The Joint Committee on Taxation (JCT) recently issued a report providing statistics on its work in reviewing cases in which the taxpayer seeks a refund large enough for Congress to want its staff to lay eyeballs on it before it goes out. Unlike most refund claims which are reviewed by the IRS, or maybe not reviewed, before a check is sent, if the taxpayer claims a refund of more than $2,000,000, IRC 6405(a) provides that the refund cannot be paid until 30 days after it submits a report to the JCT for review.
The JCT is a standing committee of the tax writing committees in the Senate, the Finance Committee, and the House, the Ways and Means Committee. It has a decent size staff of lawyers who not only assist with reviewing and writing legislation but also review these large refunds. For an overview of the refund review process performed by the staff members see, Joint Committee on Taxation, Tax Refund Claims: An Overview of the Joint Committee on Taxation’s Review Process, January 2019, available at www.jct.gov.
The recent report provides a peek at the number and size of the refund claims the committee reviews. I know from personal experience that it gives the claims a very close look. The Review Section of the Department of Justice Tax Division also gives a close look at settlements in refund suits. The government tries hard not to send out too much refund in these high profile cases.
For cases with a sufficiently high refund claim the part of the IRS handling the case sends a report to the JCT. The Examination Division, referred to as Compliance by JCT, sends the greatest number of these cases, but some are sent by Chief Counsel attorneys, Appeals Officers and even Department of Justice Tax Division attorneys. In the fiscal year (FY) 2021, 361 cases were sent to JCT for review. The amount of the refunds claimed in the cases totaled $11,886,010,002. Here is a breakdown of the types of cases and the sources of the referrals:
If the JCT finds a problem with the proposed refund, it writes a Staff Review Memorandum (SRM) setting out its concerns. The report indicates that in 2021 the JCT wrote 17 SRM all but one of which were written on cases referred by the Examination Division. Those reports resulted in a net refund reduction of $24,046,948. The report doesn’t say how many staff hours it took to produce those reports. My guess is that the government got a pretty high rate of return on the dollars it spent to look over the refund claims.
In FY 2022 the JCT was even busier reviewing 423 cases with $12,279,339,294 claimed. Here is a breakdown of the types of cases and the sources of referrals which fairly closely parallels FY 21:
The JCT only wrote 11 reports in FY 22 but produced a net reduction in refunds of $75,732,351.
The report gives data showing the work of the JCT going back over the past decade. One table shows the source of the referrals coming from the IRS:
A second table shows the type of taxpayer seeking the refund that the JCT reviewed:
A third table shows the dollars at issue in the refunds and in the adjustments by the JCT:
I found the report an informative look at this aspect of the work of the JCT. For those representing large taxpayers claiming the types of refunds that the JCT reviews, it’s important to understand the process so you can make sure that your request for a refund of over $2 million contains all of the information and support necessary to get past this additional review process. Of course, the additional review also adds to the time it takes to get approval for the refund not only while the claim sits with the JCT but also because the person at the IRS handling the case must spend time getting the case ready for the JCT.