes in 2025, taxpayer can either include the claim with is a senior manager in the Tax Policy
but the corporation disputes the the MAP request or file a letter stating Group of Deloitte Tax LLP’s Washington
audit and litigates the issue in the that the claim is being made pursuant National Tax office.
foreign courts. In 2030, the litigation to Rev. Proc. 2015-40 in relation to an

28 March 2023 The Tax Adviser