IRS expands its offset authority.

• Author: Ely, Mark H.

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The Service has published three revenue rulings and proposed and temporary regulations that expand its ability under Sec. 6402(a) to offset overpayments against tax liabilities and its ability under Sec. 6411(b) to apply tentative carryback allowances against unpaid tax liabilities. The rulings appear in IRB 200737 (9/10/07).

Sec. 6402(a) provides that the IRS may credit the amount of any overpayment against any liability for an internal revenue tax and refund any balance to the person who made the overpayment. Regs. Sec. 301.6402-1 provides that credit may be made against "any outstanding liability."

Sec. 6411 (a) allows tentative carryback adjustments of the tax for tax years affected by a net operating loss (NOL), a business credit carryback, or a capital loss carryback. Under Secs. 6411(b) and Regs. Sec. 1.6411-3(d), the decrease in tax attributable to the carryback is to be applied first against any unpaid tax for the carryback year, then against any unsatisfied tax for the tax year immediately preceding the carryback tax year, and then credited against any tax then due from the taxpayer, with the balance, if any, refunded.

Rev. Rul. 2007-51

Rev. Rul. 2007-51 concludes that Sec. 6402(a) allows the Service to credit an overpayment against unassessed tax liabilities for which a notice of deficiency has been sent to the taxpayer. The ruling also concludes that Sec. 6411(b) allows the IRS to credit a decrease in tax resulting from a tentative carryback adjustment against unassessed taxes determined in a notice of deficiency

Rev. Rul. 2007-51 presents two situations.

Example 1: P, a corporate taxpayer, filed its Form 1120, U.S. Corporation Income Tax Return, for the year ending December 31, 2004, on March 15, 2005, claiming a refund of $500,000. On April 15, 2005, the Service sent P a notice of deficiency for tax year 2003 m the amount of $1 million.

Rev. Rul. 2007-51 concludes that the $1 million tax liability determined in the notice of deficiency is an outstanding tax liability as of April 15, 2005, within the meaning of Regs. Sec. 301.6402-1. Therefore, under Sec. 6402(a), the IRS may credit the $500,000 overpayment for tax year 2004 against the $1 million tax liability.

Example 2: F, a corporate taxpayer, filed a Form 1139, Corporation Application for Tentative Refund, on March 15, 2005, carrying back an NOL from 2004 to 2002. The carryback generated a $250,000 tax decrease for tax year 2002. On April 15, 2005...