V. JOINT COMMITTEE STATUTORY REFUND REVIEW

One of the important functions performed by the Joint Committee staff is to determine whether the

many provisions of the tax law operate as intended, or cause any 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 Internal Revenue

Service in cases involving refunds of tax in excess of $2,000,000, and, second, the post review

program, under which the Internal Revenue Service submits reports on large cases that they closed

prior to submitting them to the Joint Committee on Taxation.

The IRS prepares a written report for the Joint Committee staff on each refund case. The report

contains a brief history of the tax situation of the taxpayer and an explanation of the causes of 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

Internal Revenue Service'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 uncover 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 statute. 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 request that the IRS publish guidance on

the issue.

The Joint Committee staff 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 recommend

adjustment to the amount of the refund when the tax effect in the case is significant. Adjustment is

also 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 give comments to the IRS to prevent

repetition of the error.

Although the statute does not require that the IRS comply with 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 have

a continuing objection, and has on occasion requested the staff to monitor a particular issue to ensure

that agents are handling the item appropriately. The Joint Committee staff have also assisted the

Appeals Division of the IRS in selecting issues for Appeals' internal review program and have

visited IRS field offices to obtain their views on tax simplification issues.

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