Federal Circuit Narrowly Interprets Limitations Period For Foreign Tax Credit Refund Claims

In Albemarle Corp. v. United States, No. 2015-5015 (Fed. Cir. Aug. 13, 2015), the United States Court of Appeals for the Federal Circuit disallowed claims for refund related to foreign taxes paid by Albemarle Corporation (Albemarle) on the ground that it failed to file its claims within section 6511(d)(3)(A)'s 10-year limitations period. The Federal Circuit is the first appellate court to address this issue, and taxpayers paying foreign taxes need to be aware of the ramifications of the decision.

Generally, a taxpayer must file a claim for refund within the later of three years from the time the return was filed, or two years from the time the tax was paid. Congress extended this period for refund claims related to foreign tax credits (FTC). Internal Revenue Code (IRC) § 6511(d)(3)(A) extends the refund limitation period to "10 years from the date prescribed by law for filing the return for the year in which such taxes were actually paid or accrued." Before IRC § 6511(d)(3)(A) was amended in 1997, the statute required that such claims be made within 10 years from the date prescribed by law for filing the return for the year with respect to which the claim was made.

Background

Albemarle's Belgian subsidiary issued 20-year debentures to Albemarle and certain U.S. subsidiaries of Albemarle (that collectively filed a U.S. consolidated income tax return). The Belgian subsidiary paid interest on the debentures from 1997-2001. The Belgian subsidiary did not pay Belgian withholding tax because it took the position that the interest payments were tax-exempt, which the Belgian taxing authority challenged. Ultimately, Albemarle and the Belgian taxing authority compromised in 2002, and Albemarle agreed to pay Belgian withholding tax at a rate of 15 percent on all interest paid from 1997-2001. Albemarle made two payments (in January and August 2002, respectively) to the Belgian taxing authority in satisfaction of the owed tax.

On May 15, 2009, Albemarle filed refund claims for its 1997-2001 tax years. The Internal Revenue Service (IRS) permitted the refund claims except for 1997 and 1998. The IRS disallowed the 1997 and 1998 refund claims as untimely. The IRS interpreted IRC § 6511(d)(3)(A) to require a taxpayer to file a refund claim within 10 years from the date the tax return for that year was due, without extension. Albemarle, however, argued that the plain language of IRC § 6511(d)(3)(A) permits a taxpayer to file a claim for refund within 10 years from the date the payment was in fact (actually) made (i.e., 10 years from 2002), not from the date the original tax return for the tax year was due. The U.S. Court of Federal Claims upheld the IRS's interpretation and Albemarle appealed. For prior coverage of the Court of Federal Claims' decision, see Court Weighs in on Deadline for Filing FTC...