4.36.2  Identification of Joint Committee Cases

4.36.2.1  (05-04-2010)
Introduction

  1. This section:

    • describes the statutory provisions requiring review of certain cases by the Joint Committee on Taxation (JCT),

    • identifies such cases, and

    • provides guidance for computation of the qualifying IRC 6405 jurisdictional amount.

4.36.2.2  (05-04-2010)
Cases Requiring Review/Allowed Claims/Examination Refunds IRC Section 6405(a)

  1. IRC 6405(a) provides that "No refund or credit of any income, war profits, excess profits, estate, or gift tax, or any tax imposed with respect to public charities, private foundations, operators’ trust funds, pension plans, or real estate investment trusts under chapter 41, 42, 43, or 44, in excess of $2,000,000 shall be made until after expiration of 30 days from the date upon which a report giving the name of the person to whom the refund or credit is to be made, the amount of such refund or credit, and the summary of the facts and the decision of the Secretary, is submitted to the Joint Committee on Taxation."

4.36.2.2.1  (05-04-2010)
Tentative Refunds IRC Section 6405(b)

  1. The Joint Committee review of a refund or credit made under IRC 6411, which relates to carryback adjustments, is provided for in IRC 6405(b). Under the provisions of IRC 6405(b), tentative allowances are refunded prior to reporting to the JCT. Following a survey action or examination, refunds of tentative allowances that exceed the $2 million jurisdictional amount are reported to the JCT.

  2. When the examination results in a deficiency, a Joint Committee report must be prepared when the net refund (IRC 6405(b) refund less deficiency) exceeds the $2 million jurisdictional amount.

4.36.2.2.2  (05-04-2010)
Disaster Loss Refunds IRC Section 6405(c)

  1. IRC 6405(c) provides that refunds in excess of $2,000,000, attributable to a taxpayer’s election under IRC 165(i), is made prior to submitting a report for review. This section allows a taxpayer to deduct a disaster loss in the taxable year immediately preceding the taxable year in which the disaster occurred. These losses are attributable to a disaster declared by the President under the Disaster Relief & Emergency Assistance Act. The report shall be prepared when the correct amount of tax is determined.

4.36.2.2.3  (05-04-2010)
Prepayment Credits IRC Section 6402

  1. A refund shown on the return as filed does not qualify as a refund or credit under IRC 6405(a) except as follows:

    1. A report is required with respect to a refund attributable to amounts credited under IRC 835(d) in excess of $2,000,000 made to a mutual insurance company which is a reciprocal underwriter. This credit is not deemed a prepayment credit. See Rev. Rul. 69-196, 1969-1 C.B. 303.

    2. Refunds under claim of right (IRC 1341) are reportable when the decrease in tax computed under IRC 1341(a)(5)(B) exceeds the tax computed under IRC 1341(a)(5)(A) by more than $2,000,000. See Rev. Rul. 67-358, 1967-2 C.B. 412.

4.36.2.3  (05-04-2010)
Refunds Not Reportable To the Joint Committee On Taxation

  1. JCT review is limited to designated categories of tax. Excluded from review are employment taxes, trust fund recovery penalty cases, windfall profit taxes and specified excise taxes. See IRM 4.36.2.2 for reportable excise taxes. In addition, the following refunds are not reportable:

    1. A refund or credit of estimated or withheld income tax, made without examination.

    2. A refund or credit of an unassessed advance payment or deposit made prior to determination of a taxpayer’s tax liability, or a refund or credit of an amount paid on an early-filed return that exceeds the amount of the tax liability reported by the taxpayer on the last return filed on or before the due date of that return.

    3. Overassessments (as distinguished from overpayments) in excess of $2,000,000. For example, an abatement of an unpaid portion of an assessment under IRC 6404 regardless of the amount is not a refund or credit under IRC 6405.

    4. An overpayment determined by the United States Tax Court or any other court of competent jurisdiction as a result of the trial of a case (rather than by a stipulation of settlement).

4.36.2.4  (05-04-2010)
Determining Jurisdictional Amount

  1. The examiner is responsible for determining whether a case is reportable to the JCT. Any questions with respect to the jurisdictional amount must be resolved in consultation with a Joint Committee specialist or Area Counsel.

  2. Refunds with respect to distinct tax entities or categories of tax are not combined in computing the jurisdictional amount. A deficiency against one taxpayer is not offset against an overpayment of another taxpayer, even where the changes resulted from the reallocation of income or deductions among related entities, e.g. between a parent corporation and its unconsolidated subsidiary.

  3. All refunds from open source years need to be considered in determining the jurisdictional amount. For example, if tentative refunds added together exceed $2 million, both source years and tentative refund years will be reported. This is true if none, one or all of the separate tentative refunds exceed $2 million. See Example 1.

  4. IRC 6405(a) and IRC 6405(b) refunds or credits are not aggregated. See Example 2.

  5. Tentative refunds paid prior to the current examination cycle should be considered in computing the jurisdictional amount if the current exam cycle is:

    1. open with respect to the statute of limitations and

    2. not previously examined or surveyed.

    See Example 3.

  6. Prior examination refunds that did not meet the jurisdictional amount and were refunded prior to the current examination cycle are not combined with current refunds in computing the jurisdictional amount.

  7. Refunds previously reported to the Joint Committee on Taxation are not included in the computation of the jurisdictional amount.

    Example 1
    Facts:
    Tentative allowances (IRC 6411):
     
    2003 NOL carryback to 2001
    2003 GBC carryback to 2002
    $ 1,500,000
       550,000
    Jurisdictional Amount - 6405(b) $ 2,050,000
    Conclusion:
    Both refunds must be reported. The 2001, 2002, and 2003 returns must be surveyed or examined

    Example 2
    Facts:
    Tentative allowances (IRC 6411):
      2001 NOL carryback to 1996 $1,800,000
    Audit results:
      1996 6405(a) refund  450,000
    Conclusion:
    No report is required since the IRC 6405(a) and IRC 6405(b) refunds or credits are not aggregated. (Note: The Job Creation and Worker Assistance Act of 2002 changed the carryback period to 5 years for NOLs from years ending in 2001 and 2002. In addition, the 90% limitation on the utilization of alternative minimum tax net operating losses does not apply to:
    1. carrybacks generated in taxable years ending in 2001 or 2002, and

    2. carryforwards utilized in taxable years ending in 2001 and 2002. See IRC 56(d)(1)(A)(ii)(I)).

    Example 3
    Facts:
    Tentative allowance (IRC 6411):
      2004 NOL carryback to 2002
    2004 NOL carryback to 2003
    $1,700,000
    200,000
    Previous tentative allowance:  
      2002 Capital Loss carryback to 1999   300,000
    Conclusion:
    If not barred by the statute of limitations and not considered in a prior examination (or survey), the 2002 capital loss carryback to 1999 is added in determining the jurisdictional amount. A report is required.

4.36.2.4.1  (05-04-2010)
Inclusion of Interest and Penalties in Jurisdictional Amount

  1. In computing the IRC 6405 jurisdictional amount, proposed refunds of penalties and previously assessed and paid interest are combined with proposed tax refunds. For example, a proposed refund of $1,950,000 and an overpayment of previously assessed and paid interest of $60,000 must be included in the computation of the jurisdictional amount. Where a refund is proposed with respect to a previously assessed deficiency, the interest previously assessed on that deficiency is included in the computation of the jurisdictional amount.

  2. Any refund of previously assessed interest, even when not made in connection with a redetermination of the underlying deficiency, must be included in the computation of the jurisdictional amount. Therefore, a refund of previously assessed interest in excess of $2 million with no reduction in tax requires a report.

4.36.2.4.2  (05-04-2010)
Treatment of Deficiencies

  1. Deficiencies are offset against refunds only when recommended for the same tax entity, for the same category of tax, and in the same examination cycle.

  2. Accordingly, if an overpayment of one category of tax results in a deficiency in another with respect to the same taxpayer, the deficiency is not considered in the computation of the jurisdictional amount.

  3. Likewise, no offset occurs when adjustments resulting in a deficiency with respect to one taxpayer result in a refund with respect to a related taxpayer.

4.36.2.4.3  (02-15-2002)
Multiple Year Examination with Net Deficiency

  1. In multiple-year examinations with a net deficiency (i.e., the sum of deficiencies exceed the total of all IRC 6405 refunds), no report is required.

4.36.2.4.4  (05-04-2010)
Computing Jurisdictional Amount In Multi-Year Exam With Deficiency

  1. For cases with net overassessments that include deficiency years a determination must be made as to which, if any of the refund years must be reported. For refund types exceeding $2 million, only the years with net refunds (after deficiencies in these years are offset) along with the years of origination of the carryovers giving rise to the reportable refunds (i.e. source years) are reported.

    Note:

    The source years are included in the report for information purposes but are not technically "reported" themselves.

  2. Determination of the jurisdictional amount in a multiple-year examination involving deficiencies is a four-step process that is applied separately to each refund type (refunds under IRC 6405(a),(b), and (c)). These four steps are:

    1. To determine the net deficiency for tax year, offset the deficiency for that year against the lesser of tentative allowance or disaster losses. If either (or both) the aggregate tentative allowances or disaster losses for that year are offset in their entirety, then the year is not reportable with respect to that refund type;

    2. Determine the aggregate net deficiency for all net deficiency years;

    3. Determine the aggregate net overpayment by refund type for all net refund years; and

    4. Apply the aggregate net deficiency against the least of the aggregate IRC 6405 refund types (even if the least aggregate amount is below Joint Committee jurisdictional amount of $2 million). If the balance of a refund type falls below $2 million after the offset of deficiencies, then that refund type is not reportable.

  3. If the offsetting described in paragraph (1) does not cause the refund type to be taken out of Joint Committee jurisdiction, then the aggregate amount of that refund type must be reported, and no further computation is required. Where the aggregate net deficiency exceeds the least refund type, the excess offsets the next least type of refund. Where two or more refund types are of equal amount, then the remaining deficiency is offset against the refund type associated with earlier years.

  4. Only the categories of tax designated by IRC 6405 are subject to netting. Only refunds and deficiencies within the same category of tax can be netted. For example, a deficiency of gift tax cannot be netted against an income tax overpayment.

  5. A spreadsheet that computes jurisdictional amounts is available at http://lmsb.irs.gov/hq/pqa/4/downloads_JC/print/netting.xls

    Example 1:
    Year Deficiency 6405(a) Refund 6405(b) Refund
    1995 10,000   (1,205,000)
    1996 225,000    
    1997     (570,000)
    1998 180,000    
    1999     (240,000)
    2000   (1,460,000)  
    2001   (800,000)  
    2002   (410,000)  
    Totals 415,000 (2,670,000) (2,015,000)
    Same year offset (10,000)   10,000
    Net deficiency/refund 405,000 (2,670,000) (2,005,000)
    Offset of least refund type (405,000)   405,000
    Jurisdictional amount 0 (2,670,000) (1,600,000)
    A report is required with respect to the IRC 6405(a) refund. Since the net aggregate IRC 6405(b) refund does not exceed $2,000,000 after the offset of the net deficiency, none of the years with tentative allowances are reportable.

    Example 2:
    Year Deficiency 6405(a) Refund 6405(b) Refund
    2000 1,005,000   (2,005,000)
    2001   (2,005,000)  
    2002 600,000    
    Net deficiency/refund 1,605,000 (2,005,000) (2,005,000)
    Same year offset (1,005,000)   1,005,000
    Subtotal 600,000 (2,005,000) (1,000,000)
    Offset of least refund type (600,000)   600,000
    Jurisdictional amount 0 (2,005,000) (400,000)
    A report is required on the IRC 6405(a) refund. The IRC 6405(b) refund is not reportable since the amount after offset is below $2,000,000.

    Example 3:
    Year Deficiency 6405(a) Refund 6405(b) Refund
    2001 900,000   (1,005,000)
    2002   (2,670,000)  
    2003 1,005,000    
    Net deficiency/refund 1,905,000 (2,670,000) (1,005,000)
    Same year offset (900,000)   900,000
    Subtotal 1,005,000 (2,670,000) (105,000)
    Offset of least refund type (105,000)   105,000
    Subtotal 900,000 (2,670,000) 0
    Offset remaining net deficiency (900,000) 900,000  
    Jurisdictional amount 0 (1,770,000) 0
    A report is not required. As netted, none of the refund types meet the jurisdictional amount.

    Example 4:
    Year Deficiency 6405(a) Refund 6405(b) Refund
    2000 2,340,000   (2,230,000)
    2001   (2,220,000) (160,000)
    Totals 2,340,000 (2,220,000) (2,390,000)
    Same year offset (2,230,000)   2,230,000
    Net deficiency/refund 110,000 (2,220,000) (160,000)
    Offset of least refund type (110,000)   110,000
    Jurisdictional amount 0 (2,220,000) (50,000)
    A report is required with respect to the IRC 6405(a) refund. The tentative refund and deficiency for 2000 should be noted in the Joint Committee report.

    Example 5:
    Year Deficiency 6405(a) Refund 6405(b) Refund
    2000 890,000   (3,050,000)
    2001   (210,000)  
    Totals 890,000 (210,000) (3,050,000)
    Same year offset (890,000)   (890,000)
    Jurisdictional amount 0 (210,000) (2,160,000)
    A report is required with respect to the IRC 6405(b) refund. The refund for 2001 should be noted in the Joint Committee report.


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