Statutes of Limitations on Assessments and Refunds/Credits Following Federal Action
This is the third in a series of four articles on Statutes of Limitations (SOLs) relating to California tax law. This month's article addresses common SOLs for assessments and claims for refund or credit following a federal action. The last article will cover miscellaneous SOLs for assessment and refund/credit.
- What is the SOL for us to issue an assessment following federal action?
Timing is everything! The date we are notified of an Internal Revenue Service (IRS) adjustment determines when we may issue an assessment resulting from the federal adjustment.
- If the taxpayer or the IRS reports a federal adjustment to us, or if a taxpayer files an amended California return reflecting the federal adjustment, within six months after the final federal determination date, we may issue a proposed assessment within the later of (1) two years after the date we received notice of the federal adjustment, or (2) the expiration of any other open SOL under California law. (Revenue and Taxation Code (R&TC) Section 19059)
- If notice of the federal adjustment is reported to us more than six months after the final federal determination date, we may issue a proposed assessment within the later of (1) four years after the date we receive notice of the federal changes or corrections, or (2) any open SOL under California law.
- If neither IRS nor the taxpayer reports a federal change or correction, we may issue a proposed assessment at any time. (R&TC Section 19060(a))
- What is the SOL to file a claim for refund following federal action?
Pursuant to R&TC Section 19311, a taxpayer may file a claim for refund resulting from a federal adjustment within the later of the general four-year SOL (R&TC Section 19306) or two years from the final federal determination date.
- Are there limitations on the scope of claim for refund following federal action?
Yes. There are three important limitations. First, a claim for refund under R&TC Section 19311 is limited to overpayments resulting from the federal adjustment. Generally, this means that the same issue or item adjusted by the IRS can be the basis of a California claim. Second, a claim for refund filed under R&TC Section 19311 must be based on a federal adjustment to an original or amended federal return, and the federal adjustment must affect the tax shown on an original or an amended California return previously filed with us. The original state or federal return of a non-filer does not result from a federal determination. Third, a federal adjustment may result in a claim for refund for a tax year different from the tax year in which the federal adjustment occurred. This commonly occurs where there is a federal carry forward or carryback that is not applicable under California law or where there is a California-only credit or credit carry forward in the year of the federal adjustment.