Employees must not release credit balances for refund or offset where a Substitute For Return (SFR) assessment is on an account. SFR adjustments are input with a Hold Code 4. The hold code freezes the credit from refunding or offsetting and will cause an AM05, ST08 or AM-X05 Transcript to generate for review. See Exhibit 25.6.6–3 for ST05 Transcript.

An abatement is the reduction or elimination of an assessment. The Service has general abatement authority. In addition, there are several circumstances in which a taxpayer may request an abatement.

The Service's general abatement authority is provided in IRC § 6404(a). The authority extends to the Service’s assessment that is excessive in amount or is too small to warrant collection that was made after the expiration of the ASED or that was otherwise erroneous or illegal. IRM 1.2.1.3.16, Policies of the Internal Revenue Service, P 2-89 (Approved 09-20-1999) clarifies when the Service will reconsider an unpaid assessment. You can reduce the tax on a unpaid return up to the balance owed on the account. If you abate the tax and an overpayment is created, you must send the nonrefundable overpayment to Excess Collection File (XSF), and send a 106 C Letter to the taxpayer. Do not abate the tax after the ASED if the account is paid in full unless the taxpayer has filed a claim for credit or refund within the period of limitations and the 2 or 3 year rule for limitations on the amount of credits or refunds applies. Section 6511(a) provides that a claim for credit or refund must be filed within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever is later. Section 6511(b) limits the amount of the credits or refunds to amounts paid within 2 or 3 years preceding the date of a claim depending on whether the claim was filed within the 3 year period of limitations prescribed in 6511(a). See IRM 25.6.6.6.3.1 and IRM 25.6.6.6.3.2 for application of the 2 or 3 year limitation on the amount of credits or refunds provided for in section 6511(b). Instead, input a TC 29X with Blocking series 98/99, and send the taxpayer a disallowance letter (105C). If the taxpayer is entitled to partial refund based on the 2 year rule or 3 year rule, you must input the tax decrease to allow the payment(s) to refund, send any nonrefundable overpayment (interest and penalties due to the tax reduction) to XSF, and send the taxpayer a disallowance letter (106C).

If you decide not to abate the balance owed or unable to verify documentation to abate the balance due amount, you can just send the taxpayer a 916C (no consideration) letter requesting full payment of the amount owed and instruct the taxpayer to file a claim for refund with all supporting documents. Do not send a disallowance letter on these types of cases.

If an amended return is received before or after the ASED requesting an abatement of tax and there are conditions which meet Examination criteria, you must send to Exam for review before making the abatement. If Exam accepts the return as filed, the abatement can be made; however credits or refunds of overpayments are subject to the requirements of section 6511 as explained above, i.e. the period of limitations for filing a claim must be open and the amount of the credit or refund is limited to the 2 or 3 year rule.

In general, a taxpayer may request an abatement of an unpaid assessment of only employment or excise tax under IRC § 6404(b). (IRC § 6404(b) provides that taxpayers have no right to file a claim for abatement of income, estate, or gift tax.) A request is generally submitted on Form 843,Claim for Refund and Request for Abatement. The following is a list of some of the other items for which a taxpayer may request an abatement:

Although an abatement (tax decrease) may be made before or after the ASED, the tax cannot be reassessed (as described in IRM 25.6.6.3.6, below) if it is subsequently determined that the tax decrease was erroneous once the ASED has expired. Therefore, it may be necessary to consider the ASED in determining whether it is appropriate to exercise the Service’s abatement authority, or to require the taxpayer to pay the assessed tax in full and file a claim for refund or petition the Tax Court with respect to a final notice of determination.

If an amount is abated at the request of a taxpayer after a substantive re-determination of tax liability and the Service subsequently realizes that the tax decrease was erroneous, the amount above the tolerance level must be reassessed using the deficiency procedures (route case to the Examination Operation) before the ASED passes; e.g., the abatement does not agree with the taxpayer’s return position or it is believed that the facts provided by the taxpayer are incorrect. If Examination cannot reassess the tax decrease because the ASED has passed, you must prepare a Barred Assessment Report on Form 9355 per IRM 25.6.14.4.4. The overpayment created by the tax decrease must be moved to XSF. Statute function employees must never reassess the tax on this type of case.

An abatement/tax decrease request made in response to an amended return always constitutes a re-determination of tax even if the Service makes only a hasty review of the return before making the abatement. See IRM 25.6.7, Erroneous Abatements (and Erroneous Refunds and Overstated Credits).

An abatement of small tax balances under IRC § 6404(c) is not a substantive determination, so no reassessment is made. See IRM 21.4.5.4.1, Category A1 Erroneous Refunds for more information on this issue. In IRM 25.6.7.8 (2) and (3), Tolerance Level , it states the account action needed to resolve this type of case. If the small credit amount is still on the account, transfer the credit to XSF.

Amended returns reflecting a decrease in tax are generally processed following the procedures in IRM 21.5, Account Resolution, with reference to the guidance provided by IRM 21.6, Individual Tax Returns, and IRM 21.7, Adjustments Business Tax Returns and Non-Master File Accounts.

The Accounts Management/Adjustment Function will process amended returns indicating a tax decrease where the Refund Statute Expiration Date (RSED) is imminent/expired. See Exhibit 25.6.6–2.

If a timely claim for a tax decrease is referred to the Statute function for review and research shows an unreversed TC 420 (Examination Indicator) or 424 (Examination Request Indicator), you must:

If an untimely claim for refund is referred to the Statute function for review and research indicates an unreversed TC 420 or 424, forward the claim to the Examination function.

Employees must not release credit balances for refund or offsets where a Substitute For Return (SFR) assessment is on an account. SFR adjustments are input with a Hold Code 4. The hold code freezes the credit from refunding or offsetting and will cause a transcript to generate (i.e., AM05, ST05 or AM–X05 ,etc.) for review. See Exhibit 25.6.6–4 for ST05.

On carryover of a Net Operating Loss (NOL) or a Net Capital Loss

The non-debtor spouse has an unlimited period to file the Form 8379 with the Service if the debtor spouse joint refund was timely filed and no formal disallowance letter (105 C) was issued to the non-debtor spouse. For additional information on tax refund offsets, See IRM 21.4.6, Refund Offsets.

If a claim was received before the RSED, additional information was requested to process the claim and the taxpayer submits the information after the RSED but within 45 days of the IRS request, then allow the claim. Use a response date that reflects local experience with late responses and misrouted mail. If the request for additional information is not received within the response date requested and the RSED has expired, disallow the claim.

Even though the Service requests the information be provided in a certain number of days and needs the information to substantiate the claim, a claim is not disallowed until the Service provides a final disallowance notice as described in IRM 25.6.6.4.3, (or the taxpayer executes and files a Form 2297, Waiver of Statutory Notification of Claim Disallowance).

Allow taxpayer math error notice substantiated correspondence received after the RSED to adjust a previous math error provided that no formal notice of claim disallowance was previously issued by either certified/registered mail. If a notice of claim disallowance was previously issued, follow normal claim disallowance procedures.

Processing. Do not allow a claim for refund if the RSED has expired, and the claim contains an issue that the taxpayer has a right to appeal. Instead, issue a certified letter (105C) to the taxpayer. Input a TC 290 for zero amount, using blocking series 98 or 99, as appropriate.

Taxpayer’s Period of Limitations for Filing a Refund Suit. The two-year period of limitations for filing a refund suit under IRC § 6532(a) does not begin until the Service sends a notice of claim disallowance unless the taxpayer executes and files a Form 2297, Waiver of Statutory Notification of Claim Disallowance, which would start the two-year period.

A notice of a claim disallowance is not mandatory. The Service may make a business decision not to send a notice of claim disallowance in every situation even though the taxpayer’s period for filing a refund suit remains open; e.g., if the Service denies an Earned Income Tax Credit (EITC) and issues a notice of deficiency, a taxpayer may file a Tax Court petition and the Court will have jurisdiction to redetermine the EITC. The Service may decide not to issue a notice of claim disallowance in this situation.

A disallowance letter may be sent when the claim is untimely, as well as, when the Service disagrees with the taxpayer’s position on a substantive matter; however, a "no consideration" letter is not a disallowance letter. A disallowance letter shows that the taxpayer satisfied the requirement in IRC § 7422 that the taxpayer must file a claim with the Service before filing suit in a district court or the Court of Federal Claims.

The Service may have fully considered a claim, decided to disallow it, and entered the disallowance on Master File, but did not send a notice of claim disallowance. Until a notice of claim disallowance described in IRM 25.6.6.4.3 at (2) above, is sent, the taxpayer’s two-year period of limitations for filing a refund suit does not begin to run regardless of how many years have passed. The Service may consider supplemental information subsequently submitted by the taxpayer and allow the claim.

Special handling is required when allowing adjustments on these cases. If, after reviewing a case, it's determined the taxpayer is entitled to a credit/refund, follow procedures below using Command Code ADJ54. An example may be tax law changes enacted after the RSED (i.e., KITA).

On timely claims/amended returns received after the RSED:

If allowing math error substantiations, input the received date of the original return (not the received date of the math error substantiation) in the"RFSCDT" field on ADJ54 on a timely filed original return. If the original return was not timely filed that contains the math error, you must correct the math error as stated above, but use a hold code to prevent the refund from going out. Also, send the taxpayer a disallowance letter (105 C) if one has not already been sent and move overpayment to XSF.

Although a claim may be reconsidered after the issuance of a final notice of claim disallowance described in IRM 25.6.6.4.3, above, any reconsideration or action by the Service will not operate to extend the period within which suit may be begun. Therefore, if the taxpayer provides additional information substantiating the claim after issuance of a final notice of claim disallowance do not reconsider the claim unless::

If the taxpayer sends additional information after the two year period has expired above, see IRM 21.5.3.4.6.2(2), Appeals and Responses to Letter 105C/106C, on how to process.

This section provides procedures for processing claims based upon an untimely assessment.

If a taxpayer presents a valid claim for refund, the Service may net out the amount requested with adjustments for which the ASED has passed. Move the unassessable portion to XSF. See IRM 25.6.6.4.6.1.

Limitation. See CCDM 34.5.2.4.2.2, Setoff Defenses.

Taxpayer’s Offsets. If substantiated, a taxpayer may offset the Service’s adjustments with deductions for which the RSED has passed.

Requirements Prescribed by the Service. Treas. Reg. § 301.6402-2(b)(1) provides that a claim must set forth in detail each ground upon which a credit or refund is claimed and facts sufficient to apprise the Commissioner of the exact basis thereof. The statement of the grounds and facts must be verified by a written declaration that it is made under penalties of perjury. A claim which does not comply with this paragraph will not be considered for any purposes as a claim for refund or credit. Treas. Reg. § 301.6402-3 prescribes the form for an income tax claim.

Claims Made on Original Tax Return. A return filed on the form prescribed by Treas. Reg. § 301.6402-3 that constitutes a valid return under the Beard "substantial compliance" standard generally meets the requirements of Treas. Reg. § 301.6402-2(b). The Beard "substantial compliance" standard is as follows: First, there must be sufficient data to calculate tax liability; second, the document must purport to be a return; third, there must be an honest and reasonable attempt to satisfy the requirements of the tax law; and fourth, the taxpayer must execute the return under penalties of perjury. See Beard v. Commissioner, 82 T.C. 766, 777 (1984), aff'd per curiam, 793 F.2d 139 (6th Cir. 1986).

Court-Created Informal Claim Rule. In the past, courts had stated that the Service may insist upon full compliance with the regulations governing refund claims and may reject a refund claim that fails to satisfy the requirements of the regulations. See Angelus Milling Co. v. Commissioner, 325 U.S. 293 (1945). The informal claim rule (discussed at IRM 25.6.6.5.3, below), however, makes it clear the Service cannot insist on a claim being filed on the prescribed form (at least when the claim includes an adequate written component and meets the other requirements noted below). The ongoing development of the informal claim rules leaves it uncertain in some cases whether the taxpayer has included sufficient detail regarding the grounds and facts of a claim. If a claim fails to present sufficient detail, it may be rejected for failure to meet the requirements of IRC § 6402. The taxpayer (absent corrective action as described in 25.6.6.5.1(4)) would then be barred from filing a refund suit, because IRC § 7422 requires the taxpayer to file a claim that meets the requirements of IRC § 6402 before bringing suit.

Treatment of Claims with Insufficient Detail. If the detail is insufficient to consider a claim and the taxpayer fails to provide the additional information requested, but there is uncertainty as to whether the insufficiency is enough to warrant that the claim be rejected as deficient, the Service may simply disallow the claim. See IRM 25.6.6.4.2, Submission of Additional Information Necessary to Make a Determination on the Claim after the RSED, at (1).

This section describes the forms used for submitting a claim

The requirements for an informal claim are as follows: An informal claim must have a written component apprising the Service that a refund is sought, and describe the legal and factual basis for the refund so that the Service may investigate the claim.

Investigation of an informal claim is fact intensive. The investigation may require an extensive analysis of the facts, and assistance from field counsel may be needed. In particular, courts have varied on the degree of detail that is required for a written component to be sufficient.

Supplementing a Pending Claim Versus Submitting a New Claim.

Perfecting an Invalid Claim after RSED

Protective claims are filed to preserve the taxpayer’s right to claim a refund when the taxpayer's right to the refund is contingent on future events and may not be determinable until after the statute of limitations expires. See IRM 21.5.3.4.7.3, Protective Claims, (10-01-2005). A protective claim is based on an expected change in the tax law, other legislation, regulations, or case law.

A claim should not be viewed as a valid claim merely because the taxpayer labels it as such. See Nucorp, Inc. v. United States, 23 Cl. Ct. 234, 235 (1991) (Footnote 3 provides "Nothing can be found in the Code, regulations or case law relative to the efficacy of filing a ‘protective claim.’ Ostensibly, plaintiffs used the term ‘protective claim’ for descriptive purposes only" ). A valid protective claim need not state a particular dollar amount or demand an immediate refund; however, the claim must identify and describe the contingencies affecting the claim; must be sufficiently clear and definite to alert the Service as to the essential nature of the claim; and must identify a specific year or years for which a refund is sought.

The Service has discretion in deciding how to process protective claims. In general, it is in the best interests of the Service and taxpayers to delay action on protective claims until the pending litigation or other contingency is resolved. Once the contingency is resolved, the Service may obtain additional information necessary in processing the claim and then allow or disallow the claim.

The period for filing a claim for credit or refund has two prongs:

The following chart will help you in determining general claim rules governing a refund claim:

A claim described in IRM 25.6.6.5, above, must be filed by the later of two periods:

This section describes procedures regarding the limitations on the amount of a claim.