Refund Review

An important function of the Joint Committee staff is to evaluate whether provisions of the tax law operate as intended or cause unintended administrative, interpretive, or statutory results. Two ways in which this is accomplished are, first, the refund review mechanism, which statutorily requires the submission of reports by the IRS in cases involving refunds of tax in excess of $2,000,000 ($5,000,000 in the case of taxpayer that is a C-corporation), and, second, the post review program, under which the IRS submits reports on large deficiency cases that they closed prior to submitting them to the Joint Committee.

The IRS prepares a written report for the Joint Committee staff for each refund case. The report contains a brief history of the taxpayer and an explanation of the reasons for any refunds. Attached to the report are supporting documents prepared by the IRS. These documents discuss the amount of, and reason for, all the adjustments considered by the IRS for taxable years under review.

The Joint Committee staff review of these reports focuses on the technical aspects of the case and the IRS’s resolution of the issues presented. This review enables the staff to become familiar with specific issues in individual industries and to find problems in the administration of the law. Of particular concern to the Joint Committee staff are transactions in which taxpayers obtain unintended benefits. If the problem emanates from the statutory language, the Joint Committee staff may recommend an amendment to the Code. When the problem comes from IRS pronouncements, such as rulings or regulations, the Joint Committee staff may request that the IRS clarify or reconsider its published position. When the problem is lack of uniform application of the law, or lack of authority, the Joint Committee staff may request that the IRS publish guidance on the issue.

The Joint Committee staff refund review also permits identification of issues that, as a technical matter, were not handled correctly by the Examination or Appeals. In these instances, the Joint Committee staff recommends adjustment to the amount of the refund when the tax effect in the case is significant. Adjustment also is recommended when, as a result of the correction, loss or credit carry forwards will be reduced significantly even though there is no effect on the proposed refund. When the impact in a given case is small, no adjustment is recommended, but the staff still transmits the concerns to the IRS for consideration in future cases.

The statute does not require that the IRS comply with Joint Committee staff requests for reconsideration of adjustments.  Both the Joint Committee staff and the IRS view the review process as a way of improving tax administration. As a matter of agency policy, the IRS will not pay any part of a refund until the Joint Committee staff and the IRS conclude their review of the case.  The conclusion of a case can be that the IRS initial position was correct; that the IRS concurs with the Joint Committee recommendation; or that no change will be made because the IRS does not agree with the Joint Committee recommendation. The Joint Committee staff also attends and addresses training sessions held by IRS regarding procedural issues of mutual interest.