8.7.19 Net Rate Netting Procedures for Appeals

Manual Transmittal

December 22, 2015

Purpose

(1) This document transmits new IRM 8.7.19, Technical and Procedural Guidelines, Net Rate Netting Procedures for Appeals.

Material Changes

(1) IRM 8.7.19.1 provides an overview of interest netting.

(2) IRM 8.7.19.1.1 provides procedures for accepting net rate netting requests from IRS Ogden Campus.

(3) IRM 8.7.19.1.2 provides guidance for Appeals Technical Employees for net rate netting requests.

(4) IRM 8.7.19.2 provides information on the types of net rate netting requests.

(5) IRM 8.7.19.3 provides information on the applicable periods of limitation for net rate netting requests.

Effect on Other Documents

None

Audience

Appeals

Effective Date

(12-22-2015)


John V. Cardone
Director, Policy, Quality, and Case Support

Interest Netting Overview

  1. The purpose of this guidance is to ensure consistency throughout Appeals for employees working Net Rate Netting (NRN) cases.

  2. IRC section 6621(d) provides that, to the extent that for any period interest is payable under Subchapter A (sections 6601 and 6602) and allowable under Subsection B (section 6611) on equivalent underpayments and overpayments of tax by the same taxpayer imposed by the Code, the net rate of interest under section 6621 on the amounts shall be zero for the period. See IRM 20.2.14, Net of Overpayment and Underpayment Interest, for more information.

  3. Revenue Procedure 2000-26; 2000-1 C.B. 1257 contains guidance on applying IRC section 6621(d) to interest accruing on or after October 1, 1998. The net interest rate of zero also applies to interest accruing before October 1, 1998, provided certain conditions are met. See IRM 20.2.14.6.1.2, Pre-Enactment Date Interest Periods, for guidance on the conditions.

  4. Per Revenue Procedure 2000-26, Section 4, the Service will take reasonable steps to identify overlapping interest computation periods of tax overpayments and underpayments and apply the net interest rate of zero in IRC Section 6621(d) to interest accruing on or after October 1, 1998. To ensure that taxpayers receive the benefit of the net interest rate of zero in all applicable situations, taxpayers should request the net interest rate of zero (or request the Service to recompute the net interest rate of zero if the taxpayer disagrees with a Service computation of the net interest rate of zero) on or before the date on which the last applicable period of limitation closes and according to the procedures in section 5 of Revenue Procedure 2000-26.

  5. See IRM 8.7.19.1.1 for guidance on accepting from IRS Ogden Campus net rate netting requests for an unresolved liability (i.e. unresolved principle amount). For other net rate netting requests received by APS, see card-in procedures at IRM 8.20.5.11.2, Net Rate Netting Requests.

  6. See IRM 8.7.19.1.2 for actions required by Appeals Technical Employees.

  7. See IRM 8.7.19.2 for types of net rate netting requests and IRM 8.7.19.3 regarding applicable periods of limitation.

Accepting a Net Rate Netting Request from IRS Ogden Campus

  1. Net rate netting under section 6621(d) is available only when there exists overlapping periods of overpayment and underpayment by the same taxpayer upon which interest is both payable and allowable. Prior to the time an overpayment or underpayment is determined for a tax period, there is no principal upon which interest can be computed and a request for zero-netting is premature. Amounts are resolved when the principal amount is no longer subject to controversy in Exam, Appeals, or a court. An unresolved amount is a principal amount that is still under consideration in Exam, Appeals or a court. Therefore, net rate netting cannot be computed prior to the time that an overpayment or underpayment amount is determined for a tax period.

  2. When a NRN request is received by the Accounts Management (AM) Complex Interest Team (CIT) at the Ogden Campus, that site will ensure that the NRN request properly identifies the taxpayer, the taxpayer identification number (TIN), the overlapping underpayment and overpayment amount(s) and date(s), and the tax years and type(s) of overpayment and underpayment taxes involved. The AM CIT will perform IDRS research (TXMOD and CFOL) on all tax periods included in the NRN request to determine if any tax period has an open AIMS “L” freeze, which is an indicator of Examination or Appeals involvement.

    Note:

    If there is no "L" Freeze and/or no Examination or Appeals involvement, the AM CIT will process the request for the resolved tax period(s).

  3. If there is an "L" freeze and the AIMS status code is 80, 81, or 82 for any of the NRN request tax period(s), the AM CIT will take the following steps to determine if Appeals will accept the NRN request for the tax liability periods controlled by Appeals for the same taxpayer:

    1. Send an email to Appeals *AP Complex Interest, and include the following “note” in the subject line: “Open AIMS Netting Case”.

    2. Include the Taxpayer(s) Name, EIN/TIN, MFTs and all years included in the claim.

    3. Specify which tax period is “open” in Appeals.

    4. The Appeals CIT Lead will contact the Appeals Technical Employee assigned the case to determine if the case will be closed within 30 days. If the case is going to be closed within 30-days, Appeals will accept the request. If the case is not going to be closed within 30-days, Appeals will not accept the request.

    5. If the request is accepted, the Appeals CIT Lead will advise the AM CIT Appeals will accept the NRN request and will forward it to the address provided by the Appeals CIT lead.

    6. After advising the AM CIT that Appeals will accept the NRN request, Appeals CIT Lead will import the case into Appeals Processing Employee Automated System (PEAS) and make the following entries on PEAS:
      - Input the PC (post closure) feature code;
      - Type = CLS
      - Sub-type = NET
      - Assign it to the appropriate CIT PTM (based on the CIT Lead currently working case assignments)
      - Set a follow-up date for 30 days from the date of assignment. If the case is not received within 30 days, the PTM will follow-up with the appropriate ATE.

      Note:

      Normal assignment practices will resume upon notification from the ATE that the case is ready to be sent to APS/CIT.

Actions Required by Appeals Technical Employees for Net Rate Netting Requests

  1. NRN is an Appeals Coordinated Issue (ACI). An ACI is an issue or category of case with Service-wide impact or importance, requiring coordination to ensure uniformity and consistency nationwide. ACIs along with the assigned Technical Specialist are listed on the Appeals Web site in the Domestic/International Operations “Issue Locator”. For the public, they are also listed at www.irs.gov/appeals.

  2. The ATE is responsible for preparing and forwarding a referral, through their ATM, to Specialty Operations on Form 13381, Appeals Technical Guidance Referral, when the case has an ACI. In addition, the Feature Code “AI” must be included on ACDS. See IRM 8.7.3, Domestic and International Operations.

  3. A Domestic Operations Technical Specialist will review the NRN request and assist the ATE in determining whether to return the request, retain it in the file for consideration with a related case with unresolved principal amount(s), or to consider the standalone NRN request. For more information, see IRM 8.7.3.3, Appeals Technical Specialists’ Roles and Responsibilities.

    Note:

    For standalone NRN requests, when APS receives the case, follow card-in guidance in IRM 8.20.5.11.2, Net Rate Netting Requests.

  4. After considering the NRN request, the ATE will select the appropriate closing letter based on actions previously taken for the request. See IRM 8.7.7.10.1, Closing Letters for Disposition of Claims. IRM 8.7.19.3 contains information on the period of limitation for filing a refund claim and for filing a refund suit for debit interest (under Title 26 of the U. S. Code) versus the period for requesting credit interest (under Title 28).

  5. If the ATE determines that a legal notice of disallowance is needed (see IRM 8.7.7.10.1), this legal notice must explain the reason for the disallowance. See IRC 6402(l). For most legal notices of disallowances, Appeals will mail Letter 1363, Appeals Partial Disallowance of Claim - Certified Letter, or Letter 1364, Appeals Full Disallowance of Claim - Certified Letter. Both letters state that the law permits the taxpayer to bring suit within 2 years from the mailing date of the letter. The language about the 2 year period applies to disallowed refund claims, but the law allows the taxpayer 6 years to request additional overpayment interest (i.e. credit interest). Add the following language if the amount disallowed involves a request for additional overpayment interest:

    • "This claim does not extend the 6-year period of limitations for filing suit for the recovery of additional overpayment interest provided for in sections 2401 and 2501 of Title 28 of the United States Code."

Types of Net Rate Netting Requests

  1. Rev. Proc. 2000-26, Section 5 contains procedures for taxpayers to request a net interest rate of zero. This section includes instructions for filing a claim (on Form 843, Claim for Refund and Request for Abatement) and a special procedure for requesting NRN without filing Form 843.

  2. Form 843 - The taxpayer or authorized representative can file a NRN claim by writing on top of Form 843 "Request for Net Interest Rate of Zero under Rev. Proc. 2000-26" and by providing documentation to substantiate the taxpayer’s entitlement to receive interest due on the overpayment. It is not necessary for the taxpayer to provide a dollar amount. For more information, see Form 843 Instructions and Revenue Procedure 2000-26.

  3. Letter or Written Statement - No Form 843 is required when a NRN request is requested in connection with a return (or returns) of the taxpayer under consideration by any function of the Service (including Examination, Appeals, or a case before a federal court that requires a computation of interest by any function of the Service). Rather than filing a Form 843, the taxpayer should provide the contact representative (i.e. Appeals Technical Employee or Examiner) of such function a letter or written statement that includes the following:

    1. States that the taxpayer is requesting the net interest rate of zero under IRC 6621(d);

    2. Indicates the type of tax and type of return that affects the interest computation for the taxable period under consideration;

    3. States when and for what period(s) the refund or payment (that affects the interest computation for the taxable period under consideration) was made; and

    4. States that, to the extent of equivalent amounts of overpayment or underpayment, the period(s) set forth under section 5.06 (3) of this revenue procedure has (have) not previously been applied to obtain a net interest rate of zero under IRC section 6621(d).

  4. If an Appeals Team Case Leader or Appeals Officer receives a NRN request (by letter or other written statement) for tax periods under Appeals’ jurisdiction, the ATE will:

    1. Date-stamp the NRN request;

    2. Flag the case for APS-CIT; and

    3. Include on Form 5402, Appeals Transmittal and Case Memo, a notation that a "“NRN request is enclosed for processing”" .

Applicable Periods of Limitation for NRN Requests

  1. Revenue Procedure 2000-26, Section 4.02 contains information on the applicable periods of limitation as follows:

    1. Underpayment interest (“Debit Interest”). A claim for credit or refund of interest paid on an underpayment pursuant to IRC sections 6601 or 6602 generally must be filed within 3 years from the time the tax return was filed or 2 years from the time the interest was paid, whichever period expires later.

      Note:

      Claims for refund of "debit interest" fall under Title 26 of the U.S. Code. See IRM 8.7.7.2, Periods of Limitation in Claim and Overassessment Cases, for applicable tax law sections. Per IRC 6532, the 2-year period for filing a refund suit begins on the date IRS sends (by certified or regular mail) a notice of disallowance or the taxpayer waives the requirement for the mailing of the notice of disallowance. IRC 6514 limits the time for making a refund or credit of an overpayment. See IRM 8.7.7.2.4, Limitations on Refunds or Credits of Overpayments.


    2. Overpayment interest (“Credit Interest”). A claim for payment of additional interest allowable on an overpayment pursuant to IRC section 6611 must be filed within the 6-year period in which a suit must be filed pursuant to 28 U.S.C. sections 2401, Time for Commencing Acting Against the United States, and 2501, Time for Filing Suit. See Rev. Rul. 56-506, 1956-2 C.B. 959. A taxpayer's request for application of the net interest rate of zero under the procedures described in section 5 of Revenue Procedure 2000-26 does not protect the taxpayer's rights with respect to suits against the government pursuant to 28 U.S.C. sections 2401 and 2501. The only manner in which a taxpayer can fully protect its rights to additional overpayment interest is by filing a civil suit against the United States prior to the termination of the 6-year statutory period set forth in 28 U.S.C. sections 2401 and 2501. See Rev. Rul. 57-242, 1957-1 C.B. 452.

    Note:

    A claim for payment of credit interest is not a refund claim. Therefore, the time limits described in IRM 8.7.7.2 don’t apply. This request falls under Title 28 of the U.S. Code. The time for filing suit is 6 years, and IRC 6532 does not apply.

  2. See also the following:

    • Exhibit 20.2.14.-13, Examples Illustrating How to Determine Timely Filing of a Net Rate Claim

    • Exhibit 20.2.14-19, Checking the Statute for Credit or Refund of Underpayment Interest

    • Exhibit 20.2.14-20, Checking the Statute for Credit or Refund of Overpayment Interest

    • Exhibit 20.2.14.21, Statute Highlights for Net Rate Claims