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Final refund claim procedural regs make minor changes to proposed regs

T.D. 9727, 07/23/2015; Reg. § 301.6402-2, Reg. § 301.6402-3, Reg. § 301.6402-4

IRS has issued final regs on various procedural aspects of filing refund claims, including which form to use and exactly where the form should be filed, that make only minor changes to proposed regs that were issued in 2011.

Statutory background. Code Sec. 6402 authorizes IRS to make credits or refunds. Code Sec. 6511 provides the limitations period within which a taxpayer must file a claim for credit or refund and restricts IRS’s ability to issue a credit or refund unless the claim is filed within that period.

Background—previously-existing final regs. Reg. § 301.6402-2(a)(2) provides that if a taxpayer is required to file a claim for credit or refund on a particular form, then the claim must be filed in a manner consistent with that form and the related instructions. It also provides generally that a claim for credit or refund needs to be filed with the service center serving the internal revenue district in which the tax was paid.

Reg. § 301.6402-2(c) provides that, except for income tax refunds, all refund claims must be made on Form 843, Claim for Refund and Request for Abatement.

Reg. § 301.6402-2(d) provides that, for income, gift, and unemployment taxes, a separate claim shall be made for each type of tax for each tax year or period.

Code Sec. 6405 requires the advance referral of a report to the Joint Committee on Taxation regarding specified types of refunds or credits in excess of a threshold amount that periodically changes. Reg. § 301.6402-4 provides that IRS can refund or credit timely payments of tax (made with individual income tax returns or by withholding or by estimated tax) that are in excess of the amounts shown on the return, without waiting for the taxpayer to file a refund claim. Reg. § 301.6402-4 also provides that these types of refunds or credits aren’t subject to Code Sec. 6405. However, Reg. § 301.6402-4 contains a specific Code Sec. 6405 threshold amount that is now obsolete.

Background—proposed regs issued in 2011. In 2011, IRS issued proposed regs (Preamble to Prop Reg06/09/2011; Weekly Alert ¶  21  06/16/2011) that would have made the following changes to the above rules:

…If a taxpayer was required to file a claim for credit or refund on a particular form, the claim would have to be filed in a manner consistent with such form and form instructions. If a taxpayer was filing a claim in response to an IRS notice or correspondence, the claim had to be filed in accordance with the specific instructions contained in the notice or correspondence regarding the proper address for filing. If filing instructions were not otherwise provided, a claim for credit or refund would have to be filed with the service center at which the taxpayer would be required to file a current tax return for the type of tax to which the claim relates. (Prop Reg § 301.6402-2(a)(2))
…Taxpayers would have to use the form prescribed for filing a particular claim for credit or refund. When there is no alternative form prescribed, a claim for credit or refund would have to be filed on a Form 843. (Prop Reg § 301.6402-2(c))
…The “separate claim” rule of Reg. § 301.6402-2(d) would be expanded to include income tax withheld, FICA tax and Railroad Retirement Tax. (Prop Reg § 301.6402-2(d))
…The filing of a properly executed income tax return with respect to which the taxpayer is not required to show the tax on the form (see Code Sec. 6014 and its regs) would be treated as a claim for refund in the amount of the overpayment shown by IRS’s computation of the tax based on the return that was filed. The proposed reg then sets out detailed rules for whether such a return would be considered as timely filed. (Prop Reg § 301.6402-3(b))
…The reference to a specific dollar amount with respect to the Joint Committee on Taxation would be dropped from Reg. § 301.6402-4. (Prop Reg § 301.6402-4)

In addition, the proposed regs removed numerous obsolete references and outdated provisions that were in the then-existing final regs.

Changes made by final regs. The new final regs make only minor changes to the rules in the proposed regs, including the following:

…Modify the rule that applies where a taxpayer is required to file a claim for credit or refund using a particular form, to provide that it be filed in a manner consistent with such form, form instructions, publications, or other guidance found on the IRS.gov website. (Reg. § 301.6402-2(a)(2))
…Modify the proposed reg service center rule to clarify that it only applies where taxpayer isn’t required to file a specific form and where the taxpayer isn’t filing a refund claim in response to an IRS notice or correspondence. (Reg. § 301.6402-2(a)(2))
…Provide that, where the service center rule applies, the taxpayer can alternatively file “via the appropriate electronic portal.” (Reg. § 301.6402-2(a)(2))
…Modify the Prop Reg § 301.6402-3(b) rule above to remove the detailed rules as to whether the claim was timely filed and instead provide that, for purposes of the limitations period of Code Sec. 6511, the claim will be treated as filed on the date the return is treated as filed. It also redesignates that rule as Reg. § 301.6402-3(c). (Reg. § 301.6402-3(c))
…Clarify a confusing statement contained in Form 843’s instructions. That statement instructs taxpayers to file Form 843 with the service center in which the taxpayer would be required to file a current tax return for “the tax to which your claim or request relates.” However, one use of Form 843 is to file a claim for credit or refund of penalties that are unrelated to any tax for which a return is required. IRS says that, for an assessable penalty that is unrelated to a particular tax, the notice containing or issued along with demand for payment will provide the proper address for filing a claim for credit or refund, and the taxpayer should file a claim in accordance with any specific instructions contained therein. (T.D. 9727)

Rule on refunds on equitable grounds unchanged. Reg. § 301.6402-2(b)(2) provides that IRS lacks the authority to make a refund on equitable grounds. That reg rule was not changed by the proposed regs. Commentators suggested that Reg. § 301.6402-2(b)(2) should include exceptions for Code Sec. 6015(f) and Code Sec. 6343(d). Those Code provisions allow IRS to consider equitable factors in making certain determinations, i.e., whether a taxpayer is eligible for innocent spouse relief or whether a levy may be released.

But the final regs do not make the changes suggested by the commentators. IRS said that these equitable factors are relevant only in determining whether an overpayment exists and are not relevant in determining whether or how IRS is to issue a refund.

Effective dates. Except for the change to Reg. § 301.6402-4, the changes made by the final regs are effective for claims for credit or refund filed after July 23, 2015. (Reg. § 301.6402-2(g), Reg. § 301.6402-3(f)) For the change made to Reg. § 301.6402-4 , the change is effective for payments made after July 23, 2015. (Reg. § 301.6402-4(b))

Reg. § 301.6402-2 and Reg. § 301.6402-3 also contain provisions that are unchanged by T.D. 9727. The regs spell out that the effective dates of those provisions are unchanged by the TD. (Reg. § 301.6402-2(g), Reg. § 301.6402-3(f))

References: For refund claims, see FTC 2d/FIN ¶  T-5601; United States Tax Reporter ¶  64,024; TaxDesk ¶  802,001; TG ¶  70751.