In Albemarle Corporation & Subsidiaries v. U.S., No. 12-184T (Ct. Cl. 2014), the taxpayer, Albemarle, a domestic corporation, filed a complaint in the U.S. Court of Federal Claims seeking a refund for taxes paid in the 1997 and 1998 tax years. The taxpayer alleged that the IRS incorrectly disallowed its refund claims for foreign tax credits related to its Belgian subsidiary, Albemarle S.A. The government filed a motion to dismiss, stating that the complaint was untimely because the taxpayer’s claim for refund wasn’t made within the statutorily prescribed period of limitations under Section 6511(d)(3)(A). The court agreed, holding that the refund claim wasn’t timely and granted the government’s motion to dismiss.

During 1997 and 1998, Albemarle S.A. made interest payments to the taxpayer and other members of the taxpayer’s consolidated group. Albemarle S.A. didn’t pay any Belgian withholding tax related to the interest payments because it believed the interest payments were exempt from such withholding tax. In 2001, the Belgian tax authorities issued a notice of adjustment to Albemarle S.A. that provided that the interest payments made during 1997 and 1998 were subject to Belgian withholding tax at the statutory rate of 25%. Albemarle S.A. and the Belgian tax authorities subsequently reached an agreement under which Albemarle S.A. would pay the Belgian withholding taxes at a rate of 15% on the interest payments. Albemarle S.A. made full payment to the Belgian tax authorities on Jan. 31, 2002, and Aug. 29, 2002.

On May 15, 2009, the taxpayer filed a Form 1120X for the 2002 tax year that sought a refund of foreign tax credits that could be attributed to the Belgian withholding taxes paid pursuant to the agreement with the Belgian tax authorities. The taxpayer hadn’t filed protective refund claims for 1997 and 1998. After filing, the taxpayer and the IRS agreed that the 2002 amended income tax return constituted claims for the taxpayer’s 1997, 1998, 1999, 2000 and 2001 tax years. Based on the Belgian withholding tax paid by the taxpayer’s subsidiary in 2002, the taxpayer claimed it was entitled to foreign tax credits for the 1997 and 1998 tax years.

The IRS disallowed the taxpayer’s 1997 and 1998 tax refund claims but permitted refund claims for tax years 1999, 2000 and 2001. The IRS reasoned that the 1997 and 1998 tax refund claims weren’t filed within the 10-year period of limitations set forth in Section 6511(d)(3)(A). The IRS determined that to be timely, the taxpayer’s 1997 refund claim should have been filed on or before March 15, 2008, and its 1998 refund claim should have been filed on or before March 15, 2009, and that the taxpayer missed the period of limitations by filing a refund claim on May 15, 2009.

Section 6511(d)(3)(A) states:

If the claim for credit or refund relates to an overpayment attributable to any taxes paid or accrued to any foreign country or to any possession of the United States for which credit is allowed against the tax imposed by subtitle A in accordance with the provisions of section 901 or the provisions of any treaty to which the United States is a party, in lieu of the 3-year period of limitation prescribed in subsection (a), the period shall be 10 years from the date prescribed by law for filing the return for the year in which such taxes were actually paid or accrued (emphasis added).

The critical issue in Albemarle was whether the taxpayer’s claims accrued in 1997 and 1998 — the year in which the interest payments giving rise to the Belgian withholding tax were made (which would make the taxpayer’s refund claims untimely) — or instead in 2002 — the year in which the taxpayer actually paid the withholding tax to the Belgian tax authorities (which would make the taxpayer’s claims timely).

The court held that the foreign taxes relate to the year in which the payments giving rise to the withholding tax were made and therefore the statute of limitations began to run on the dates in 1997 and 1998 when the taxpayer’s federal tax returns were due. Because the taxpayer’s claim for refund was made more than 10 years after these dates, the refund claims weren’t timely, and the court granted the government’s motion to dismiss.