Statute Of Limitations Not Extended on Refund Claim.

The taxpayer is a tax-exempt voluntary employees' beneficiary association (VEBA) insurance trust that did not have to file a federal income tax return unless it had unrelated business income.  The taxpayer obtained a membership in a mutual insurance company that later demutualized.  As a result of the demutualization, in 2004 the taxpayer received approximately $1.5 million in cash that IRS characterized as long-term capital gain with no income tax basis in accordance with Rev. Rul. 71-233.  For 2004, the taxpayer filed a Form 990T reporting the income as UBIT and paid the associated tax.  Two additional demutualization proceeds were reported similarly in 2006 and 2008. Later Fisher v. United States, 82 Fed. Cl. 780 (2008) was decided rejecting the IRS position on amounts received in demutualization.  The taxpayer filed an amended return for 2006 and 2008 based on the Fisher case.  The IRS disallowed the refund claims, but later approved the refunds based on the affirmance of the Fisher case on appeal (333 Fed. Appx. 572 (Fed. Cir. 2009).  However, the IRS Appeals Office determined that the refund claim was not timely filed with respect to the 2004 refund and the plaintiff sued for a refund on Mar. 28, 2013.  The trial court noted that the taxpayer's 2004 return was filed on Oct. 15, 2004, and that a refund claim had to be filed within three years in accordance with I.R.C. §6511.  The taxpayer argued that I.R.C. Sec. 6511 was inapplicable because the taxpayer was a non-profit entity who was not required to file a return.  The trial court noted that numerous other courts have rejected the same argument.  On the issue of whether the mitigation provisions of I.R.C. §§1311-1314 provided equitable relief from the statute of limitations, the court noted that IRS had made a final determination which established a basis (by referring to the Fisher case) which meant that, but for the statute of limitations, the taxpayer would have been entitled to a refund.  In addition, the trial court noted that IRS had taken an inconsistent position between its position taken in the final determination and the IRS's position that demutualization payments are taxable (due to the taxpayer's lack of basis in the payments).  Thus, the taxpayer satisfied the mitigation provisions of I.R.C. §§1311-1314 (the taxpayer satisfied its burden of proof that (1) IRS made a determination that barred it from correcting its erroneous filing; (2) the determination concerned a specific adjustment; and (3) the IRS had adopted a position in the final determination and maintained a position inconsistent with the erroneous inclusion or recognition of taxable gain.  The trial court granted the taxpayer's motion for summary judgment and IRS is required to make a return for the plaintiff.  However, on further review, the appellate court reversed.  The court noted that a timely refund claim was a jurisdictional prerequisite to a tax refund lawsuit, with the only exception being the mitigation provisions.  On those provisions, the court focused on I.R.C. Sec. 1312(7) which regards a determination that "determines the basis of property, and in respect of any transaction on which such basis depends, or in respect of any transaction which was erroneously treated as affecting such basis.  The appellate court determined that the denial of the 2004 claim was due to timeliness and was not a determination that "determined the basis of property."  The court held that IRS had not taken an inconsistent position and had not actively changed its longstanding position that mutual policyholders' proprietary interests have a zero basis when an insurance company demutualizes.  Instead, the court determined that the IRS had merely acquiesced in the 2009 decision of the Federal Circuit.  Thus, the taxpayer couldn't use the mitigation provisions the reopen a closed tax year based on a favorable change in or reinterpretation of the law.  Illinois Lumber and Materials Dealers Association Health Insurance Trust v. United States,  No. 14-2537, 2015 U.S. App. LEXIS 12675 (8th Cir. Jul. 23, 2015), rev'g., No. 13-CV-715 (SRN/JJK), 2014 U.S. Dist. LEXIS 59716 (D. MInn. Apr. 30, 2014).