There is ongoing litigation over whether Pennsylvania’s NOL cap is unconstitutional. Many taxpayers have already filed protective refund claims to preserve their rights in the event the cap is found unconstitutional. If you have not, you should file a protective claim. We want to emphasize that, in our view, the 2011 year is still open. In our opinion, under a proper reading of the law, as described in detail below, the deadline for filing a refund claim for 2011 is the third anniversary of when the 2011 return was filed on extension—not April 15. However, even under our view, the deadline for filing a refund claim for the 2011 tax year could be rapidly approaching.
Reed Smith represents the taxpayer in the lead case on the NOL cap issue. The Commonwealth Court heard oral argument in this case on September 16, and it could be several months before a decision is issued. If your company limited its Pennsylvania NOL deduction to the amount of the cap and paid tax on that basis, you should consider filing refund claims to preserve your rights. If your company paid tax on this basis for 2011, you might have only a few more days before the statute of limitations closes for that year. Here is a quick and easy way to file a protective refund claim on this issue.
You may be thinking: “How is the 2011 tax year open? That return was due April 15, 2012, so I thought it closed for refunds on April 15 of this year?” That is the Department’s position, but there is ongoing litigation on this matter. Reed Smith also represents the taxpayer in the lead case on this issue, and the Commonwealth Court heard oral argument on the same day as the NOL cap case. The taxpayer’s position is that Pennsylvania’s statute of limitations for refunds expires on the third anniversary of the date your return was filed. If that is the rule, that means the 2011 tax year could still be open for calendar-year taxpayers (because those returns might have been filed on or just before October 15, 2012), but it also means the opportunity to seek a refund for the 2011 tax year could be closing any day now.
This alert is intended to provide a quick and easy way to file a 2011 refund claim based on the NOL cap issue, without investing any significant time or resources during this busy time of year. Of course, if you have questions or would like assistance, please contact one of the authors of this Alert or another member of the Reed Smith State Tax Group.
Client Alert 2015-277