The IRS Office of Chief Counsel recently released a Technical Advice Memorandum (TAM 201335013) reiterating its position concerning the recovery of excess overpayment interest paid to a taxpayer. Rather than filing an erroneous refund suit within the normal two year statute of limitations, the IRS argues that it can recover the excess amount at any time by offset against a taxpayer’s refund claim. In 2005, the Federal Circuit issued its decision in Pacific Gas & Electric, rejecting that argument and concluding that recovery by offset is subject to the same two year statute of limitations that applies to erroneous refund suits.
When a Circuit Court of Appeals issues a decision with which the IRS disagrees, the IRS sometimes decides to continue to litigate the issue in other circuits. It usually concedes the issue in any case that would be appealed to the Circuit Court that issued the decision. In its initial response to PG&E, however, the IRS Office of Chief Counsel announced that it will continue to litigate the position even in cases that could be appealed to the Federal Circuit. The recent TAM reiterated that stance. However, PG&E is still binding precedent in the Federal Circuit. Taxpayers should consider filing any refund suits in the Court of Federal Claims, rather than district court, to protect against such offsets.
PG&E is one of the interest cases we have been monitoring in recent years; it is included on our chart of pending interest cases. If you have any questions about this or other interest issues, please contact one of the undersigned or any of the other Tax lawyers at Thompson & Knight.