Legal Ruling 1958-40

Overpayment of Tax: Credit For Overpayment Disallowed

An overpayment credit due a subsidiary corporation may not be credited against taxes due from the parent and subsidiary determined on a combined basis where the statute of limitations has run against the subsidiary.

It was determined by the Franchise Tax Board that the operations of a parent and subsidiary corporation were unitary and should be combined in one report for income years 1941 and 1949. The tax computed on a combined basis is less for income years 1941 than 1942 than the taxes paid by the two corporations separately. The statute of limitations is still open as to X Co. for 1941 and 1942, but it has run on Y Co. The total overpayment is greater than the original tax paid by X Co. Advice is requested as to what amount of the overpayment can be credited against taxes for later years due from the corporations on a combined basis.

Section 26073 places a limitation on the period during which a refund or credit for overpayment may be claimed. No distinction is made as to the cause for which the overpayment is determined, so the limitation must apply to an overpayment resulting from a change from separate to combined reports just as it does to any other overpayment. Although the changeover to a combined basis has a practical result of there being one taxpayer where formerly there were two; nevertheless, both the commencement of the statute and the amount of the overpayment must be determined by looking to the original separate returns. The statute having run as to the Y Co. return, no part of the overpayment made by that corporation can be credited against taxes for later years due from the two corporations on a combined basis.