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(Stafford, 983 F.2d 25 (5th Cir. 1993), the statute of limitation on credits and the deductibility by a passthrough entity
and Powell, 955 F.2d 1206 (9th Cir. refunds, it should be noted that this (PTE) of a “specified income tax pay-
1992)); or a tax liability was eligible for result could also be advantageous to the ment,” which is defined as “any amount
discharge in bankruptcy (Bergstrom, 949 IRS in limited circumstances. Should paid by a partnership or an S corpora-
F.2d 341 (10th Cir. 1991)). a taxpayer’s original return disclose ad- tion” to a state, a political subdivision
Based on Healer and the other cases ditional income that was not included in of a state, or the District of Columbia
cited above, a taxpayer’s nondelegable the SFR assessment, any additional tax to satisfy its liability for income taxes
duty to file a tax return, coupled with arising from the additional income may they impose on the partnership or the S
practical consideration of the intended be assessed by the IRS without running corporation. To date, no such guidance
purpose of Sec. 6020 SFR authority, afoul of the assessment statute outlined has been published, and the priority of
the courts support the proposition that in Sec. 6501. IRM provisions inform this guidance is unclear after the passage
an SFR filed pursuant to Sec. 6020(b) IRS employees of their ability to assess of the Inflation Reduction Act of 2022,
is prima facie good and sufficient for additional tax under such circumstances P.L. 117-169, and the competing need
all purposes where the IRS’s author- (see IRM §4.12.1.5.4(2)). for guidance in other areas of the tax law.
ity to prepare a return, determine the With the lack of expanded guidance
tax liability on such return, and make Advocating for clients in this area, taxpayers and practitioners
assessments based upon that return is Based on the reasoning outlined in face uncertainty regarding the timing of
at issue. However, courts have limited Healer, an SFR filed by the IRS on the deduction provided for in the notice.
the application of Sec. 6020(b) in other behalf of a taxpayer under the authority Specifically, for passthrough entities on
contexts, including cases involving the of Sec. 6020(b) likely does not constitute the accrual method, the issue arises of
statute of limitation on a claim for re- a return for purposes of determining whether the deduction must be taken
fund or credit. whether the limitations imposed by in the year the tax is paid or whether it
IRS internal guidance is consistent Sec. 6511 apply to a taxpayer’s claim for is possible to take the deduction in the
with the holding in Healer. The Inter- credits or refunds. It is important for preceding year.
nal Revenue Manual (IRM) states that tax practitioners to be aware of the rules
SFR reconsideration claims are original and prior court analysis concerning the Timing rules
returns and instructs employees to statute of limitation on claims for credit The notice states that if a partnership
apply the refund statute expiration date and refunds for a tax year where an SFR or an S corporation makes a specified
(RSED) rules to the date the original is present in order to effectively advocate income tax payment during a tax year, it
return filed by the taxpayer is received for clients, particularly in the event that is allowed a deduction for the payment
(see IRM §4.13.5.4.6 (Dec. 16, 2015)). the IRS misinterprets Sec. 6020(b). “in computing its taxable income for
Therefore, a taxpayer may be eligible From Tiffany Mosely, J.D., LL.M. the taxable year in which the payment
to file a claim for refund at any time (Tiffany.Mosely@rsmus.com), is made.” This language implies that a
if the only return present is an SFR Los Angeles deduction is only allowed in the year
filed pursuant to Sec. 6020(b). There is of payment. However, the notice fails
evidence that this may remain true even to address whether certain special rules
where the taxpayer signs the SFR audit State & Local Taxes apply relating to accrual-basis taxpayers
report or otherwise ratifies a return and the timing of their state income
made pursuant to Sec. 6020(a) (see Rev. PTE deduction: Timing issues tax deductions.
Rul. 2005-59, also Millsap, 91 T.C. 926, for accrual-method taxpayers For a cash-basis taxpayer, the notice’s
938 (“the substitute returns in this case, It has been over two years since the IRS language appears in line with the gen-
prepared by respondent under section issued Notice 2020-75, which effectively eral rules under Regs. Sec. 1.461-1. A
6020(b), do not preempt or preclude blesses an entity-level workaround to the taxpayer utilizing the cash receipts and
the petitioner’s right to contest the defi- individual $10,000 state and local tax disbursements method of accounting
ciency determined by respondent”), and deduction limitation imposed through is generally allowed a deduction for an
IRM §4.12.1.10.3(1)). 2025 and enacted as part of the law item in the tax year in which it is paid.
known as the Tax Cuts and Jobs Act, For an accrual-basis taxpayer, the
A double-edged sword P.L. 115-97. notice is also in line with the general
While it is favorable to taxpayers to As background, Notice 2020-75 an- rules under Regs. Sec. 1.461-1 but does
take the position that an SFR does nounces the intent of Treasury and the not address the applicability of certain
not constitute a return for purposes of IRS to issue proposed regulations on special rules that may allow for the

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