Don't Let Father Time Catch Up With You in Tennessee - Start Year-End Tax Planning Now

Seems like we do this every year - sometimes a little later than we would like, but it is always a good reminder that you can never start too early to plan for year-end tax deadlines in Tennessee. I'm not talking about upping charitable contributions or other deductions for Federal tax filers. I'm talking about Tennessee taxes.

What Tennessee tax deadlines are those you might ask? 

Well, for one, Tennessee's claim for refund statute is a little unique in that it requires a claim for refund to be filed with the Commissioner within three years from December 31 of the year in which the payment was made - putting particular significance on December 31. What this means is that for tax paid in 2014, a claim for refund for the entire 2014 tax year must be filed by year-end (December 31, 2017) or a taxpayer's right to obtain a refund of tax is gone ... finitoThe time to act is now.

The practical application of this rule can mean a lot of different things. First, Sales tax for December 2013 through November 2014 is what a taxpayer may lose if a refund is not filed. This is particularly important if you know of other refunds that have been filed in previous years. Do not assume that the refund requests made in earlier years preserves a right for later years. It doesn't, and you will need to file a new claim for refund for the 2014 period. Refund claims are sometimes made through an audit or amended return, so be careful to identify issues of particular importance to your organization and make sure that you are protecting procedural rights.

For franchise and excise taxes, the 2013 tax year is filed and paid in 2014, so it is the 2013 year that is the one that should be your focus for the F&E tax. A little confusing but it makes sense once you think about it, and that same conclusion holds true for the business tax which transitioned in 2013-4 to using a taxpayer's fiscal year as the tax period with the returns for 2013 being due in 2014. If the tax was paid in 2014, the refund deadline is December 31, 2017.

Another way that we see taxpayers get confused is for refunds filed at the end of 2016. Another Tennessee statute provides that refund claims filed with the Department must be determined within one year and if a refund is not granted within that time period, a lawsuit has to be filed in Chancery Court to preserve the taxpayer's procedural rights to pursue the refund. So, it may not be a new refund that you are focused on but protecting your procedural right to pursue a refund from last year. Under certain circumstances, this one-year deadline to file a lawsuit can be extended for up to six months through an agreement with the Commissioner in writing. The key is that the taxpayer will need to enter into this extension before the deadline to file suit. As a practical matter, if a deadline is approaching, and you think you are going to get it worked out and just need more time, you should request that the Department begin working on an extension of that deadline. That will avoid the need to file a protective refund lawsuit, which we are happy to do, but it may be avoided under the right circumstances.

The other aspect of the year-end deadlines is that the Department is also held to a standard of auditing and assessing taxpayers within three years from December 31 in which the tax return was filed, so while taxpayers are doing their year-end planning, the Department is doing the same thing, so it is not uncommon for the Department to request extensions of ongoing audits at year end or for year-end assessments to be issued to protect the Department's backside. Those assessments trigger deadlines to act as well, so taxpayers should be focused on this possibility as well and not let the holidays cloud whether there are deadlines that need to be managed.

Practice Point: Some of you may be extremely focused on December 31, because if no assessment comes before year-end, it will foreclose the Department's right to come after you for tax returns filed in 2014 and prior years. For you, sticking your head in the sand or going on a long vacation may make sense, so I get that.

All-in-all, we've got enough going on at year end making sure we eat all our Halloween candy and plan for Thanksgiving, Black Friday, Cyber Monday and Christmas. With all that is going on, don't let time run out on your Tennessee tax deadlines. There is plenty of time ... NOW ... to do something about it.