German Billionaire Schaeffler Loses U.S. Foreign Credit Claim

Trust Bloomberg Tax's Premier International Tax offering for the news and guidance to navigate the complex tax treaty networks and business regulations.

By Erin McManus

Billionaire Georg Schaeffler couldn’t tie a $5.17 million U.S. income tax overpayment to a reduction in his German tax liability to take advantage of the extended foreign tax-related refund limitations period.

Schaeffler, a German citizen and U.S. resident with an international auto and industrial parts business, couldn’t attribute the overpayment to adjustments to his foreign tax credit—and use the 10-year limitations period to claim a refund after the original return was filed—because his overpayment was the result of an alternative minimum tax credit carryforward that was subject to, and outside of, a two- or three-year limitations period, a federal trial court in Dallas ruled April 25 ( Schaeffler v. United States , 2017 BL 135942, N.D. Tex., No. 3:15-cv-04090, 4/25/17 ).

Schaeffler’s lower German tax liability reduced his eligible foreign tax credits by $1.5 million, which would have resulted in a net underpayment for the tax year if not for an increased minimum tax credit carried forward from a prior year, said Chief Judge Barbara M.G. Lynn of the U.S. District Court for the Northern District of Texas.

In addition, Schaeffler sought a refund for an overpayment that resulted from the alternative minimum tax credit, a computational credit designed to reduce tax liability because of AMT paid in prior years. Tax code Section 6511(a), under which Schaeffler was claiming the refund, requires a payment of taxes in cash. Schaeffler provided “no authority to indicate that the calculation, or even the claiming, of a minimum tax credit carryforward constitutes a payment for the purposes of § 6511(a),” Lynn said.

Todd Welty of McDermott Will & Emery LLP in Dallas was lead attorney for Schaeffler. Joshua David Smeltzer of the Department of Justice Tax Division was lead attorney for the government.

To contact the reporter on this story: Erin McManus in Washington at emcmanus@bna.com

To contact the editor responsible for this story: Meg Shreve at mshreve@bna.com

For More Information

Text of the decision is at http://src.bna.com/ogR.

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request International Tax