4.82.2 Arbitrage Payment Refund Claim Procedures

Manual Transmittal

September 20, 2018

Purpose

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

Material Changes

(1) This IRM provides updated procedures for processing the recovery of overpayment of arbitrage payments (refund claims).

(2) Revised the IRM to comply with the Plain Writing Act. For additional information on the Plain Writing Act and using plain language, see plainlanguage.gov.

(3) Made editorial changes throughout the IRM.

(4) This IRM incorporates Interim Guidance Memorandum TEGE-04-0618-0005, TEB Case Closing Procedures for Protested Unagreed Cases and Interim Guidance Memorandum TEGE-04-0817, Interim Guidance on Cases Subject to Mandatory Review.

(5) Changed specific IRM subsections.

IRM subsection Change
4.82.2.1 Retitled subsection to "Program, Scope and Objectives" and identified related Authority, Background, Roles and Responsibilities, Program Controls, Acronyms, Forms, Letters and Publications.
4.82.2.1.4
  1. Moved the information on Roles and Responsibilities (previously IRM 4.82.2.3) to IRM 4.82.2.1.4, Roles and Responsibilities and rephrased content. Subsequent subsections renumbered.

  2. Replaced current terms for old terms:

    1. ITG/TEB Functional Assignment Coordinator replaced Arbitrage Claim Inventory Coordinator

    2. TLS replaced the former CPM Mandatory Reviewer.

4.82.2.1.5 Added a table of acronyms, forms, letters and publications.
4.82.2.3 Added definition for refund claim and overpayment.
4.82.2.4 Deleted the initial processing instructions for EO Accounts staff.
4.82.2.5 Deleted the instructions and indicated that CP&C classifies the refund claims and FAC assigns the case.
4.82.2.6
  1. Retitled subsection from Arbitrage Claim Examination Process to Refund Claim Examination Process.

  2. Revised section to include the letter and form numbers.

  3. Added additional information pertaining to the disallowance and of refund claims and the issuer’s disagreement with the disallowance.

  4. Added reference to IRM 4.81.5.5.2, TEB Examination Program and Procedures, Conducting the Examination, Securing Records.

4.82.2.7 Changed references from Reviewer to FO Group Manager and updated subsection to indicate that paper case file will be transferred to CP&C, Planning & Monitoring Closing Group.
4.82.2.8
  1. Retitled from "Processing a Fully Allowed Claim" to "Processing a Fully Allowed Refund Claim." Deleted references to CPM Mandatory Reviewer.

  2. Changed references from Reviewer to Field Office group manager or agent.

  3. Updated the closing unit address from Austin, TX to Ogden, Utah.

  4. Added instructions re the paper case file that is submitted to CP&C.

4.82.2.9 This section was previously reserved. Updated to provide instructions on processing a fully allowed refund claim with an additional refund amount.
4.82.2.10 Updated to provide the current letter used to process a partially denied refund claim, Letter 5684 was issued after the previous publication of this IRM.
4.82.2.12
  1. Updated to add a reference to IRM 4.81.5.13 for Technical Assistance Requests.

  2. Changed references from “Notice of Final Arbitrage Claim Disallowance” to Letter 5677

  3. Updated to advise the agent to follow the procedures in IRM 4.81.14 for unagreed issues.

4.82.2.13 Updated to add a reference to IRM 4.81.5.16 for processing of a fully denied refund claim with additional payment due.
4.82.2.14 Updated to add a reference to IRM 21.7.7.5.4.7.1 for processing a rejected refund claim.
4.82.2.17
  1. Updated to add a reference to Rev. Proc. 2008-37 request for consideration of a disallowed refund claim.

  2. Changed references from “Notice of Final Arbitrage Claim Disallowance” to Letter 5677.

4.82.2.18 Updated to add a reference to IRM 4.81.5.19 for case file assembly instructions.
4.82.2.19 Retitled subsection from "CPM Mandatory Review" to "Mandatory Review" and revised section to comply with current case closing procedures.
4.82.2.20 Revised subsection to add a reference to IRM 4.81.5.4.2.1 for guidance on Form 2848 and Form 8821.

Effect on Other Documents

This supersedes IRM 4.82.2 dated December 28, 2015.

Audience

Tax Exempt and Government Entities
Indian Tribal Governments/Tax Exempt Bonds

Effective Date

(09-20-2018)

Christie J. Jacobs
Director, Indian Tribal Governments/Tax Exempt Bonds
Government Entities and Shared Services
Tax Exempt and Government Entities

Program Scope and Objectives

  1. Purpose: This IRM provides basic examination procedures that will enable Indian Tribal Governments/Tax Exempt Bonds (ITG/TEB) employees to process claims for recovery of overpayment of arbitrage payments (in other words, "refund claims" ).

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

  3. Policy Owner: Director, Indian Tribal Governments/Tax Exempt Bonds

  4. Program Owner: Director, Indian Tribal Governments/Tax Exempt Bonds

  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: ITG/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, 2008-29 I.R.B. 137, 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 also provide guidance to issuers for filing a refund claim.

Program Controls

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

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

  3. ITG/TEB Field Operations (FO) examines refund claims.

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

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.

Background

  1. An issuer of tax-exempt bonds, tax credit bonds, and other financing subject to IRC 148 files refund claims using Form 8038-R, Request for Recovery and Overpayments Under Arbitrage Rebate Provisions, when they determine a recoverable overpayment has occurred.

Roles and Responsibilities

  1. Generally, CP&C:

    1. Classifies cases based on issue criteria.

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

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

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

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

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

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
    CPA Certified Public Accountant
    Agent ITG/TEB Revenue Agent or Tax Law Specialist
    FAC ITG/TEB Functional Assignment Coordinator
    FO Field Operations
    FOM Field Operations Manager
    ITG/TEB Indian Tribal Governments/Tax Exempt Bonds
    Ogden Campus Ogden Service Center
    Program Manager, Technical ITG/TEB Senior Technical Manager
    RCCMS Reporting Compliance Case Management System
    Rev. Proc. Revenue Procedure
    TEB Tax Exempt Bonds Program
    Technical ITG/TEB Technical Groups 1 or 2
    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 Disagree

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 CFR 26 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 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. The issuer fails to timely request an administrative appeal

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

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 reviews the claim to determine whether the issuer has satisfied the initial processing requirements as described in IRM 21.7.7.5.4.7.1, Business Tax Returns and Non-Master File Accounts, Exempt Organizations and Tax Exempt Bonds, TEB Claim Procedures.

Classification and Assignment

  1. When CP&C receives a refund claim case file, they classify the refund claim and the FAC assigns the case per IRM 4.81.4.1.

Refund Claim Examination Process

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

    1. Acknowledge the Form 3210, and keep a copy for the Form 3210 log book.

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

    3. Send the opening Letter 5678, Form 8038-R Examination Notification, Pub 1, Your Rights as a Taxpayer, and any required Form 4564, Information Document Request, supplemental instructions for completing Forms 2848 and 8821, and Letter 937, Transmittal Letter for Power of Attorney, advising the issuer that its refund claim is being examined.

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

    5. Contact the issuer and any authorized representative after 10 business days, 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 Disagree

        • Any Letter 937.

      Appeals the proposed determination Transfer the case to the 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 that they filed the refund claim timely, Appeals will return the refund claim case to FO to consider the refund claim’s merits. See IRM 8.7.7.11.3, 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 (4).
    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 transferred RCCMS file or in the paper case file, prepare Form 4564, Information Document Request (IDR), and request these items with the Letter 5678, TEB Form 8038-R Examination Notification.

      3. Follow the appropriate IDR procedures found in IRM 4.81.5.5.2, 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 agent must notify the FO 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.

    9. Using IDRS, verify IRS receipt of payments including all arbitrage rebate, yield reduction, and penalty in lieu of arbitrage rebate, and 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, along with the 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 the appropriate workpapers specifically developed for this type of examination.

    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 and provide the issuer at least 21 days to provide additional information in support of the refund claim. If the issue(s) remain unresolved, discuss the issue(s) with your manager.

    14. If the claim is to be disallowed in whole or in part, with your manager’s agreement, per IRM 4.81.14.2, prepare and securely e-mail to 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 for the FOM and mail: the letter, Form 886-A, Form 3363, Form 2297, and Pub 5, to the issuer certified mail/return receipt requested and copies to any authorized representative using Letter 937 via regular mail and send secure e-mail copies to the agent.

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

      1. Prepare and organize work papers, the case chronology record, letters, documents and forms for closing upon exam completion per 4.81.5.18, Case Closing Procedures.

      2. Assemble the case file per IRM 4.81.5.19, Case File Assembly, and recommend full allowance, partial disallowance, full disallowance or rejection (under section 3.03(2)(b) of Rev. Proc. 2008-37, 2008-29 I.R.B. 137, or under 26 CFR 1.148-3(i)(3)(iii)(B) for a refund claim rejection after the two year deadline in CFR 1.148-3(i)(3)(i). See also IRM 4.82.2.13, Processing a Rejected Refund Claim.

      3. Prepare an RCCMS closing record based on the examination determination, closing letters, including Letter 937, and Form 3753, Manual Refund Posting Voucher, if not a full disallowance and send via secure e-mail to their FO Group Manager.

      4. Upload documents into RCCMS and request closure when you receive signed copies of issued closing letters from the FO Group Manager.

    17. If the issuer doesn’t agree with the proposed determination and files a protest requesting consideration of the case by the 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.

    19. Using Form 3210, mail the arbitrage claim paper case file to the reviewer, keep a copy in the Form 3210 log book.

Refund Claim Review and Pre-Closing Process

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

  2. Agent: When you receive the reviewed refund claim case from the FO group manager:

    1. Organize the claim case file.

    2. Prepare Form 3210, and keep a copy in the Form 3210 log book.

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

Processing a Fully Allowed Refund Claim

  1. If the allowed claim is for more than $2 million, the claim is subject to mandatory review and the mandatory review procedures in IRM 4.82.2.16 are followed before processing the refund claim provisions.

  2. Agent: Inform the FO group manager that the claim is ready to be closed and e-mails the following documents to the FO group manager:

    1. 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.

    2. Form 3753, Manual Refund Posting Voucher.

  3. FO Group Manager: When you receive the case, review it and if you:

    1. Don’t agree with the agent’s recommendation, discuss any issues with them that they should develop. If you continue to disagree, you may request technical assistance per IRM 4.81.5.13. If disagreement remains, elevate the issue(s) to the FOM for resolution.

    2. Agree with the agent’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 FOM and mails it to the issuer, and to any authorized representative using Letter 937.

      3. Securely e-mail a copy of the signed Letter 5761, any Letter 937 and the reviewed Form 3753 to the agent.

  4. Agent: when you receive the signed documents from the FO group manager:

    1. Upload the electronic copy of the signed Letter 5761, any Letter 937 and the Form 3753 into the RCCMS office documents.

    2. Prepare the examination file for closing: organize work papers, the case chronology record, letters, documents and forms per IRM 4.81.5.19, Tax Exempt Bonds Examination Program and Procedures, Conducting the Examination, Case File Assembly. Upload all work papers 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 closure of the RCCMS file.

    4. Determine whether any of the paper file is necessary to support the conclusion and if so, upload into the RCCMS file. Return any documents not necessary to support the examination conclusion returned to the issuer or the issuer’s representative.

    5. Organize 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 log book, 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 6510
      1973 N. Rulon White Boulevard
      Ogden, Utah 84404

      Note:

      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.

Processing a Fully Allowed Refund Claim with Additional Refund Allowed

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

Processing a Partially Denied Refund Claim

  1. The agent discusses the proposed partial refund claim denial with the issuer and any authorized representative and securely e-mails to the FO 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 in IRM 4.82.2.16 before processing the refund claim.

  3. FO group manager: When you receive the documents:

    If you don’t agree with the agent’s recommendations: If you agree with the agent’s recommendation or are otherwise instructed to proceed:
    1. Discuss any issues to develop

    2. If you and the agent still disagree, you may request technical assistance following the procedures in IRM 4.81.5.13, Tax Exempt Bonds Examination Program and Procedures, Conducting the Examination, Technical Assistance Requests

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

    1. Sign Letter 5684, TEB Arbitrage Claim Notification of Proposed Claim Disallowance for the FOM 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 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. Securely e-mail a copy of the signed Letter 5684 and any Letter 937 to the agent.

  4. Agent: When you receive the signed Letter 5684 and any Letter 937 from the FO 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.

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

    Person responsible Action
    Agent
    1. Secure the issuer’s signature on Form 3363 and Form 2297

    2. Send a completed Form 3753, Manual Refund Posting Voucher, to the FO Group Manager for review of the allowable portion of the refund claim.

    FO group manager When you receive the completed Form 3753:
    1. Review the Form 3753.

    2. Securely e-mail a copy of the reviewed Form 3753 to the agent.

    Agent When you receive the reviewed Form 3753:
    1. Organize the refund claim case file, prepare Form 3210 keeping a copy in the Form 3210 log book, and forward the paper case file to CP&C Planning & Monitoring Closing Group at the address in IRM 4.82.2.6(5)(e).

    2. Enter disposal code 102 and ARDI code 3 in RCCMS, and request closure of the RCCMS file.

    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
    Agent
    1. Follow the procedures in IRM 4.81.14, Tax Exempt Bonds Examination Program and Procedures, Unagreed Issues, for unagreed issues.

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

    3. Notify the FO Group Manager that the issuer has appealed the proposed partial denial and request transfer of the RCCMS case file to the Technical Mandatory Reviewer.

    4. Inform the FO Group Manager that the refund claim is ready for transfer to Appeals and email Letter 5918, Notification of Transfer to the Office of Appeals, issuer’s protest, rebuttal to the protest and any required Letter 937.

    FO group manager When you receive the case:
    1. Follow the procedures in IRM 4.81.14 for unagreed issues.

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

      1. Sign Letter 5918 for the FOM and mail it with the rebuttal to the issuer, and any authorized representative using Letter 937 informing the issuer that you’re forwarded the refund claim to Appeals.

      2. Securely e-mail a copy of the signed Letter 5918, the rebuttal and any Letter 937 to the agent.

    Agent and FO Group Manager If the issuer doesn’t respond to the Letter 5684 after 45 days, follow the procedures in IRM 4.81.14 for unagreed issues.

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 4.82.2.7.

Processing a Fully Denied Refund Claim

  1. Follow these procedures when you process a fully denied refund claim: Agent: Discuss the proposed full refund claim denial with the issuer and any authorized representative and send to the FO Group Manager: Letter 5684, Form 886-A, Form 3363, Form 2297, Publication 5 and any required Letter 937.

  2. FO group manager:

    If you don’t agree with the agent’s recommendation: If you agree with the agent’s recommendation or are otherwise instructed to proceed:
    1. Discuss any issues with the agent that need additional development.

    2. If you still disagree with the agent, you may request technical assistance per IRM 4.81.5.13, Tax Exempt Bonds Examination Program and Procedures, Conducting the Examination, Technical Assistance Requests.

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

    1. Sign Letter 5684 for the FOM, and mails 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. Securely e-mail a copy of the signed Letter 5684 and any Letter 937 to the agent.

  3. Agent: When you receive the signed Letter 5684 and any Letter 937 from the FO 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.

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

    Person Responsible Action
    Agent
    1. Secure the issuer’s signature on Form 3363 and Form 2297.

    2. Securely e-mail Letter 5677, Arbitrage Claim Notification of Final Adverse Determination and any Letter 937 to the FO Group Manager.

    FO Group Manager
    1. Sign Letter 5677 for the FOM and mail it to the issuer via certified mail/return receipt requested with copy to any authorized representative using Letter 937, via regular mail.

    2. Securely e-mail a copy of the signed Letter 5677 and any Letter 937 to the agent.

    Agent When you receive the signed letters:
    1. Organize the refund claim case file.

    2. Prepare Form 3210 and keep a copy in the Form 3210 log book.

    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 (3).

    4. Enter disposal code 303 and ARDI code 2 in RCCMS, request closure of the RCCMS file.

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

    Person Responsible Action
    Agent
    1. Follow the unagreed procedures in IRM 4.81.14.

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

    3. Inform the FO Group Manager that the refund claim is ready for transfer to Appeals and email Letter 5918, issuer’s protest, rebuttal to the protest and any required Letter 937.

    FO 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 FOM 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 Office of Appeals.

      2. E-mail the signed Letter 5918, the rebuttal and any Letter 937 to the agent.

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

    1. The agent and FO Group Manager should follow the procedures set forth in IRM 4.81.14 for unagreed issues.

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 with an additional payment is required, expand the scope to include securing the delinquent or amended Form 8038-T and additional payment per IRM 4.81.5.16, Tax Exempt Bonds Examination Program and Procedures, Conducting the Examination, Secured Delinquent and Late Filed Returns and Forms. Consult the FO Group Manager for his/her agreement per IRM 4.82.2.5.

Processing a Rejected Refund Claim

  1. Refund claim rejections are described in Rev. Proc. 2008-37 (2008-29 I.R.B. 137) section 3.03(2)(b) and 26 CFR 1.148-3(i)(3).

  2. When you receive a refund claim not meeting the initial processing requirements in IRM 21.7.7.5.4.7.1, 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 who 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 agent 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 (2008-29 I.R.B. 137) section 3.03(2)(c). 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).

  5. If the refund claim rejection occurs after the two-year deadline in 26 CFR 1.148-3(i)(3)(i) , 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 Office of Appeals to review whether the issuer met the deadline requirements in the request for more information.

  6. The agent discusses the refund claim rejection with the issuer and any authorized representative and securely e-mails to the FO Group Manager: Letter 105-T, Claim Incomplete for Processing – No Consideration, Form 886-A, and any required Letter 937 to the FO Group Manager.

  7. FO Group Manager:: when you receive the case:

    If you don’t agree with the agent’s recommendation If you agree with the agent’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 4.81.5.13

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

    1. Sign the Letter 105-T for the FOM and mail the letter and Form 886-A to the issuer with 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 agent.

  8. Agent: when you receive the signed documents from the FO Group Manager:

    1. Organize the refund claim case file.

    2. Prepare Form 3210 and keep a copy in the Form 3210 log book.

    3. Send the refund claim paper case file to the CP&C Planning & Monitoring Closing Group at IRM 4.82.2.7 (3)(5)(e).

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

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.

Refund Claims in Cases Previously Considered by Appeals

  1. If the Office of Appeals has not previously considered a matter raised in the refund claim, the refund claim may be processed 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 Office of Appeals fully 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.

Request for Reconsideration of a Disallowed Refund Claim

  1. Generally, under Rev. Proc. 2008-37, (2008-29 I.R.B. 137), 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 (in other words, 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) 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 on the basis of the previous final refund claim denial, 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 (but, see IRM 4.82.2.16 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:
        i) The IRS has under consideration a change in position requiring the suspension of action in all similar cases.
        ii) The conclusion on the merits of the request is contingent on the findings of one or more pending court cases.

    2. The issuer files the request after the filing deadline in 26 CFR 1.148-3(i)(3)(i) has expired, in which case the issuer is permitted the same right of appeal within the IRS as was allowed on the disallowed refund claim.

    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 but the refund claim is disallowed in whole or in part, (based on new information) in which case the issuer is permitted the same right of appeal within the IRS as was allowed on the disallowed refund claim. However, if the period of limitation for instituting suit on the disallowed refund claim will expire in less than 6 months, the refund claim case is not referred to the Office of Appeals unless that office agrees to accept jurisdiction.

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

  4. Under no circumstances should FO 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.

Case Assembly

  1. See IRM 4.81.5.19, Tax Exempt Bonds Examination Program and Procedures, Conducting the Examination, Case File Assembly.

Mandatory Review

  1. Certain refund claims are subject to mandatory review.

    1. Approved refund claims exceeding $2 million.

    2. Certain unagreed refund claims in accordance with IRM 4.81.14.

  2. The Program Manager, Technical will assign 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 agent:

    Action Explanation
    Review the refund claim case file to identify errors or issues of particular significance. Your review is mostly to:
    • confirm the agent’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 agent. If you determine that additional development is needed to concur with the agent’s determination.
    Close the refund claim case per IRM 4.81.5.18, Tax Exempt Bonds Examination Program and Procedures, Conducting the Examination, Case Closing Procedures. If you agree with the FO determination.

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

  1. Agents should first refer to IRM 4.81.5.4.2.1, 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 therefore 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