Mitigation of the SOL on refund claims.

• Author: Hudson, Boyd D.
• Position: Statute of limitations

The Internal Revenue Code's mitigation provisions (Sees. 1311-1314) are available to either a taxpayer or the IRS to provide relief when the statute of limitations (SOL) or other provisions would otherwise give rise to an inequitable adjustment in tax. The provisions permit either a refund to the taxpayer or an assessment to the Service under special circumstances.

The mitigation provisions usually arise when the taxpayer or the IRS maintains an inconsistent position, the effect of which would cause a double inclusion of income or double exclusion of a deduction. For example, assume a taxpayer erroneously includes an item of income in year 1 (a year closed by the statute) when it should have been included in year 2. If the Service determines that year 2 rather than year 1 is the proper year of inclusion, the Service has maintained an inconsistent position. The taxpayer can invoke the mitigation provisions to Obtain a refund for the taxes paid on the income item in year 1 (Regs. Sec. 1.1311 (b)-1(b)(1)). Likewise, if a taxpayer erroneously claims a deduction in year 1, which the IRS determines should have been claimed in year 2, the taxpayer has maintained an inconsistent position. The Service can invoke the mitigation provisions to assess additional tax in year 1, despite the fact that the SOL for year 1 is otherwise closed (Regs. Sec. 1.1311(b)-1(c)). In all cases, a key element is the existence of a "determination" under Sec. 1311 that gives rise to the inconsistent position.

Taxpayers often invoke the mitigation provisions when refund claims are not timely filed. The IRS and the courts normally deny these claims, as the Ninth Circuit recently did in Beaudry Motor Co., 9/16/96.

Corporation B filed returns for calendar-year 1983 and 1984, properly claiming an investment tax credit (ITC). In 1986, B disposed of some of the property...