The Clock is Ticking to File a Protective Refund Claim for 2022 Section 965 Installment Payments

Taxpayers watching the U.S. Supreme Court for the outcome of Moore v. U.S., No. 22-800, can do more than wait. As suggested in the firm's earlier alert (see here), taxpayers could consider filing a refund claim with the IRS. In this follow-on alert, we explain the procedure in detail as time to file may be short.

Individual taxpayers who paid a section 965 installment payment in 2022 may have an opportunity to preserve their right to a refund of that payment by filing a protective refund claim now, while Moore is pending.  The statute of limitations on 2017 and 2018 tax returns, on which section 965 tax was generally reported, has closed, but the statute of limitations for claiming a refund on a payment is two years from the date of payment.  An individual’s 2022 installment payment was due April 15, 2022.  If the payment was in fact made on or around April 15, 2022, then the statute of limitations would run on that payment date in 2024.  As a result, many individuals who paid a 2022 section 965 installment may need to act fast to file a protective refund claim for that payment, in the hope that the U.S. Supreme Court finds section 965 unconstitutional.  A protective refund claim will not be processed by the IRS at the time of filing—it simply preserves a taxpayer’s right to claim the refund after Moore is decided.

To determine if you should file a protective refund claim:

1. Confirm the date of your 2022 payment and the filing deadline of two years from that date.  If you made your payment early, then the statute of limitations might have already expired; if you made your payment late, you have until two years from the actual date of payment (not the due date).
2. Consider your individual tax circumstances.  If you took dividends in connection with the income that generated the section 965 tax, then a refund of section 965 tax could increase the tax rate on such dividends.  Similarly, you may have other tax attributes that would be affected by reducing your section 965 tax liability.  Take such knock-on effects into consideration in determining whether a refund of the 2022 payment of section 965 tax would in fact benefit you overall.  

To file a protective refund claim:

1. Prepare an amended tax return, Form 1040X, for the year in which you reported the section 965 tax (2017 or 2018 probably) with the words “PROTECTIVE REFUND CLAIM – DO NOT PROCESS” at the top.
2. Reduce the amount of section 965 tax by the amount of the 2022 installment payment.
3. Provide a statement explaining the basis for the refund claim.

Your tax return preparer can assist with several of these steps, and our firm can lend its expertise in this area, as our Tax Disputes & Tax Litigation practice is adept at handling refund litigation. In depth information on Moore v. U.S. and section 965 is available on our website here. Please contact us for assistance.