The Joint Committee on Taxation or JCT is a part of the U.S. Congress. It is tasked with investigating the U.S. tax system and reporting on proposed measures and methods for the simplification of taxes.
To carry out this function, the IRS is obligated to provide a report to the JCT for any refund in excess of $2 million prior to paying the refund. This report helps ensure that Congress is aware of what large refunds are being issued and why they are being issued. Public Law 113-295, which was enacted into law yesterday, increased the refund amount to $5 million for tax refunds payable to Subchapter C corporations.
This change is significant for at least two reasons. First, the IRS usually delays issuing refund checks for refunds in excess of the JCT report limit as a result of the reporting process. The reporting and review process can take quite a while to complete. This can be very frustrating for taxpayers–especially those that really need the tax refund sooner rather than later. The historically low rates at which interest accrues on refunds only makes the problem worse.
Second, the JCT reporting process may result in the taxpayer not receiving the expected tax refund. This happens when the JCT objects to the refund and the IRS follows the JCT’s recommendation. It should be noted that the IRS is not obligated to follow the JCT’s recommendation, but, as a practical matter, the IRS often does follow the JCT’s recommendation. This issue is particularly troubling for refunds that are part of a settlement agreement reached with the IRS Appeals Office, as the JCT review may result in Appeals not honoring its settlement agreement.
Given these issues, taxpayers have gone so far as to limit the amount of their refund claims and settlement agreements to avoid triggering the JCT reporting obligation. This $3 million increase gives significantly more leeway to Subchapter C corporations with their refund claims and settlement agreements.