One important function of the Joint Committee Staff is to determine whether the provisions of the tax law operate as intended or cause unintended administrative, interpretive, or statutory problems. Two ways in which this is accomplished are, first, the refund review mechanism, which statutorily requires the submission of reports by the IRS in cases involving refunds of tax in excess of $2,000,000, and, second, the post review program, under which the IRS submits reports on large cases that they closed prior to submitting them to the Joint Committee.
The IRS prepares a written report for the Joint Committee Staff on each refund case. The report contains a brief history of the situation of the taxpayer and an explanation of the reasons for any refunds. Attached to the report are supporting documents prepared by the IRS. These documents discuss the amount of, and reason for, all the adjustments considered by the IRS for taxable years under review.
The Joint Committee Staff review of these reports focuses on the technical aspects of the case and the IRS’s resolution of the issues presented. This review enables the staff to become familiar with specific issues in individual industries and to find problems in the administration of the law. For example, the Joint Committee Staff sometimes uncovers situations in which taxpayers are reaping unintended benefits. If the problem emanates from the statutory language, the Joint Committee Staff may recommend an amendment to the Code. When the problem comes from IRS pronouncements, such as rulings or regulations, the Joint Committee Staff may request that the IRS clarify or reconsider its published position. When the problem is lack of uniform application of the law, the Joint Committee Staff may request that the IRS publish guidance on the issue.
The Joint Committee Staff refund review also permits identification of issues that, as a technical matter, were not handled correctly by the IRS. In these instances, the Joint Committee Staff recommends adjustment to the amount of the refund when the tax effect in the case is significant. Adjustment also is recommended when, as a result of the correction, loss or credit carryforwards will be reduced significantly even though there is no effect on the proposed refund. When the impact in a given case is small, no adjustment is recommended, but the staff still gives comments to the IRS to prevent repetition of the error.
Although the statute does not require that the IRS comply with Joint Committee Staff requests for adjustments, both the Joint Committee Staff and the IRS view the review process as a way of improving tax administration. Thus, the IRS will not pay any part of a refund while the Joint Committee Staff has a continuing objection, and has on occasion requested that the staff monitor a particular issue to ensure that IRS agents are handling the item appropriately. The Joint Committee Staff also attends and addresses training sessions held by IRS LMSB and Appeals regarding substantive and procedural issues of mutual interest.
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