Part 4. Examining Process

Chapter 82. Tax Exempt Bonds Examination Guidelines

Section 2. Arbitrage Payment Refund Claim Procedures

4.82.2 Arbitrage Payment Refund Claim Procedures

Manual Transmittal

March 18, 2021

Purpose

(1) This transmits revised IRM 4.82.2, Tax Exempt Bonds Examination Guidelines, Arbitrage Payment Refund Claim Procedures.

Material Changes

(1) Incorporates new text, reissues existing information and reflects editorial changes and updates to IRM references. The significant changes to this IRM are listed in the table below:

IRM Reference Change
Throughout the IRM Updated manual to change references to certain TEB positions as a result of the 2019 TEGE reorganization that separated Indian Tribal Governments and Tax Exempt Bonds (TEB) and moved TEB to Exempt Organizations and Government Entities.
Throughout the IRM Changed references from TEB Field Operations Manager (FOM) to Program Manager, Tax Exempt Bonds (PM).
Throughout the IRM Incorporated extended filing deadline provisions for Rev. Proc. 2017-50.
Throughout the IRM Changed references from ITG/TEB Technical to Technical.
Throughout the IRM Changed Field Operations (FO) to TEB Exam to represent the TEB exam groups after the reorganization.
Program Controls Changed to Director, Exempt Organizations and Government Entities (formerly Director, Indian Tribal Governments/Tax Exempt Bonds)
4.82.2.1.5, Acronyms Revised the list of frequently used acronyms and their definitions used in TEB.
4.82.2.5, Refund Claim Examination Process Added new text.
4.82.2.7, Processing a Fully Allowed Refund Claim Incorporated key provisions from Rev. Proc. 2008-37 including the time allowance for issuer response and basis for denial. Added new text and included RCCMS closing instructions.
4.82.2.11, Processing a Fully Denied Refund Claim Added new text including revised procedure reflecting impact of issuer’s signature on Form 2297.
4.82.2.12, Processing a Fully Denied Refund Claim with Additional Amounts Due Added new text.
4.82.2.13, Processing a Rejected Refund Claim with Additional Amounts Due Incorporated key provisions from Rev. Proc. 2008-37 including time allowance for issuer response and basis for rejection.
4.82.2.16, Request for Reconsideration of a Disallowed Refund Claim Added new text.
4.82.18, Mandatory Review Added new text.
4.82.2.20, Disaster Assistance and Emergency Relief Added new section.

Effect on Other Documents

This supersedes IRM 4.82.2 dated September 20, 2018.

Audience

Tax Exempt and Government Entities
Exempt Organizations and Government Entities
Government Entities
Tax Exempt Bonds

Effective Date

(03-18-2021)

Stephen A. Martin
Acting Director, Exempt Organizations and Government Entities
Tax Exempt and Government Entities

4.82.2.1 (03-18-2021)

Program Scope and Objectives

  1. Purpose: This IRM provides basic examination procedures that will enable Tax Exempt Bonds (TEB) employees to process claims for recovery of overpayment of arbitrage payments (refund claims).

  2. Audience: This manual provides procedures for TEB revenue agents (examiners) to process arbitrage refund claims.

  3. Policy Owner: Director, Exempt Organizations/Government Entities

  4. Program Owner: Director, Exempt Organizations/Government Entities

  5. Contact Information: To recommend changes or make any other suggestions related to this IRM section, see IRM 1.11.6.6, Providing Feedback About an IRM Section - Outside of Clearance.

  6. Authority: TEB’s examination authority to resolve claims for recovery of overpayment of arbitrage payments is derived from IRC 148 and its regulations.

    1. The Regulations state that an issuer may recover an overpayment for an issue of tax-exempt bonds by establishing to the satisfaction of the Commissioner that the overpayment occurred.

    2. 26 CFR 1.148-5(c)(2)(i) permits the recovery of overpayment of yield reduction payments.

    3. Rev. Proc. 2008-37 provides additional guidance to issuers of tax-exempt bonds regarding procedures for filing a refund claim.

    4. Rev. Proc. 2017-50 modifies Rev. Proc. 2008-37 to extend the deadline for filing claims.

    5. The Form 8038-R instructions provide guidance to issuers for filing a refund claim.

4.82.2.1.1 (03-18-2021)

Program Controls

  1. Compliance Planning & Classification (CP&C) administers inventory control of refund claims.

  2. The Functional Assignment Coordinator (FAC) coordinates the refund claims inventory.

  3. TEB exam groups (TEB Exam) examine refund claims.

  4. TEB Technical (Technical) provides TEB Exam technical assistance and performs mandatory review of certain refund claims as described in this IRM.

4.82.2.1.2 (09-20-2018)

Program Goals and Objectives

  1. The primary objective of the refund claim examination and approval process is to determine whether a refund claim should be paid in the amount requested (or in some other amount) based on IRS review of the Form 8038-R and any supporting documents and reports.

4.82.2.1.3 (09-20-2018)

Background

  1. An issuer of tax-exempt bonds, tax credit bonds, and other financing subject to IRC 148 with a recoverable overpayment can file refund claims using Form 8038-R, Request for Recovery and Overpayments Under Arbitrage Rebate Provisions.

4.82.2.1.4 (09-20-2018)

Roles and Responsibilities

  1. Generally, CP&C:

    1. Classifies cases based on certain criteria.

    2. Maintains a virtual shelf on the Reporting Compliance Case Management System of cases awaiting assignment.

  2. The FAC assigns cases to the TEB Exam group managers’ unassigned inventory.

  3. The TEB Exam group managers assign cases to examiners; review the examiner’s work for accuracy and completeness; coordinate the case closing; and ensure examiners follow all other procedures contained in this IRM.

  4. The examiner examines the refund claim following procedures in this IRM.

  5. A Technical tax law specialist provides TEB Exam technical assistance when requested and conducts mandatory reviews of refund claims following these IRM procedures.

4.82.2.1.5 (03-18-2021)

Acronyms

  1. This manual uses the following acronyms and references the following forms and letters.

    Acronym Definition
    AIMS Audit Information Management System
    CP&C Compliance Planning & Classification
    Examiner TEB Revenue Agent
    FAC Functional Assignment Coordinator
    IDR Information Document Request
    Ogden Campus Ogden Service Center
    PM TEB Program Manager
    RCCMS Reporting Compliance Case Management System
    Rev. Proc. Revenue Procedure
    TEB Tax Exempt Bonds Program
    TEB Exam TEB exam groups
    Technical TEB Technical
    TLS Tax Law Specialist
    Form, Pub or Letter Name Description
    Form 886-A Explanation of Reason(s) for Disallowance
    Form 907 Agreement to Extend Time to Bring Suit
    Form 2297 Waiver of Statutory Notification of Claim for Refund or Credit
    Form 2848 Power of Attorney and Declaration of Representative
    Form 3210 Document Transmittal
    Form 3363 Acceptance of Proposed Disallowance of Claim for Refund or Credit
    Form 3753 Manual Refund Posting Voucher
    Form 4564 Information Document Request
    Form 5773 Workpaper Summary
    Form 8038-R Request for Recovery of Overpayment Under Arbitrage Rebate Provisions
    Form 8038-T Arbitrage Rebate and Penalty in Lieu of Arbitrage Rebate
    Form 8821 Tax Information Authorization
    Letter 105-T TEB Arbitrage Claim Incomplete for Processing - No Consideration
    Letter 937 Transmittal Letter for Power of Attorney
    Letter 5677 Arbitrage Claim Notification of Final Adverse Determination
    Letter 5678 TEB Form 8038-R Examination Notification
    Letter 5684 Arbitrage Claim Notification of Proposed Claim Disallowance
    Letter 5761 Arbitrage Claim Allowed In Full
    Letter 5918 Protest Received Rebuttal / Transfer to Appeals
    Publication 1 Your Rights as a Taxpayer
    Publication 5 Your Appeal Rights and How to Prepare a Protest If You Don’t Agree
4.82.2.2 (03-18-2021)

Terminology

  1. Unless otherwise noted, all terms defined under IRC 148, its regulations and Rev. Proc. 2008-37 apply to these procedures.

  2. A refund claim is a request for a refund of an overpayment of arbitrage payments, including arbitrage rebate amounts, yield reduction payments and penalty in lieu of rebate.

  3. An overpayment is the excess of the amount paid over the sum of the "rebate amount" (as defined in 26 CFR 1.141-3(b)) as of the most recent "computation date" (per 26 CFR 1.148-3(e)) and all amounts otherwise required to be paid under IRC 148 as of the refund claim date.

  4. Unless otherwise noted: i) an allowance of a refund claim is a refund claim approval and ii) a partial disallowance (denial) is similar to an adverse determination in that it’s initially treated as proposed and doesn’t become final until:

    1. Accepted by the issuer.

    2. Issuer fails to timely request an administrative appeal.

    3. The IRS Independent Office of Appeals makes a final determination regarding the refund claim.

4.82.2.3 (03-18-2021)

Receipt and Establishment

  1. An issuer files an arbitrage claim with the Ogden Service Center (Ogden Campus) using Form 8038-R to recover an overpayment of:

    • arbitrage rebate

    • a yield reduction payment

    • a penalty in lieu of rebate

  2. Exempt Organizations (EO) Accounts staff review the claim to determine whether the issuer has satisfied the initial processing requirements as described in IRM 21.7.7.7.4.7.1, Business Tax Returns and Non-Master File Accounts, Exempt Organizations and Tax Exempt Bonds, TEB Claim Procedures and routes the claim to TEGE Compliance Planning & Classification, Classification & Case Assignment.

4.82.2.4 (03-18-2021)

Classification and Assignment

  1. The refund claim is classified when CP&C receives a refund claim case file in accordance with IRM 4.70.6.5.3, TEGE Examinations, Classification and Case Assignment CP&C Procedures, Claims/Requests for Abatement. For refund claim examinations, the FAC assigns the case per IRM 4.81.5.3, TEB Conducting the Examination, Case Assignment.

4.82.2.5 (03-18-2021)

Refund Claim Examination Process

  1. Examiner: When you’re assigned a case:

    1. Acknowledge the Form 3210 and keep a copy for the Form 3210 logbook.

    2. Begin the refund claim examination as soon as possible, but no later than 30 days after receipt and note any delays on the Form 5464, Case Chronology Record.

    3. Send the opening Letter 5678, TEB Form 8038-R Examination Notification; Pub 1, Your Rights as a Taxpayer; any Form 4564, Information Document Request; and any required Letter 937 notifying the issuer that its refund claim is being examined.

    4. Update the case to AIMS status 12 as soon as time is applied to the case.

    5. Contact the issuer and any authorized representative 14 calendar days after mailing Letter 5678 if the issuer or the issuer’s representative hasn’t contacted you.

    6. Verify the issuer submitted the refund claim timely per IRC 148 and the applicable regulations.

    7. Follow these procedures:

      If the Issuer... Then...
      Doesn’t submit the refund claim timely

      • Disallow the refund claim in full without considering any other issues for the claim.

      • Prepare and issue:

        • Letter 5684, Arbitrage Claim Notification of Proposed Claim Disallowance

        • Form 886-A, Explanation of Reason(s) for Disallowance

        • Form 3363, Acceptance of Proposed Disallowance of Claim for Refund or Credit

        • Form 2297, Waiver of Statutory Notification of Claim Disallowance

        • Pub 5, Your Appeal Rights and How to Prepare a Protest If You Don’t Agree

        • Any Letter 937.
      Appeals the proposed determination Transfer the case to the IRS Independent Office of Appeals (Appeals) following procedures for unagreed issues in IRM 4.81.14, Tax Exempt Bonds Examination Program and Procedures, Unagreed Issues.
      If Appeals determines they filed the refund claim timely, Appeals will return the refund claim case to TEB Exam to consider the refund claim’s merits. See IRM 8.7.7.15, Claims Disallowed by Compliance Based on Timeliness Determinations.
      Doesn’t agree to the disallowance, but does not protest to Appeals Close the case following unagreed issue procedures in IRM 4.81.14.
      Agrees to the disallowance Close the case per IRM 4.82.2.11 (5).

    8. If the refund claim was submitted timely:

      1. Identify the appropriate review scope of the examination on Form 5773, Workpaper Summary, and the documents required to conduct the examination.

      2. If all required documents aren’t included with the assigned RCCMS file or in the paper case file, prepare Form 4564, Information Document Request, and request these items with the Letter 5678, TEB Form 8038-R Examination Notification.

      3. Follow the appropriate IDR procedures found in IRM 4.81.5.11.2, Tax Exempt Bonds Examination Program and Procedures, Conducting the Examination, Securing Records. The scope is limited to the merits of the claim. However, if a potential violation unrelated to the merits of the refund claim is identified during the exam, the examiner must notify the TEB Exam group manager and obtain approval to expand the scope of the examination.

      4. As the examination continues, you may request additional documents necessary to determine whether the claim is allowable. Allow the issuer at least 21 days to provide additional information in support of the refund claim for procedural deficiencies or incomplete information.

    9. Using IDRS, verify IRS receipt of payments including all arbitrage rebate, yield reduction, penalty in lieu of arbitrage rebate, any applicable underpayment interest and penalty purportedly paid according to the rebate report(s) and ancillary documents provided by the issuer. Resolve any discrepancies and recalculate any underpayment and penalty interest to determine if the payments are correct.

    10. Ensure all previously filed Forms 8038-T, Arbitrage Rebate, Yield Reduction and Penalty in Lieu of Arbitrage Rebate, along with the related payments discussed above, are established on AIMS and RCCMS.

    11. Verify whether any prior refund was approved and paid using the BMFOLT in the case file. A refund appears with a transaction code of 840.

      Note:

      A transaction code 740 means the previously issued refund claim refund check was undeliverable. Check the TXMOD transaction code for any actions taken on the undeliverable/returned refund claim check and follow-up as necessary.

    12. Use appropriate workpapers specifically developed for this type of examination, if available.

    13. Discuss the issue(s) with the issuer or the issuer’s representative as soon as you determine that all or a portion of the refund claim might be denied. If you require additional information, see IRM 4.82.2.5(1)(h). If the issue(s) remain unresolved, discuss the issue(s) with your manager. Generally, TEB will deny (or disallow) a refund claim, in full or in part, if the examination determines the correct amount of overpayment is less than the requested overpayment amounts, or no overpayment occurred.

    14. If the claim is to be disallowed in whole or in part, with your manager’s agreement per IRM 4.81.14.2, Communicating Identified Issues, prepare and secure e-mail your manager:

       

      • Letter 5684

      • Form 886-A

      • Form 3363

      • Form 2297, and

      • any Letter 937.

    15. Group manager: When you receive the above package, sign Letter 5684, TEB Arbitrage Claim Notification of Proposed Claim Disallowance, for the PM and mail to the issuer via certified mail/return receipt requested:

      • Letter 5684

      • Form 886-A, Explanation of Items

      • Form 3363, Acceptance of Proposed Disallowance of Claim for Refund of Credit

      • Form 2297, Waiver of Statutory Notification of Claim Disallowance

      • Pub 5, Your Appeal Rights and How to Prepare a Protest If You Don’t Agree.


      Mail copies to any authorized representative using Letter 937, Transmittal for Power of Attorney, via regular mail. Send secure e-mail copies to the examiner via secure e-mail.

    16. Examiner: If the issuer agrees with the proposed determination:

      1. Prepare and organize the work papers, case chronology record, letters, documents and forms for closing upon exam completion per IRM 4.81.5.24, Case Closing Procedures.

      2. Assemble the case file per IRM 4.81.5.25, Case File Assembly, and recommend full allowance, partial disallowance, full disallowance or rejection (under section 3.03(2)(b) of Rev. Proc. 2008-37 or under 26 CFR 1.148-3(i)(3)(iii)(B) for a refund claim rejection after the two year deadline in 26 CFR 1.148-3(i)(3)(i), as modified by Rev. Proc. 2017-50. See also IRM 4.82.2.13, Processing a Rejected Refund Claim.

      3. Prepare an RCCMS closing record based on the examination determination. Include closing letter, any Letter 937 and Form 3753, Manual Refund Posting Voucher, if not a full disallowance.

      4. Upload documents into RCCMS and request closure when you receive signed copies of issued closing letters from the TEB Exam group manager.

    17. If the issuer doesn’t agree with the proposed determination and files a protest requesting consideration of the case by the IRS Independent Office of Appeals, close the case per unagreed issue procedures in IRM 4.81.14.

    18. If the issuer doesn’t agree with the recommendation and doesn’t file a protest, close the case per unagreed issue procedures in IRM 4.81.14.5, TEB Examination Program and Procedures, Unagreed Issues, Mandatory Review and IRM 4.81.14.6, TEB Examination Program and Procedures, Unagreed Issues, Final Adverse Determination.

    19. Using Form 3210, Document Transmittal, mail the arbitrage claim paper case file to the TEB Exam group manager, keep a copy in the Form 3210 logbook.

4.82.2.6 (03-18-2021)

Refund Claim Review and Pre-Closing Process

  1. TEB Exam group manager: When you receive the completed refund claim case file, review it. If you don’t agree with the examiner’s conclusion, return it to them and note required follow-up actions.

  2. Examiner: When you receive the reviewed refund claim case from the Exam group manager:

    1. Organize the claim case file.

    2. Prepare Form 3210 and keep a copy in the Form 3210 logbook.

    3. Send the paper case file to the CP&C, Planning & Monitoring Closing Group at the address in IRM 4.82.2.7 (4).

4.82.2.7 (03-18-2021)

Processing a Fully Allowed Refund Claim

  1. If the allowed claim is for more than $2 million, the claim is subject to mandatory review. The mandatory review procedures in IRM 4.82.2.18 must be followed before processing the refund claim.

  2. Examiner: Inform the TEB Exam group manager that the claim is ready to be closed after you:

    1. Prepare the following documents:

      • Letter 5761, TEB Arbitrage Claim Allowed in Full, notifying the issuer that the claim for refund has been allowed in full and any required Letter 937.

      • Form 3753, Manual Refund Posting Voucher.

    2. Prepare the examination file for closing: organize workpapers, the case chronology record, letters, documents, and forms per IRM 4.81.5, Tax Exempt Bonds Examination Program and Procedures, Conducting the Examination, upload all workpapers and supporting documentation into the RCCMS Office Documents File along with the recommendation of full allowance.

    3. Prepare an RCCMS closing record based on the examination determination, including entering Disposal Code 102 and ARDI code 1 in RCCMS, and request review and closure of the RCCMS file.

    4. Determine whether any of the paper file is necessary to support the conclusion and, if so, scan and upload into the RCCMS file. Organize any documents too large for scanning but necessary to support the conclusion in a case file.

    :

  3. TEB Exam group manager: When you receive the case, review it and if you:

    1. Don’t agree with the examiner’s recommendation, discuss any issues with them that they must develop and return the RCCMS case file for further development. If you continue to disagree, you may request technical assistance per IRM 4.80.1, Technical Assistance and Technical Advice Requests. If disagreement remains, elevate the issue(s) to the PM for resolution.

    2. Agree with the examiner’s recommendation or are otherwise instructed to proceed with processing the claim:

      1. Review the Form 3753, Manual Refund Posting Voucher.

      2. Sign Letter 5761, TEB Arbitrage Claim Allowed in Full, for the PM and mail it to the issuer, and to any authorized representative using Letter 937.

      3. Upload a copy of the signed Letter 5761, any Letter 937 and the reviewed Form 3753 into the RCCMS case file.

      4. Notify the examiner of final approval to close.

  4. Examiner: when you receive the final approval to close from the TEB Exam group manager:

    1. Return any hardcopy documents not necessary to support the examination conclusion to the issuer or the issuer’s representative.

    2. For any documents too large for scanning but necessary to support the conclusion in a case file, prepare Form 3210 retaining a copy in the Form 3210 logbook, and send the paper case file to the CP&C Planning & Monitoring Closing Unit at the following address for closing:
      Internal Revenue Service
      TEGE Closing Unit MS 7700
      1973 N. Rulon White Boulevard
      Ogden, Utah 84201-1001

    3. Upon receipt of the paper case file, the Manager, CP&C, Planning & Monitoring Closing Unit, or other designee, signs the Form 3753 when they receive the paper case file.

4.82.2.8 (03-18-2021)

Processing a Fully Allowed Refund Claim with Additional Refund Allowed

  1. If during the examination of a refund claim the examiner determines that a refund in an amount more than originally requested is due, he/she secures an amended Form 8038-R, Request for Recovery of Overpayment Under Arbitrage Rebate Provisions. If the issuer doesn’t agree with the additional refund amount, the examiner allows the original refund claim as filed.

4.82.2.9 (03-18-2021)

Processing a Partially Denied Refund Claim

  1. The examiner discusses the proposed partial refund claim denial with the issuer and any authorized representative and secure e-mails to the TEB Exam group manager:

    • Letter 5684

    • Form 886-A

    • Form 3363

    • Form 2297

    • Publication 5

    • Any required Letter 937.

  2. If the amount of the allowed refund claim is greater than $2 million, it’s subject to mandatory review per IRM 4.82.2.18 before processing the refund claim.

  3. TEB Exam group manager: When you receive the documents:

    If you don’t agree with the examiner’s recommendations: If you agree with the examiner’s recommendation or are otherwise instructed to proceed:

    1. Discuss any issues to develop

    2. If you and the examiner still disagree, you may request technical assistance following the procedures in IRM 4.80.1, Technical Assistance and Technical Advice Requests.

    3. If the disagreement remains, elevate the issue to the PM for resolution.

    1. Sign Letter 5684, TEB Arbitrage Claim Notification of Proposed Claim Disallowance for the PM and

    2. Mail the letter and Form 886-A, Explanation of Items; Form 3363, Acceptance of Proposed Disallowance of Claim for Refund or Credit; Form 2297, Waiver of Statutory Notification of Claim Disallowance; and Pub 5, Your Appeal Rights and How To Prepare A Protest If You Don’t Agree, to the issuer via certified mail/return receipt requested and copies to any authorized representative using Letter 937, Transmittal for Power of Attorney via regular mail.

    3. Secure e-mail a copy of the signed Letter 5684 and any Letter 937 to the examiner.

  4. Examiner: When you receive the signed Letter 5684 and any Letter 937 from the TEB Exam group manager, update the RCCMS case status to 13 (30-Day Letter) and hold the case file for 45 days pending the issuer’s response or until a signed Form 2297 and Form 3363 are received, if earlier.

  5. If the issuer agrees to the proposed partial denial:

    Person responsible Action
       
       
    Examiner :

    1. Secure the issuer’s signature on Form 3363 and Form 2297.

    2. Include the completed Form 3753, Manual Refund Posting Voucher, in the case file for the allowable portion of the refund claim.

    3. Organize the refund claim case file, prepare Form 3210, keep a copy in the Form 3210 logbook, and forward the paper case file to CP&C Planning & Monitoring Closing Group at the address in IRM 4.82.2.7 (4).

    4. Enter disposal code 102 and ARDI code 3 in RCCMS. Then, request closure of the RCCMS file.
    TEB Exam group manager When you receive the case file, review the completed Form 3753, Manual Refund Posting Voucher, before approving case closure.
    Manager, CP&C Planning & Monitoring Closing Unit, or other designee When you receive the paper case file, sign the Form 3753.

  6. If the issuer disagrees with the proposed partial denial and submits a protest:

    Person Responsible Action
    Examiner

    1. Follow the procedures in IRM 4.81.14 for unagreed issues.

    2. Enter disposal code 601 and ARDI code 2 in RCCMS.

    3. Notify the TEB Exam group manager that the issuer has appealed the proposed partial denial and, unless technical review is not required, request transfer of the RCCMS case file to the TLS assigned to conduct the review.

    4. If technical review is not required, inform the TEB Exam group manager that the refund claim is ready for transfer to Appeals and e-mail Letter 5918, Notification of Transfer to the IRS Independent Office of Appeals, Notification of Transfer to the IRS Independent Office of Appeals, issuer’s protest, rebuttal to the protest and any required Letter 937.
    TEB Exam group manager When you receive the case:

    1. Follow the procedures in IRM 4.81.14 for unagreed issues.

    2. If you agree with the prepared rebuttal or are otherwise instructed to proceed:

      1. Sign Letter 5918, Protest Received Rebuttal/Transfer to Appeals for the PM and mail it with the rebuttal to the issuer, and any authorized representative using Letter 937 informing the issuer that you’ve forwarded the refund claim to Appeals.

      2. Secure e-mail a copy of the signed Letter 5918, the rebuttal, and any Letter 937 to the examiner.
    Examiner and TEB Exam group manager If the issuer doesn’t respond to the Letter 5684 after 45 days, follow the procedures in IRM 4.81.14.5 and IRM 4.81.14.6 for unagreed issues.

4.82.2.10 (03-18-2021)

Processing a Fully Allowed or Partially Denied Refund Claim with Additional Amounts Due

  1. Reduce an otherwise approved refund claim by any amount determined to be due.

  2. These refund claims are processed the same way as partially denied claims. See IRM 4.82.2.9.

4.82.2.11 (03-18-2021)

Processing a Fully Denied Refund Claim

  1. Examiner: Follow these procedures when you process a fully denied refund claim.

  2. Discuss the proposed full refund claim denial with the issuer and any authorized representative. Then, send to the TEB Exam group manager:

    • Letter 5684

    • Form 886-A

    • Form 3363

    • Form 2297

    • Pub 5

    • Any required Letter 937.

  3. TEB Exam group manager:

    If you don’t agree with the examiner’s recommendation: If you agree with the examiner’s recommendation or are otherwise instructed to proceed:

    1. Discuss any issues with the examiner that need additional development.

    2. If you still disagree with the examiner, you may request technical assistance per IRM 4.80.1, Technical Assistance and Technical Advice Requests.

    3. If the disagreement remains, elevate the issue to the PM for resolution.

    1. Sign Letter 5684 for the PM, and mail the letter and Form 886-A, Form 3363, Form 2297, and Pub 5 to the issuer via certified mail/return receipt requested and copies to any authorized representative using Letter 937, via regular mail.

    2. Secure e-mail a copy of the signed Letter 5684 and any Letter 937 to the examiner.

  4. Examiner: When you receive the signed Letter 5684 and any Letter 937 from the TEB Exam group manager:

    1. Update the RCCMS case status to 13 (30-Day Letter).

    2. Hold the case for 45 days pending the issuer’s response or until a signed Form 2297 and Form 3363 are received, if earlier.

  5. If the issuer agrees to the proposed full denial:

    Person Responsible Action
    Examiner

    1. Secure the issuer’s signature on Form 3363 and Form 2297.

    2. Prepare Letter 5677, Arbitrage Claim Notification of Final Adverse Determination and any Letter 937.

    3. Organize the refund claim case file.

    4. Prepare Form 3210 and keep a copy in the Form 3210 logbook.

    5. Enter disposal code 303 and ARDI code 2 in RCCMS. Request closure of the RCCMS file.
    TEB Exam group manager

    1. Sign Letter 5677 for the PM and mail it to the issuer with a copy to any authorized representative using Letter 937, via regular mail.

    2. Upload a copy of the signed Letter 5677 and any Letter 937 into the RCCMS case file.

    3. Notify the examiner of final approval to close.
    Examiner When you receive final approval to close the case file:

    1. Send the refund claim paper case file to the CP&C Planning & Monitoring Closing Group at the address in IRM 4.82.2.7 (4).

  6. If the issuer disagrees with the proposed full denial and submits a protest:

    Person Responsible Action
    Examiner

    1. Follow the unagreed procedures in IRM 4.81.14.

    2. Prepare Letter 5918, rebuttal to the protest and any required Letter 937 and include in RCCMS case file along with the issuer’s protest.

    3. If technical review is required, request a transfer of the RCCMS case file to the TLS assigned to conduct the review.

    4. If technical review is not required:

      1. Enter disposal code 601 and ARDI code 2 in RCCMS.

      2. Inform the TEB Exam group manager that the refund claim is ready for transfer to Appeals.
    TEB Exam group manager

    1. Follow the unagreed procedures in IRM 4.81.14 for unagreed issues.

    2. If you agree with the prepared rebuttal or are otherwise instructed to proceed:

      1. Sign Letter 5918 for the PM and mail it with the rebuttal to the issuer, and to any authorized representative using Letter 937 informing the issuer that the refund claim case will be forwarded to the IRS Independent Office of Appeals.

      2. Upload the signed Letter 5918, the rebuttal and any Letter 937 into the RCCMS case file.

  7. If the issuer fails to respond to the Letter 5684 after 45 days:

    1. The examiner and TEB Exam group manager must follow the procedures set forth in IRM 4.81.14 for unagreed issues.

4.82.2.12 (03-18-2021)

Processing a Fully Denied Refund Claim with Additional Amounts Due

  1. Process fully denied refund claims with additional amounts due the same way as fully denied claims. See IRM 4.82.2.11.

  2. If during the course of a refund claim examination, you determine that a delinquent or amended Form 8038-T, Arbitrage Rebate and Penalty in Lieu of Arbitrage Rebate, with an additional payment is required, expand the scope to include securing the delinquent or amended Form 8038-T and additional payment per IRM 4.81.5.22, Tax Exempt Bonds Examination Program and Procedures, Conducting the Examination, Secured Delinquent and Late Filed Returns and Forms. Consult the TEB Exam group manager for his/her agreement per IRM 4.82.2.5.

4.82.2.13 (03-18-2021)

Processing a Rejected Refund Claim

  1. Refund claim rejections are described in Rev. Proc. 2008-37 section 3.03(2)(b) and 26 CFR 1.148-3(i)(3). Generally, an issuer’s failure to follow proper procedures for filing a refund claim or to provide sufficient information to enable TEB to determine that an overpayment occurred can result in a refund claim rejection.

  2. When you receive a refund claim not meeting the initial processing requirements in IRM 21.7.7.7.4.7.1, Business Tax Returns and Non-Master File Accounts, Exempt Organizations and Tax Exempt Bonds, TEB Claim Procedures, prepare a refund claim rejection.

  3. Also prepare a refund claim rejection when:

    1. The refund claim relates to issues that were the subject of a final closing agreement under IRC 7121.

    2. The refund claim relates solely to issues considered in the issuer’s previously examined returns and the issuer requests, in writing, the immediate issuance of Letter 5677, TEB Arbitrage Claim Notification of Final Adverse Determination (Full Disallowance).

    3. The issuer failed to provide sufficient information for the examiner to determine that an overpayment occurred with respect to the refund claim.

  4. A refund claim rejected based on a procedural deficiency or incomplete information is generally not a refund claim denial under Rev. Proc. 2008-37 section 3.03(2)(c). Notify the issuer of any deficiency or incomplete information and provide the issuer at least 21 days to supply additional information to support the claim. A refund claim rejection pursuant to a deficiency or incomplete information permits the issuer to resubmit the refund claim, together with the missing information, in compliance with the initial processing requirements, if they resubmit by the filing deadline under 26 CFR 1.148-3(i)(3)(i), as modified by Rev. Proc. 2017-50.

  5. If the refund claim rejection occurs after the two-year deadline in 26 CFR 1.148-3(i)(3)(i) , as modified by Rev. Proc. 2017-50, then the refund claim rejection is functionally a refund claim denial and the issuer is entitled to appeal rights under 26 CFR 1.148-3(i)(3)(iii). In this case, you must process the refund claim as a fully denied claim under IRM 4.82.2.11 allowing the IRS Independent Office of Appeals to review whether the issuer met the deadline requirements in the request for more information.

  6. The examiner discusses the refund claim rejection with the issuer and any authorized representative and secure e-mails to the TEB Exam group manager:

    • Letter 105-T, Arbitrage Claim Incomplete for Processing – No Consideration

    • Form 886-A, Explanation of Items

    • Any required Letter 937

  7. TEB Exam group manager: when you receive the case:

    If you don’t agree with the examiner’s recommendation If you agree with the examiner’s recommendation or are otherwise instructed to proceed

    1. Discuss any issues that need additional development.

    2. If you don’t agree, you may request technical assistance following the procedures in IRM 4.80.1, Technical Assistance and Technical Advice Requests.

    3. If you still don’t agree, elevate the issue to the PM for resolution.

    1. Sign the Letter 105-T, Arbitrage Claim Incomplete for Processing - No Consideration, for the PM and mail the letter and Form 886-A to the issuer with a copy to any authorized representative, using Letter 937, via regular mail.

    2. Send an electronic copy of the signed Letter 105-T and any Letter 937 to the examiner.

  8. Examiner: when you receive the signed documents from the TEB Exam group manager:

    1. Organize the refund claim case file.

    2. Prepare Form 3210 and keep a copy in the Form 3210 logbook.

    3. Send the refund claim paper case file to the CP&C Planning & Monitoring Closing Group at the address in IRM 4.82.2.7 (4).

    4. Enter disposal code 303 in RCCMS, requests closure of the RCCMS file.

4.82.2.14 (09-20-2018)

Processing a Withdrawn Refund Claim

  1. A refund claim that is withdrawn at the issuer’s request is treated as a refund claim rejection and closed per IRM 4.82.2.13.

4.82.2.15 (03-18-2021)

Refund Claims in Cases Previously Considered by Appeals

  1. If the IRS Independent Office of Appeals has not previously considered a matter raised in the refund claim, process the refund claim according to the procedures in this IRM.

  2. If the refund claim relates to a matter resolved with a closing agreement under Code section 7121, treat the refund claim as rejected and close per IRM 4.82.2.13.

  3. If the refund claim relates to a matter that the IRS Independent Office of Appeals fully or partially sustained, but the matter was not resolved under a closing agreement, treat the refund claim as a reconsideration of a disallowed claim per IRM 4.82.2.16.

4.82.2.16 (03-18-2021)

Request for Reconsideration of a Disallowed Refund Claim

  1. Generally, under Rev. Proc. 2008-37, Section 3.03(2)(c), an issuer may not refile a refund claim after a refund claim denial becomes final. However, a refund claim that has been disallowed (denied) in whole or in part may be reconsidered if the issuer submits additional facts, if those facts are received before the filing deadline under 26 CFR 1.148-3(i)(3)(i) , as modified by Rev. Proc. 2017-50, and (if the time for filing a claim has not run) the time to institute a suit under IRC 6532.

  2. A request to reconsider a disallowed refund claim generally results in one of the following actions:

    1. The request is rejected with no appeal rights, if:

      1. The request presents no new information and/or new additional facts.

      2. The issuer files the request after the statutory period for instituting a suit under IRC 6532 has expired.

      3. The issuer files the request when less than 60 days of the statutory period remain in which to institute suit (See IRM 4.82.2.16(c) below). A Form 907, Agreement to Extend the Time to Bring Suit, to suspend the running of the statutory period of limitations under IRC 6532(a)(2) may be executed when either of the following is true:

        • The IRS has under consideration a change in position requiring the suspension of action in all similar cases.

        • The conclusion on the merits of the request is contingent on the findings of one or more pending court cases.

    2. The request is denied because the issuer filed it after the filing deadline in 26 CFR 1.148-3(i)(3)(i), as modified by Rev. Proc. 2017-50, has expired. In this case the issuer is permitted the right of appeal provided in 26 CFR 1.148-3(i)(3)(iii).

    3. The request is accepted and the refund claim is approved in whole or in part, requiring the issuance of a letter facilitating the allowance.

    4. The request is accepted (based on new information) but the refund claim is disallowed (denied) in whole or in part. The issuer is permitted the right of appeal within the IRS for this denial. However, if the period of limitation for instituting suit on the disallowed refund claim will expire in less than six months, the refund claim case is not referred to the IRS Independent Office of Appeals unless that office agrees to accept jurisdiction.

  3. If the request for reconsideration concerns a refund claim that the IRS Independent Office of Appeals previously considered and disallowed in whole or in part, the request and the refund claim case file are forwarded to the IRS Independent Office of Appeals.

  4. Under no circumstances should TEB Exam issue another final adverse determination letter (Letter 5677) or any letter containing language that might lead the issuer to believe that a certified notice of disallowance will be issued.

4.82.2.17 (03-18-2021)

Case Assembly

  1. See IRM 4.81.5.25, Tax Exempt Bonds Examination Program and Procedures, Conducting the Examination, Case File Assembly.

4.82.2.18 (03-18-2021)

Mandatory Review

  1. Certain refund claims are subject to mandatory review.

    1. Approved refund claims exceeding $2 million.

    2. Certain unagreed refund claims as described in IRM 4.81.14.

  2. The Technical group manager assigns one or more TLS from Technical to perform mandatory reviews.

  3. The TLS reviews the refund claim using the following procedures and may discuss any questions with the examiner:

    Action Explanation
    Review the refund claim case file to identify errors or issues of particular significance. Your review is mostly to:

    • Confirm the examiner’s determination for technical accuracy.

    • Verify they included supporting documentation in the file.
    Appropriately review the applicable underlying documentation to reasonably review the case. For example, you may decide to limit your review to the issue that’s the basis for a denial.
    You may also:

    1. Review arbitrage computations and supporting documentation to confirm they’re substantially correct and technically accurate.

    2. Test computations for select funds and/or investments to independently confirm the calculation method's accuracy.

    3. Review the case file to identify any factors that might substantially impact the calculations’ accuracy or otherwise affect the claim’s validity.
    Document any needed case development and return the refund claim case to the examiner. If you determine that additional development is needed to concur with the examiner’s determination.
    Close the refund claim case per IRM 4.81.5.24, Tax Exempt Bonds Examination Program and Procedures, Conducting the Examination, Case Closing Procedures. If you agree with the TEB Exam determination.

4.82.2.19 (03-18-2021)

Valid Forms 2848 and 8821 for Issuer Representation in Arbitrage Payment Refund Claim Examinations

  1. Examiners should first refer to IRM 4.81.5.10.2.1, Tax Exempt Bonds Examination Program and Procedures, Conducting the Examination, Power of Attorney (Form 2848) and Tax Information Authorization (Form 8821) for guidance on Form 2848 and Form 8821.

  2. The following applies to a rebate preparer who is not an attorney, CPA, enrolled agent, enrolled retirement plan agent, or enrolled actuary. The rebate preparer:

    1. Who prepares a rebate report but doesn’t prepare the correlating form (for example, Form 8038-R or Form 8038-T) can’t be a designated representative of the issuer on Form 2848.

    2. Can only be designated as an unenrolled return preparer on Form 2848 for a Form 8038-R or Form 8038-T that the rebate preparer actually prepared and signed.

      Note:

      Even if a rebate preparer who was paid compensation to prepare Form 8038-R or Form 8038-T actually signed the return and was eligible to be designated as an unenrolled return preparer on Form 2848, the rebate preparer would only be permitted to provide limited representation for the issuer.

    3. May be designated on Form 8821 as an appointee to inspect and/or receive the issuer’s confidential information for the type of tax and the years or periods listed on Form 8821. If designated as an appointee, they aren’t authorized to:

      • Advocate the issuer’s position on federal tax laws.

      • Execute waivers, consents, or closing agreements.

      • Otherwise represent the issuer before the IRS.

4.82.2.20 (03-18-2021)

Cases Affected by a Federally Declared Disaster

  1. If your cases have taxpayers affected by a federally declared disaster, or terroristic or military action (collectively, a “federally declared disaster”) under IRC 7508A, you must review the most current guidance so that you can act timely.

  2. Examiners:

    1. When IRM 25.16.9 has been published for procedures regarding taxpayers affected by a federally declared disaster, follow those procedures, as applicable. In the interim, follow Interim Guidance Memorandum TEGE-25-0319-0001, Guidance for Cases Affected by a Federally Declared Disaster, or Terrorist or Military Action, dated March 20, 2019, as applicable.

    2. Immediately discuss any situation or questions about taxpayers affected by a federally declared disaster with your manager.