When is a protective refund claim available? Taxpayers often face uncertain outcomes in litigation or business transactions, giving rise to contingent tax refund claims. For example, if a pending lawsuit ends in a favorable result, it may create new law that gives the taxpayer a more favorable tax position in an earlier year—creating a right to a tax refund. A taxpayer may even be waiting for a hoped-for change in the tax laws that will result in a retroactive right to a refund. But what if the taxpayer’s right to a refund claim will not become clear until after the statute of limitations expires on their ability to file a claim for refund with the IRS?
A protective refund claim may be the solution.
What is a Protective Refund Claim?
Protective refund claims preserve a taxpayer’s right to claim a tax refund when the taxpayer’s right to the refund is contingent on future events that may not occur until after the statute of limitations expires. The “protective claim” concept is not contained in the Code or Treasury regulations but is instead established by case law.
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