Large Tax Refunds and Credits Subject to Review

Post Date: 9/30/21
Last Updated: 9/30/21

Summary

Cross References
www.irs.gov

Any claim for refund or credit may be reviewed by the IRS. If a taxpayer claims a refund or credit on a federal tax return of more than $2 million ($5 million for a C corporation), the IRS must review the refund or credit and provide a report to the Joint Committee on Taxation (JCT). Refunds or credits for which a report must be provided to the JCT are referred to as a Joint Committee Refund Case (JC Refund Case). The JCT is a non-partisan committee of the United States Congress.

How the IRS handles a JC Refund Case. A JC Refund Case is assigned to an IRS examiner and either examined or surveyed. A survey is a decision to accept a return without an examination. In all cases, the IRS will prepare a report for the JCT.
• If the JC Refund Case is agreed, partially agreed, no-changed or surveyed: the Joint Committee Review Program will prepare the report. This program is part of the IRS’s Large Business and International Division.
• If the JC Refund Case is unagreed, and the taxpayer files an appeal: the IRS Independent Office of Appeals will prepare the report.

In preparing a report for the JCT, the IRS may contact the taxpayer for more information, if necessary. The report will contain:
• A brief history of the taxpayer.
• An explanation of the reasons for the refund or credit.
• Supporting documents discussing the amount of, and reason for, all the adjustments considered by the IRS for the taxable years under review.

What is a JC Refund Case? A JC Refund Case may arise from the following.
• A refund claim for previously assessed and paid taxes (including interest and penalties). A refund claim may be made on an amended return or be made by a claim submitted during an examination. A refund claim would be reviewed by the IRS and reported to JCT before being paid.
• A tentative refund from tentative carrybacks of net operating losses, capital losses or business credits. The tentative refund would be claimed on Form 1139, Corporation Application for Tentative Refund, or on Form 1045, Application for Tentative Refund. A tentative refund would be paid prior to IRS and JCT review.
• A refund or credit of income taxes due to certain losses relating to federally declared disasters.

To be a JC Refund Case, the refund claim, tentative refund, or refund or credit relating to a disaster loss must be for a net amount of more than $2 million ($5 million for a C corporation). The amount of refund or credit is determined:
• On a net basis. This means the amount of refund or credit is reduced by the amount of any deficiency (additional liability for the same type of tax). The net amount is based upon all of the taxpayer’s returns being reviewed by the IRS. However, a refund claim and tentative refund are not added together to determine if a case is reportable to JCT.
• For each separate taxpayer, even if the taxpayers are related. An exception applies to spouses filing a joint return and to corporations filing a consolidated return.

The refund claim, tentative refund, or refund or credit relating to a disaster loss must also either:
• Be from taxes on:
– Income.
– War profits (uncommon).
– Excess profits.
– Estates.
– Gifts.
• Be from any tax imposed under IRC Chapters 41, 42, 43 or 44 on:
– Public charities.
– Private foundations.
– Operators’ trust funds.
– Pension plans.
– Real estate investment trusts.

A JC Refund Case does not include:
• A refund or credit of employment, windfall profit or certain excise taxes.
• A refund of trust fund recovery penalties.
• A refund or credit of estimated payments or income tax withholdings made without an IRS audit.
• A refund or credit of an unassessed advance payment or deposit made before IRS determines the taxpayer’s liability.
• A refund or credit of an amount paid on an early-filed return that is more than the amount of the tax liability reported on a subsequent return filed by the return due date.
• An abatement (reduction) of an unpaid liability, even if the amount of the reduction is more than $2 million ($5 million for C corporations).
• A refund or credit reduced to $2 million or less ($5 million or less for C corporations) because of additional tax owed, for the same type of tax.
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