In an unusually taxpayer-friendly decision, a three judge panel of the Pennsylvania Commonwealth Court concluded that Section 406 of the Tax Reform Code of 1971 (the code), 72 P.S. § 7406, is an exception to the general three-year statute of limitations to petition for a refund of Pennsylvania corporate net income tax.1
Mission Funding Beta Company (the taxpayer) filed its 2008 Pennsylvania corporate tax report and paid the tax due as stated on the return on April 15, 2009. After the conclusion of an IRS audit that resulted in a change to the taxpayer’s 2008 tax year federal tax liability, the Taxpayer timely filed a report of Change in PA Corporate Net Income Tax (the report) with the Pennsylvania Department of Revenue (the department) pursuant to Section 406 of the code. In its report, the taxpayer claimed a significant reduction in the taxable income it reported in the 2008 corporate tax report. The department rejected the taxpayer’s report on the grounds that “there was no change in federal taxable income.” The department did not define the term federal taxable income or explain the reason for its determination. Thereafter, the taxpayer timely appealed to the Board of Appeals claiming entitlement to the credit. The Board of Appeals, and subsequently the Board of Finance and Revenue (the board), both denied relief on the grounds that the appeal was filed beyond the general three-year statute of limitations for filing a refund claim under Section 3003.1(a) of the code.2
On appeal to the Commonwealth Court, the parties did not agree as to what was meant by the term “federal taxable income” for purposes of Section 406(a). The department contended that the term refers to the number reported on Line 28 of the federal tax return, citing 61 Pa. Code § 153.11. The taxpayer argued that federal taxable income must be construed in accordance with the definition under Section 63 of the Internal Revenue Code.3 The court ultimately vacated the board’s order and remanded the case to the board to consider the appropriate definition of “taxable income” in Section 406(a). In doing so, the court clarified that the general three-year refund limitations period was inapplicable to the case because the taxpayer requested a credit for an overpayment of state taxes after an IRS audit pursuant to Section 406. The court treated Section 406 as a specific provision that was required to be construed as an exception to the general three-year refund limitations period. While the outcome of the case is unclear, the court’s construction of the code to confirm an exception to the general three-year statute of limitations is a deviation from the court’s typical deference to the department’s construction of the code and potentially paves the way for taxpayers to obtain the credit that they are entitled to under Section 406.
1 Mission Funding Beta Company v. Commonwealth, No. 411 F.R. 2019 (Pa. Cmwlth. 2025).
2 72 P.S. § 10003.1(a).
3 26 U.S.C. § 63.
