26 U.S.C. § 1311 — Correction of error

(a) General rule. If a determination^*, as defined in section 1313, is described in one or more paragraphs of section 1312, and on the determination date another law or legal rule prevents correcting the effect of the relevant error, the error must be corrected by an adjustment in the amount and manner specified in section 1314. This rule does not apply when the bar comes from this part or from section 7122 concerning compromises.

(b) Conditions necessary for adjustment.

(1) Maintenance of an inconsistent position. Except for section 1312(3)(B) and (4) cases, an adjustment may be made only if: (A) when the adjustment would be credited or refunded like an overpayment under section 1314, the determination adopts a position maintained by the Secretary^*; or (B) when the adjustment would be assessed and collected like a deficiency^* under section 1314, the determination adopts a position maintained by the taxpayer^* involved. In either case, the Secretary’s or taxpayer’s position must be inconsistent with the erroneous inclusion, exclusion, omission, allowance, disallowance, recognition, or nonrecognition involved.

(2) Correction not barred when erroneous action occurred. (A) For a determination under section 1312(3)(B), concerning certain income exclusions, an adjustment may be made only if assessment of a deficiency for the year in which the item belongs in income, or against the related taxpayer^*, was not legally barred when the Secretary first asserted in a notice of deficiency under section 6212 or before the Tax Court^* that the item should be included in the taxpayer’s gross income for the determination year. (B) For a determination under section 1312(4), concerning disallowed deductions or credits, an adjustment may be made only if a credit or refund of the overpayment from the deduction or credit that should have been allowed was not legally barred when the taxpayer first asserted in writing before the Secretary or Tax Court that the taxpayer was entitled to it for the determination year.

(3) Existence of relationship. If the adjustment would be assessed and collected like a deficiency, except for section 1312(3)(B) cases, it cannot be made against a related taxpayer unless that relationship existed when the taxpayer first maintained the inconsistent position in a return, refund claim, or Tax Court petition or amended petition for the relevant year. If the position was not maintained in one of those documents, the relationship must have existed when the determination was made.