Academic journal article Journal of Accountancy

TIGTA: IRS Pays Millions in Unnecessary Interest on NOL Carrybacks

Academic journal article Journal of Accountancy

TIGTA: IRS Pays Millions in Unnecessary Interest on NOL Carrybacks

Article excerpt

The Treasury Inspector General for Tax Administration (TIGTA) found that IRS delays in processing net operating loss (NOL) carrybacks result in the IRS's paying millions of dollars in interest unnecessarily.

According to TIGTA, the IRS pays the excess interest because it does not always process taxpayers' amended prior returns with NOLs within the 45-day limit imposed by Sec. 6611. TIGTA's audit of a sample of 2010 individual returns showed that 19% of NOL carryback tax abatements were not processed within 45 days.

Based on these data, TIGTA estimates that the IRS could pay $334 million in avoidable interest payments over the next five years if it does not start processing all NOL cases within the time limit. However, the IRS counters that 2010 had an unusually high number of NOL carrybacks because of a longer carryback period temporarily allowed by the American Recovery and Reinvestment Act, P.L. 111-5, a measure that is not likely to be repeated in future years. TIGTA insists it tailored its estimate to take into account the unusual volume of 2010 NOL carrybacks.

Reasons the carrybacks were not processed within 45 days included multiple reassignments of cases within the IRS, improper priority codes assigned in the IRS's Correspondence Imaging System (CIS) (which is used to control and assign NOL cases to IRS employees), and failure to issue manual refunds when required, TIGTA said. …

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