4.36.2 Identification of Joint Committee Cases 4.36.2.1 Program Scope and Objectives 4.36.2.1.1 Background 4.36.2.1.2 Authority 4.36.2.1.3 Responsibilities 4.36.2.1.4 Terms/Definitions/Acronyms 4.36.2.1.5 Related Resources 4.36.2.2 Joint Committee Cases Reportable to the JCT 4.36.2.2.1 Unpaid Refunds IRC 6405(a): Allowed Claims and Examination Results 4.36.2.2.2 Tentative Refunds IRC 6405(b) 4.36.2.2.3 Disaster Loss Refunds IRC 6405(c) 4.36.2.2.4 Prepayment Credits IRC 6402 4.36.2.3 Refunds Not Reportable to the JCT 4.36.2.4 Determining Joint Committee Jurisdictional Amount 4.36.2.4.1 Inclusion of Interest and Penalties in Joint Committee Jurisdictional Amount 4.36.2.4.2 Treatment of Deficiencies 4.36.2.4.3 Multiple-Year Examination with Net Deficiency 4.36.2.4.4 Computing Jurisdictional Amount in a Multiple-Year Exam With Deficiency Part 4. Examining Process Chapter 36. Joint Committee Procedures Section 2. Identification of Joint Committee Cases 4.36.2 Identification of Joint Committee Cases Manual Transmittal June 18, 2021 Purpose (1) This transmits revised IRM 4.36.2, Joint Committee Procedures, Identification of Joint Committee Cases. Material Changes (1) Content in this section was rearranged to conform to the internal control format mandated Servicewide by IRM 1.11.2.2.5, Address Management and Internal Controls. IRM 4.36.2.1, Program Scope and Objectives, contains internal control information. (2) The hyperlinks to the Joint Committee Review website and the Acronyms Database were updated. (3) The reference to refunds of fuel tax credits in IRM 4.36.2.2.4 was removed, per Chief Counsel recommendation. (4) Various editorial changes were made throughout. Effect on Other Documents This section supersedes IRM 4.36.2, Identification of Joint Committee Cases, dated September 22, 2015. Audience LB&I, SB/SE, TE/GE Effective Date (06-18-2021) Theodore D. Setzer Acting Assistant Deputy Commissioner Compliance Integration Large Business and International Division 4.36.2.1 (06-18-2021) Program Scope and Objectives Purpose: This IRM section provides guidance on identifying Joint Committee cases and computing the qualifying jurisdictional amount under IRC 6405. This section also describes the statutory provisions requiring review of certain cases by the Joint Committee on Taxation (JCT) and identifies such cases. Audience: Examination personnel in LB&I, SB/SE and TE/GE business operating divisions who work on Joint Committee cases. Policy Owner: Director, Northeastern Compliance Practice Area, LB&I Program Owner: LB&I Policy under the Strategy, Policy and Governance office in the Assistant Deputy Commissioner Compliance Integration organization. Primary Stakeholders: Stakeholders include examiners, taxpayers and the JCT. 4.36.2.1.1 (06-18-2021) Background See IRM 4.36.1.1.1, Background. 4.36.2.1.2 (06-18-2021) Authority IRC 6405 requires review of certain cases by the JCT. See IRM 4.36.1.1.2, Authority, for more information. 4.36.2.1.3 (06-18-2021) Responsibilities See IRM 4.36.1.1.3, Roles and Responsibilities. 4.36.2.1.4 (06-18-2021) Terms/Definitions/Acronyms See IRM Exhibit 4.36.1-1, Acronyms Used Throughout IRM 4.36, for a list of commonly used acronyms. 4.36.2.1.5 (06-18-2021) Related Resources Joint Committee topics may be found on the IRS Knowledge Management website at:Joint Committee Virtual Library. This site contains a wealth of information about all the various aspects of a Joint Committee case, including frequently asked questions, job aids, contact information, and JC forms. It is a place to visit for valuable tools and resources. 4.36.2.2 (09-22-2015) Joint Committee Cases Reportable to the JCT IRC 6405(a), IRC 6405(b) and IRC 6405(c) require the submission of reports by the IRS in cases involving refunds in excess of the jurisdictional amount of $2 million ($5 million for C corporations). 4.36.2.2.1 (09-22-2015) Unpaid Refunds IRC 6405(a): Allowed Claims and Examination Results IRC 6405(a), as amended, 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 the jurisdictional amount(s) shall be made until after the 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 JCT. When the examination results in a deficiency, a Joint Committee report must be prepared when the net refund (IRC 6405(a) refund less deficiency) exceeds the $2 million ($5 million for C corporations) jurisdictional amount. 4.36.2.2.2 (09-22-2015) Tentative Refunds IRC 6405(b) The Joint Committee review of a refund or credit made under IRC 6411, which relates to tentative carryback adjustments, is provided for in IRC 6405(b), as amended. 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 jurisdictional amount(s) are reported to the JCT. 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 jurisdictional amount. 4.36.2.2.3 (09-22-2015) Disaster Loss Refunds IRC 6405(c) IRC 6405(c) provides that refunds in excess of the jurisdictional amount(s), which are attributable to a taxpayer’s election under IRC 165(i), are 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. 4.36.2.2.4 (06-18-2021) Prepayment Credits IRC 6402 A refund shown on the return as filed does not qualify as a refund or credit under IRC 6405(a) except as follows: A report is required with respect to a refund attributable to amounts credited under IRC 835(d) in excess of $5 million 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. 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 the jurisdictional amount. See Rev. Rul. 67-358, 1967-2 C.B. 412. 4.36.2.3 (09-22-2015) Refunds Not Reportable to the JCT 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. In addition, the following refunds are not reportable: A refund or credit of estimated or withheld income tax, made without examination. 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. Abatement of an unpaid tax liability in excess of the jurisdictional amount. 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. An overpayment determined by the United States Tax Court (USTC) or any other court of competent jurisdiction as a result of the trial of a case (rather than by a stipulation of settlement). Non-reportable overpayments determined by the USTC or other courts are limited to overpayments from only those years in the court decision. Refund from any years outside of the specific court decision may be reportable if they meet the jurisdictional amount. 4.36.2.4 (09-22-2015) Determining Joint Committee Jurisdictional Amount The exam group 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 JCR or Area Counsel. Refunds with respect to separate taxpayers 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. 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 ($5 million for C Corporations), 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 ($5 million for C Corporations). See Example 1. IRC 6405(a) and IRC 6405(b) refunds or credits are not aggregated in determining jurisdictional amount. See Example 2. Tentative refunds paid prior to the current examination cycle should be considered in computing the jurisdictional amount if the current exam cycle is: Open with respect to the statute of limitations, and Not previously examined or surveyed See Example 3. 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. Refunds previously reported to the JCT are not included in the computation of the jurisdictional amount. Note: The following examples reflect the jurisdictional amounts as of the date of this IRM revision: Example 1: Facts: Tentative allowances - IRC 6405(b): $2M Threshold $5M Threshold 2011 NOL carryback to 2009 2012 GBC carryback to 2011 $ 1,500,000 550,000 $4,500,000 550,000 Jurisdictional Amount - 6405(b) $ 2,050,000 $5,050,000 Conclusion: Both refunds must be reported. The 2012, 2011, and 2009 returns must be surveyed or examined and submitted to the JCT for review. Example 2: Facts: Tentative allowances - IRC 6405(b): $2M Threshold $5M Threshold 2012 NOL carryback to 2010 $1,800,000 $4,800,000 Audit results - IRC 6405(a): 2011 Examination refund $450,000 $450,000 Conclusion: No report is required since the IRC 6405(a) and IRC 6405(b) refunds or credits are not aggregated. Example 3: Facts: Tentative allowances - IRC 6405(b): $2M Threshold $5M Threshold 2012 NOL carryback to 2010 2011 NOL carryback to 2009 $1,700,000 200,000 $4,700,000 200,000 $1,900,000 $4,900,000 Previous tentative allowance - IRC 6405(b): 2010 Capital Loss carryback to 2007 $300,000 $300,000 Conclusion: If not barred by the statute of limitations and not considered in a prior examination (or survey), the 2010 capital loss carryback to 2007 is added in determining the jurisdictional amount. A report is required to be submitted to the JCT. 4.36.2.4.1 (09-22-2015) Inclusion of Interest and Penalties in Joint Committee Jurisdictional Amount In computing the IRC 6405 jurisdictional amount, proposed refunds of penalties and previously assessed and paid interest are combined with proposed tax refunds. Example: Facts: Tentative allowances - IRC 6405(b): $2M Threshold $5M Threshold Proposed Refund $1,950,000 $4,950,000 Overpayment: Previously assessed and paid interest 60,000 60,000 $2,010,000 $5,010,000 Conclusion: 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. 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 ($5 million for C corporations) with no reduction in tax requires a report. 4.36.2.4.2 (05-04-2010) Treatment of Deficiencies 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. 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. 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 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 (09-22-2015) Computing Jurisdictional Amount in a Multiple-Year Exam With Deficiency 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 the jurisdictional amount(s), only the years with net refunds (after deficiencies in these years are offset) are reported to the JCT. 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: To determine the net deficiency for a 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. Determine the aggregate net deficiency for all net deficiency years. Determine the aggregate net overpayment by refund type for all net refund years. 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(s)). If the balance of a refund type falls below the jurisdictional amount(s) after the offset of deficiencies, then that refund type is not reportable. 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 refund type. Where two or more refund types are of equal amount, then the remaining deficiency is offset against the remaining refund. 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. A spreadsheet that computes jurisdictional amounts is available at:Joint Committee Spreadsheet. Additional resources may be found on the IRS Knowledge Management website at:Joint Committee Virtual Library. Note: THE FOLLOWING EXAMPLE REFLECTS THE $2 MILLION JURISDICTIONAL AMOUNT FOR TAXPAYERS OTHER THAN C CORPORATIONS. Example 1: $2M Threshold Year Deficiency 6405(a) Refund 6405(b) Refund 2005 $10,000 ($1,205,000) 2006 $225,000 2007 ($570,000) 2008 $180,000 2009 ($240,000) 2010 ($1,460,000) 2011 ($800,000) 2012 ($410,000) Sub-total deficiency/refund $415,000 ($2,670,000) ($2,015,000) Same year offset (2005) ($10,000) $10,000 Subtotal $405,000 ($2,670,000) ($2,005,000) Offset of least refund type ($405,000) $405,000 Net deficiency/refund 0 ($2,670,000) ($1,600,000) In excess of jurisdictional amount? Yes No Conclusion: A Joint Committee report is required with respect to only the IRC 6405(a) refund for the years 2010, 2011, and 2012. Since the net aggregate IRC 6405(b) refund does not exceed $2 million after the offset of the net deficiency, none of the years with tentative allowances are reportable. The 6405(b) refunds and deficiencies for the years 2005 through 2009, although not reportable, will be noted in the report to the Joint Committee. Note: THE FOLLOWING EXAMPLE REFLECTS THE $5 MILLION JURISDICTIONAL AMOUNT FOR C CORPORATIONS. Example 2: $5M Threshold Year Deficiency 6405(a) Refund 6405(b) Refund 2010 $1,005,000 ($5,005,000) 2011 ($5,005,000) 2012 $600,000 Subtotal deficiency/refund $1,605,000 ($5,005,000) ($5,005,000) Same year offset ($1,005,000) $1,005,000 Subtotal deficiency/refund $600,000 ($5,005,000) ($4,000,000) Offset of least refund type ($600,000) $600,000 Net deficiency/refund $ 0 ($5,005,000) ($3,400,000) In excess of jurisdictional amount? Yes No Conclusion: A Joint Committee report is required on the IRC 6405(a) refund for 2011. The IRC 6405(b) refund for 2010 is not reportable since the amount after offset is below $5 million; however, the 2010 refund and the deficiencies for 2010 and 2012 will be noted in the Joint Committee report. Note: THE FOLLOWING EXAMPLE REFLECTS THE $2 MILLION JURISDICTIONAL AMOUNT FOR OTHER THAN C CORPORATIONS. Example 3: $2M Threshold Year Deficiency 6405(a) Refund 6405(b) Refund 2011 $900,000 ($1,005,000) 2012 ($2,670,000) 2013 $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 of remaining net deficiency ($900,000) $ 900,000 Net deficiency/refund $0 ($1,770,000) $0 In excess of jurisdictional amount? No No Conclusion: A Joint Committee report is not required. As netted, none of the refund types meet the jurisdictional amount. Note: THE FOLLOWING EXAMPLE REFLECTS THE $5 MILLION JURISDICTIONAL AMOUNT FOR C CORPORATIONS. Example 4: $5M Threshold Year Deficiency 6405(a) Refund 6405(b) Refund 2010 $2,340,000 ($2,230,000) 2011 ($5,100,000) ($160,000) Subtotal $2,340,000 ($5,100,000) ($2,390,000) Same year offset ($2,230,000) $2,230,000 Subtotal $110,000 ($5,100,000) ($160,000) Offset of least refund type ($110,000) $110,000 Net deficiency/refund $0 ($5,100,000) ($50,000) In excess of jurisdictional amount? Yes No Conclusion: A report is required with respect to the IRC 6405(a) refund. The non-jurisdictional refund and deficiency for 2010 will be noted in the Joint Committee report. Note: THE FOLLOWING EXAMPLE REFLECTS THE $2 MILLION JURISDICTIONAL AMOUNT FOR OTHER THAN C CORPORATIONS. Example 5: $2M Threshold Year Deficiency 6405(a) Refund 6405(b) Refund 2010 $890,000 ($3,050,000) 2011 ($210,000) Subtotal $890,000 ($210,000) ($3,050,000) Same year offset ($890,000) ($890,000) Net deficiency/refund $0 ($210,000) ($2,160,000) In excess of jurisdictional amount? No Yes Conclusion: A Joint Committee report is required with respect to the IRC 6405(b) refund for 2010. The refund for 2011 will be noted in the Joint Committee report. More Internal Revenue Manual