United States

Pennsylvania: The Statute Of Limitations for a Refund Claim begins on the Return Due Date

Dec 04, 2017
From KPMG TaxWatch

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Recently, the Pennsylvania Supreme Court overturned a Commonwealth Court decision addressing when the three-year statute of limitations commences for filing an income tax refund claim. Under Pennsylvania law, a petition for refund must be filed “within three years of actual payment of tax.” For calendar year corporate taxpayers, final payment is due along with a return on April 15 of the year following the applicable tax year. The taxpayer at issue made quarterly estimated tax payments throughout the relevant tax year. Without having sought an extension, the taxpayer filed its 2007 return late on September 19, 2008. On this return, the taxpayer reported a tax liability that was less than the total estimated payments already submitted to the state. After a late filing fee was applied, the remaining overpayment was applied to the next tax year. On September 16, 2011, the taxpayer filed a petition for refund for 2007 with the Board of Appeals. The petition was dismissed as untimely by the Department of Revenue and the Board of Finance and Revenue. In the Board’s view, April 15, 2008 (the due date of the return) was the date the taxpayer made its actual payment of tax. The taxpayer subsequently appealed to the Commonwealth Court. 

The Commonwealth Court, addressing the meaning of the phrase “actual payment of the tax,” had concluded that it meant the delivering of money in the acceptance and performance of an obligation, rather than the mere depositing of money on account for potential future use. In the court’s view, a corporation's tax liability was not established until the corporation's annual return was filed, which could be a date other than the due date of the return. On appeal, and in a lengthy opinion, the Pennsylvania Supreme Court disagreed. The court observed that under Pennsylvania law the payment of taxes and the filing of tax returns were two separate and distinct events. Noting that estimated and prepayments are deemed to have been made on the due date for filing the annual report without regard to any extensions, the court concluded that the “actual payment of tax” occurred on April 15, 2008. In the court’s view, this was the date that tax was due and payable, and when the Department had accepted the estimated tax payments and credits as payment for the taxpayer’s 2007 liability. As such, the taxpayer’s refund claim was untimely because it was not filed within three years of the April 15, 2008 due date for filing the 2007 corporate income tax return. For more information on Mission Funding Alpha v. Pennsylvania please contact Howard Sklaroff at 267-256-2891.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.