Oregon Tax Court extends refund period due to out-of-state filings
Pass-through entity filings related to taxpayer’s Oregon return
TAX ALERT |
On Aug. 23, 2016, the Oregon Tax Court issued its decision in Tomseth v. Dep’t of Revenue, extending the statute of limitations for filing an Oregon personal income tax refund claim pursuant to the filing of pass-through entity returns in Montana and Idaho.
The taxpayer at issue filed Oregon personal income tax returns for the 2009 and 2010 tax years, claiming pass-through items of income, gain, deduction and loss for two S corporations and two limited liability partnerships. During the years in question, the partnerships conducted business in Oregon and Montana and the S corporations in Oregon, Montana, Idaho and Utah.
In 2014, the S corporations and partnerships entered into voluntary disclosure agreements with the state of Montana filing 2009 and 2010 Montana corporate and composite tax returns and 2009 and 2010 Montana partnership information and composite returns, respectively. Pursuant to the voluntary disclosure, income taxes were paid by the four pass-through entities on the taxpayer’s behalf as a result of the taxpayer’s ownership interest in each. Additionally in 2014, one of the S corporations entered into a voluntary disclosure agreement with the state of Idaho for the 2009 and 2010 tax years, also making a tax payment on behalf of the taxpayer.
As a result of the voluntary disclosures in Montana and Idaho, the taxpayer amended its 2009 and 2010 Oregon personal income tax returns in late 2014 claiming additional refunds. Those refunds were denied by the Oregon Department of Revenue as filed outside of Oregon’s three-year statute of limitations period.
On review by the Oregon Tax Court, the taxpayer argued that an exception to the statute of limitations for claiming refunds, or assessing a deficiency, applied to the taxpayers’ amended returns. The exception provides that an item attributable to a pass-through entity does not expire prior to three years from the date of the filing of the ‘pass-through entity return’ to which the item on the taxpayer’s return relates. Specifically, the taxpayer argued that pass-through entity return refers to any entity return, provided that it relates to taxpayer’s return. Therefore, the Oregon filing dates for purposes of calculating the period for claiming a refund should be based on the dates of filing of the Montana and Idaho entity returns.
After a lengthy review of Oregon’s statutory interpretation case law and legislative history, the court agreed with the taxpayer, concluding that the legislature’s primary concern was to extend the statutory period to allow changes to an individual return based on subsequently obtained information from the filing of a pass-through entity return. Therefore, as long as any entity return is attributable to a pass-through entity and is shown or required to be shown on the taxpayers’ individual Oregon return, the statute of limitation exception should apply.
The taxpayer’s 2009 and 2010 amended Oregon personal income tax returns were timely because the refunds were attributable to pass-through entity returns (Idaho and Montana) filed in 2014. The extension, permitting a claim for refund or assessment of deficiency three years from the date of the filing of a pass-through entity return, is not limited to an Oregon pass-through entity return as long as the item on the taxpayer’s return relates and is attributable to the pass-through entity. Oregon taxpayers outside the statute of limitations should review if similar circumstances apply, or whether filings in other states with longer statute of limitations, such as California, would permit an amended return in Oregon.