[Federal Register Volume 75, Number 163 (Tuesday, August 24, 2010)]
[Rules and Regulations]
[Pages 51934-51936]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-20916]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9499]
RIN 1545-BF65
Clarification to Section 6411 Regulations
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations and removal of temporary regulations.
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SUMMARY: This document contains final regulations amending existing
regulations under section 6411 of the Internal Revenue Code (Code)
relating to the computation and allowance of the tentative carryback
adjustment. These regulations adopt without change the rules of the
temporary regulations, which clarify that, for purposes of allowing a
tentative adjustment, the IRS may credit or reduce the tentative
adjustment by both assessed and certain unassessed tax liabilities.
These final regulations affect taxpayers that file an application for a
tentative carryback allowance.
DATES: Effective Date: These regulations are effective on August 24,
2010.
Applicability Date: These regulations apply with respect to
applications for tentative refund filed on or after August 24, 2010.
FOR FURTHER INFORMATION CONTACT: Contact Elizabeth Mezheritsky at (202)
622-3600 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background and Explanation of Revisions
This document contains final regulations amending the Income Tax
Regulations (26 CFR part 1) under section 6411 relating to the
computation and allowance of the tentative carryback adjustment.
On August 24, 2007, temporary regulations (TD 9355), 2007-37 IRB
577 (72 FR 48933) and a notice of proposed rulemaking by cross-
reference to temporary regulations (REG-118886-06), 2007-37 IRB 591 (72
FR 48952) were published in the Federal Register. On October 4, 2007,
corrections to the temporary regulations were published in the Federal
Register (72 FR 56619). Only one set of written comments responding to
the notice of proposed rulemaking was received, and the same commenter
was the sole speaker at a public hearing on the notice of proposed
rulemaking, which was held on February 5, 2008. After consideration of
the comments, the temporary regulations are adopted without change by
this Treasury decision. The comments are discussed in the preamble.
Explanation of Provisions and Summary of Comments
In general, section 6411(a) provides that, in the case of certain
loss or credit carrybacks, a taxpayer may file an application for a
tentative carryback adjustment of the tax for a prior taxable year.
Under section 6411(b), any resulting decrease in tax attributable to
the carryback must be credited against any tax or installment ``then
due'' from the taxpayer, or refunded to the taxpayer. Existing
regulations at section 1.6411-3(d)(1)(iii) further provide that the
decrease in tax is first applied against any unpaid amount of tax that
is ``due and payable'' on the date the decrease is allowed.
These regulations amend existing regulations under section 6411 to
clarify the computation and allowance of the tentative carryback
adjustment. The tentative allowance is computed pursuant to Sec.
1.6411-2 but applied pursuant to Sec. 1.6411-3. The regulations
provide that, for purposes of computing the tentative allowance under
section 6411, the Commissioner will not consider amounts to which the
taxpayer and the Commissioner are in disagreement. For purposes of
applying the tentative allowance, however, the regulations provide that
the Commissioner may credit or reduce the tentative adjustment by any
assessed tax liabilities, unassessed liabilities determined in a
statutory notice of deficiency, unassessed liabilities identified in a
proof of claim filed in a bankruptcy proceeding, and other unassessed
liabilities in rare and unusual circumstances. Regarding unassessed
liabilities determined in a statutory notice of deficiency, see Rev.
Rul. 2007-51. Regarding unassessed liabilities identified in a proof of
claim filed in a bankruptcy proceeding, see Rev. Rul. 2007-52. See also
Sec. 601.601(d)(2).
The sole commenter asserted that the IRS lacks the authority to
credit a tax decrease due to a tentative carryback adjustment against a
tax liability unless the liability has been assessed against the
taxpayer. According to the commenter, an assessed liability is the only
proper interpretation of the terms ``due and payable'' and ``then due''
for purposes of section 6411(b). The Treasury Department and the IRS
disagree with this position. The general authority to apply credits is
provided by section 6402, which permits the IRS to credit the amount of
any overpayment, including interest, against any tax liability of the
person who made the overpayment. Nothing in section 6402 or the
applicable regulations specifies when a liability arises for purposes
of crediting overpayments. The Treasury Department and IRS have
determined that both assessed and certain unassessed liabilities are
appropriately considered ``then due'' for purposes of section 6411.
Accordingly, the
[[Page 51935]]
temporary regulations are adopted as final regulations without change.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required. It has also been
determined that section 553(b) of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these final regulations and because
these final regulations do not impose a collection of information on
small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6)
does not apply. Pursuant to section 7805(f) of the Code, the notice of
proposed rulemaking preceding these final regulations was submitted to
the Chief Counsel for Advocacy of the Small Business Administration for
comment on the impact on small businesses and no comments were
received.
Drafting Information
The principal author of these final regulations is Elizabeth K.
Mezheritsky, Office of the Associate Chief Counsel (Procedure and
Administration).
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
0
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 1.6411-2 is amended by:
0
1. Revising paragraph (a).
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2. Revising paragraph (b).
The revisions read as follows:
Sec. 1.6411-2 Computation of tentative carryback adjustment.
(a) Tax previously determined. The taxpayer is to determine the
amount of decrease, attributable to the carryback, in tax previously
determined for each taxable year before the taxable year of the net
operating loss, net capital loss, or unused investment credit. The tax
previously determined is to be ascertained in accordance with the
method prescribed in section 1314(a). Thus, the tax previously
determined will be the tax shown on the return as filed, increased by
any amounts assessed (or collected without assessment) as deficiencies
before the date of the filing of the application for a tentative
carryback adjustment, and decreased by any amounts abated, credited,
refunded, or otherwise repaid prior to that date. Any items as to which
the Commissioner and the taxpayer are in disagreement at the time of
the filing of the application shall, for purposes of Sec. 1.6411-2, be
taken into account in ascertaining the tax previously determined only
if, and to the extent that, they were reported on the return, or were
reflected in any amounts assessed (or collected without assessment) as
deficiencies, or in any amounts abated, credited, refunded, or
otherwise repaid, before the date of filing the application. The tax
previously determined, therefore, will reflect the foreign tax credit
and the credit for tax withheld at source provided in section 33.
(b) Decrease attributable to carryback. After ascertaining the tax
previously determined in the manner described in paragraph (a) of this
section, the taxpayer shall determine the decrease in tax previously
determined attributable to the carryback and any related adjustments on
the basis of the items of tax taken into account in computing the tax
previously determined. In determining any decrease attributable to the
carryback or any related adjustment, items shall be taken into account
under this subsection only to the extent that they were reported on the
return, or were reflected in amounts assessed (or collected without
assessment) as deficiencies, or in amounts abated, credited, refunded,
or otherwise repaid, before the date of filing the application for a
tentative carryback adjustment. If the Commissioner and the taxpayer
are in disagreement as to the proper treatment of any item, it shall be
assumed, for purposes of determining the decrease in the tax previously
determined, that the item was reported correctly by the taxpayer
unless, and to the extent that, the disagreement has resulted in the
assessment of a deficiency (or the collection of an amount without an
assessment), or the allowing or making of an abatement, credit, refund,
or other repayment, before the date of filing the application. Thus, if
the taxpayer claimed a deduction on its return of $50,000 for salaries
paid its officers but the Commissioner proposes that the deduction
should not exceed $20,000, and the Commissioner and the taxpayer have
not agreed on the amount properly deductible before the date the
application for a tentative carryback adjustment is filed, $50,000
shall be considered as the amount properly deductible for purposes of
determining the decrease in tax previously determined in respect of the
application for a tentative carryback adjustment. In determining the
decrease in tax previously determined, any items that are affected by
the carryback must be adjusted to reflect the carryback. Thus, unless
otherwise provided, any deduction limited, for example, by adjusted
gross income, such as the deduction for medical, dental, etc.,
expenses, is to be recomputed on the basis of the adjusted gross income
as affected by the carryback. See Sec. 1.6411-3(d) for rules on the
application of the decrease in tax to any tax liability.
* * * * *
Sec. 1.6411-2T [Removed]
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Par. 3. Section 1.6411-2T is removed.
0
Par. 4. Section 1.6411-3 is amended by:
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1. Revising paragraph (b).
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2. Revising paragraph (c).
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3. Revising paragraph (d)(1) introductory text.
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4. Revising paragraph (d)(1)(ii).
0
5. Revising paragraph (d)(1)(iii).
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6. Revising paragraph (d)(2).
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7. Revising paragraph (d)(3).
The revisions read as follows:
Sec. 1.6411-3 Allowance of adjustments.
* * * * *
(b) Examination. Within the 90-day period described in paragraph
(a) of this section, the Commissioner shall make, to the extent deemed
practicable within this period, an examination of the application to
discover omissions and errors of computation. The Commissioner shall
determine within this period the decrease in tax previously determined,
affected by the carryback or any related adjustments, upon the basis of
the application and examination. The decrease shall be determined in
the same manner as that provided in section 1314(a) for the
determination by the taxpayer of the decrease in taxes previously
determined, which must be set forth in the application for a tentative
carryback adjustment. The Commissioner may correct any errors of
computation or omissions discovered upon examination of the
application. In determining the decrease in tax previously determined
which is affected by the carryback or any related adjustment, the
Commissioner may correct any mathematical error appearing on the
application and may correct any modification required by the law and
incorrectly made by the taxpayer in computing the net operating loss,
net capital loss, or unused investment
[[Page 51936]]
credit, the resulting carrybacks, or the net operating loss deduction,
capital loss deduction, or investment credit allowable. If the required
modification has not been made by the taxpayer and the Commissioner has
the necessary information to make the modification within the 90-day
period, the Commissioner may, in the Commissioner's discretion, make
the modification. In determining the decrease, the Commissioner will
not, for example, change the amount claimed on the return as a
deduction for depreciation because the Commissioner believes that the
taxpayer has claimed an excessive amount; and the Commissioner will not
include in gross income any amount not so included by the taxpayer,
even though the Commissioner believes that the amount is subject to tax
and properly should be included in gross income.
(c) Disallowance in whole or in part. If the Commissioner finds
that an application for a tentative carryback adjustment contains
material omissions or errors of computation, the Commissioner may
disallow the application in whole or in part without further action. If
the Commissioner deems that any error of computation can be corrected
within the 90-day period, the Commissioner may do so and allow the
application in whole or in part. The Commissioner's determination as to
whether the Commissioner can correct any error of computation within
the 90-day period shall be conclusive. The Commissioner's action in
disallowing, in whole or in part, any application for a tentative
carryback adjustment shall be final and may not be challenged in any
proceeding. The taxpayer may, however, file a claim for credit or
refund under section 6402, and may maintain a suit based on the claim
if the claim is disallowed or if the Commissioner does not act upon the
claim within 6 months from the date it is filed.
(d) Application of decrease. (1) Each decrease determined by the
Commissioner in any previously determined tax that is affected by the
carryback or any related adjustments shall first be applied against any
unpaid amount of the tax with respect to which such decrease was
determined. The unpaid amount of tax may include one or more of the
following:
* * * * *
(ii) An amount the time for payment of which has been extended
under section 6164 and which is due and payable on or after the date of
the allowance of the decrease.
(iii) An amount (not including an amount the time for payment of
which has been extended under section 6164) which is due and payable on
or after the date of the allowance of the decrease, including any
assessed liabilities, unassessed liabilities determined in a statutory
notice of deficiency, unassessed liabilities identified in a proof of
claim filed in a bankruptcy proceeding, and other unassessed
liabilities in rare and unusual circumstances.
(2) If the unpaid amount of tax includes more than one unpaid
amount, the Commissioner may determine against which amount or amounts,
and in what proportion, the decrease is to be applied. In general,
however, the decrease will be applied against any amounts described in
paragraphs (d)(1)(i) through (iii) of this section in the order named.
If there are several amounts of the type described in paragraph
(d)(1)(iii) of this section, any amount of the decrease that is to be
applied against the amount will be applied by assuming that the tax
previously determined minus the amount of the decrease to be so applied
is ``the tax'' and that the taxpayer had elected to pay the tax in
installments. The unpaid amount of tax against which a decrease may be
applied under paragraph (d)(1) of this section may not include any
amount of tax for any taxable year other than the year of the decrease.
After making the application, the Commissioner will credit any
remainder of the decrease against any unsatisfied amount of any tax for
the taxable year immediately preceding the taxable year of the net
operating loss, capital loss, or unused investment credit, the time for
payment of which has been extended under section 6164.
(3) Any remainder of the decrease after the application and credits
may, within the 90-day period, in the discretion of the Commissioner,
be credited against any tax liability or installment thereof then due
from the taxpayer (including assessed liabilities, unassessed
liabilities determined in a statutory notice of deficiency, unassessed
liabilities identified in a proof of claim filed in a bankruptcy
proceeding, and other unassessed liabilities in rare and unusual
circumstances), and, if not so credited, shall be refunded to the
taxpayer within the 90-day period.
* * * * *
Sec. 1.6411-3T [Removed]
0
Par. 5. Section 1.6411-3T is removed.
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
Approved: August 11, 2010.
Michael Mundaca,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2010-20916 Filed 8-23-10; 8:45 am]
BILLING CODE 4830-01-P