Refund allowed after carryback recapture held entitled to overpayment interest.

• Author: Urban, Michael A.

The Court of Federal Claims last year awarded the Coca-Cola Company (Coca-Cola) overpayment interest on an overpayment of tax (determined by the Tax Court) that previously had been (1) allowed as a tentative refund and then (2) recaptured and held for six years by the IRS. The Claims Court rejected the IRS position that overpayment interest was not due because the IRS had originally issued the tentative refund within 45 days of the date Coca-Cola filed its application (Form 1139, Corporation Application for Tentative Refund). The court's decision suggests that corporations that have received refunds after the IRS has recaptured tentative refunds may be entitled to overpayment interest.

Tentative Refunds

Sec. 6411 allows a taxpayer to file an application for tentative refund based on the carryback of a net operating loss (NOL). The IRS must examine the application within 90 days for omissions and errors and, if it finds none, must either apply the decrease in tax liability against the taxpayer's unpaid taxes or refund the balance. Even if a tentative refund is issued, the IRS retains the right to audit the taxpayer's refund application and later recapture any amount it determines was refunded erroneously.

Although technically not a claim for credit or refund, an application for a tentative allowance under Sec. 6411 is treated as such a claim for purposes of determining whether the taxpayer is entitled to overpayment interest. Therefore, under Secs. 6611(f)(4)(B) and 6611(e), if a tentative allowance is issued within 45 days of the date of the taxpayer's application, the IRS is not required to pay overpayment interest.

Background

In September 1985, Coca-Cola filed an application for a tentative refund in the amount of $18.7 million for its 1981 tax year, based on an NOL carryback from 1984. The IRS issued the tentative refund 12 days later, without interest. However, in 1991, the IRS concluded that the taxpayer's claimed carryback from 1984 to 1981 was incorrect and recaptured $12.5 million of the tentative refund. Coca-Cola paid $9.8 million in additional tax and $3.8 million in deficiency interest and then filed a claim for refund of $13 million plus interest.

In 1997, the Tax Court held that there was an overpayment for 1981 that was attributable to an NOL carryback from 1984. The IRS then abated and refunded to Coca-Cola $12.4 million of tax and $5.5 million in deficiency interest. However, because the IRS did not post any overpayment...