[Federal Register Volume 72, Number 165 (Monday, August 27, 2007)]
[Rules and Regulations]
[Pages 48933-48936]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-16878]



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 Rules and Regulations
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  Federal Register / Vol. 72, No. 165 / Monday, August 27, 2007 / Rules 
and Regulations  

[[Page 48933]]



DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9355]
RIN 1545-BF66


Clarification of Section 6411 Regulations

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

-----------------------------------------------------------------------

SUMMARY: This document contains final and temporary regulations 
clarifying that for purposes of allowing a tentative adjustment, the 
IRS may credit or reduce the tentative adjustment by an assessed tax 
liability, whether or not that tax liability was assessed before the 
date the application for tentative carryback was filed, and other 
unassessed tax liabilities in certain other circumstances. The portions 
of this document that are final regulations provide technical revisions 
that remove all references to IRS district director and service center 
director, as those positions no longer exist within the IRS. The 
offices of the district director and service center director were 
eliminated by the IRS reorganization implemented pursuant to the IRS 
Reform and Restructuring Act of 1998. The text of the temporary 
regulations serves as the text of the proposed regulations, set forth 
in the notice of proposed rulemaking on this subject in the Proposed 
Rules section in this issue of the Federal Register.

DATES: Effective Date: These regulations are effective August 27, 2007.
    Applicability Date: These regulations apply with respect to 
applications for tentative refund filed on or after August 27, 2007.

FOR FURTHER INFORMATION CONTACT: Cynthia A. McGreevy, (202) 622-4910 
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background and Explanation of Provisions

    These regulations clarify the Income Tax Regulations (26 CFR part 
1) under section 6411 relating to 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. 
These temporary regulations clarify that, for purposes of computing the 
allowance, the Commissioner will not consider amounts to which the 
taxpayer and the Commissioner are in disagreement. For purposes of 
applying the allowance, however, 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 Sec.  601.601(d)(2). 
The IRS plans to adopt procedures requiring IRS National Office review 
prior to a credit or reduction of the tentative adjustment by an 
unassessed liability that constitutes a rare and unusual circumstance.
    These regulations also contain final regulations that remove all 
references to IRS district director or service center director, to 
account for the IRS's current organizational structure. The text of the 
temporary regulations serves as the text of the proposed regulations, 
published elsewhere in this issue of the Federal Register.

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 also has been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations. For the 
applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6) 
please refer to the Special Analyses section of the preamble of the 
cross-reference notice of proposed rulemaking published in the Proposed 
Rules section in this issue of the Federal Register. Pursuant to 
section 7805(f) of the Internal Revenue Code, these regulations have 
been submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on their impact on small business.

Drafting Information

    The principal author of these final and temporary regulations is 
Cynthia A. McGreevy of the Office of the Associate Chief Counsel 
(Procedure and Administration).

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Amendments to the Regulations

0
Accordingly, 26 CFR part 1 is to be 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 * * *.

Sec.  1.6411-2  [Amended]

0
Par. 2. In the list below, for each section listed in the left column, 
remove the language in the middle column and add the language in the 
right column:

----------------------------------------------------------------------------------------------------------------
                Section                                Remove                                Add
----------------------------------------------------------------------------------------------------------------
1.6411-2(a), first sentence...........  , unused investment credit, or       , or unused investment credit
                                         unused WIN credit
1.6411-2(a), fourth sentence..........  Internal Revenue Service             Commissioner
1.6411-2(a), last sentence............  32                                   33
1.6411-2(b), third sentence...........  Internal Revenue Service             Commissioner

[[Page 48934]]

 
1.6411-2(b), fourth sentence..........  District director                    Commissioner
1.6411-2(b), fourth sentence..........  Internal Revenue Service             Commissioner
----------------------------------------------------------------------------------------------------------------


0
Par. 3. Section 1.6411-2(c) is added to read as follows:


Sec.  1.6411-2  Computation of tentative carryback adjustment.

* * * * *
    (c) Effective/applicability date. These regulations apply with 
respect to applications for tentative refund filed on or after August 
27, 2007.

0
Par. 4. Section 1.6411-2T is added to read as follows:


Sec.  1.6411-2T  Computation of tentative carryback adjustment 
(temporary).

    (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 in 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 in 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 correctly reported 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 which 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.  1.6411-3T(d) for rules on the 
application of the decrease in tax to any tax liability.
    (c) Effective/applicability date. (1) These regulations apply with 
respect to applications for tentative refund filed on or after August 
27, 2007. (2) The applicability of this section expires on or before 
August 24, 2010.

0
Par. 5.


Sec.  1.6411-3  [Amended].

    In the list below, for each section listed in the left column, 
remove the language in the middle column and add the language in the 
right column:

----------------------------------------------------------------------------------------------------------------
                Section                                Remove                                Add
----------------------------------------------------------------------------------------------------------------
1.6411-3(a), first sentence...........  district director or director of a   Commissioner
                                         service center (either of whom are
                                         sometimes hereinafter referred to
                                         in this section as internal
                                         revenue officer)
1.6411-3(a)(2), first sentence........  , unused investment credit, or       , or unused investment credit
                                         unused WIN credit
1.6411-3(b), first sentence...........  district director or director of a   Commissioner
                                         service center
1.6411-3(b), first sentence...........  he deems                             Deemed
1.6411-3(b), second sentence..........  he                                   The Commissioner
1.6411-3(b), fourth sentence..........  Such internal revenue officer        The Commissioner
1.6411-3(b), fourth sentence..........  he may discover                      discovered
1.6411-3(b), fifth sentence...........  he accordingly                       the Commissioner accordingly
1.6411-3(b), fifth sentence...........  he may                               May
1.6411-3(b), fifth sentence...........  , unused investment credit, or       , or unused investment credit
                                         unused WIN credit
1.6411-3(b), fifth sentence...........  , investment credit or WIN credit    , or investment credit
1.6411-3(b), sixth sentence...........  such internal revenue officer        the Commissioner
1.6411-3(b), sixth sentence...........  he                                   the Commissioner
1.6411-3(b), sixth sentence...........  his                                  the Commissioner's

[[Page 48935]]

 
1.6411-3(b), seventh sentence.........  such internal revenue officer        the Commissioner
1.6411-3(b), seventh sentence.........  he believes                          the Commissioner believes
1.6411-3(b), seventh sentence.........  he will                              the Commissioner will
1.6411-3(b), seventh sentence.........  such officer                         the Commissioner
1.6411-3(c), first sentence...........  district director or director of a   Commissioner
                                         service center
1.6411-3(c), first sentence...........  he                                   the Commissioner
1.6411-3(c), second sentence..........  he deems                             the Commissioner deems
1.6411-3(c), second sentence..........  by him                               ...................................
1.6411-3(c), second sentence..........  he                                   the Commissioner
1.6411-3(c), third sentence...........  Such internal revenue officer's      The Commissioner's
1.6411-3(c), third sentence...........  he                                   the Commissioner
1.6411-3(c), fourth sentence..........  his                                  the Commissioner's
1.6411-3(c), fifth sentence...........  such internal revenue officer        the Commissioner
1.6411-3(d)(1), first sentence........  district director or director of a   Commissioner
                                         service center
1.6411-3(d)(1)(iii), first sentence...  including an amount the time for     ...................................
                                         payment of which has been extended
                                         under section 6162, but
1.6411-3(d)(2), first sentence........  district director, or director of a  Commissioner
                                         service center
1.6411-3(d)(2), fifth sentence........  such internal revenue officer        The Commissioner
1.6411-3(d)(2), fifth sentence........  , unused investment credit, or       , or unused investment credit
                                         unused WIN credit
1.6411-3(d)(3), first sentence........  district director or director of a   Commissioner
                                         service center
----------------------------------------------------------------------------------------------------------------


0
Par. 6. Section 1.6411-3(e) is added to read as follows:


Sec.  1.6411-3  Allowance of adjustments.

* * * * *
    (e) Effective/applicability date. These regulations apply with 
respect to applications for tentative refund filed on or after August 
27, 2007.

0
Par. 7. Section 1.6411-3T is added to read as follows:


Sec.  1.6411-3T  Allowance of adjustments (temporary).

    (a) Time prescribed. The Commissioner shall act upon any 
application for a tentative carryback adjustment filed under section 
6411(a) within a period of 90 days from whichever of the following two 
dates is the later--
    (1) The date the application is filed; or
    (2) The last day of the month in which falls the last date 
prescribed by law (including any extension of time granted the 
taxpayer) for filing the return for the taxable year of the net 
operating loss, net capital loss, or unused investment credit from 
which the carryback results.
    (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, however, 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 likewise 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 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, however, 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; likewise, 
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 such application in whole or in part without further action. 
If, however, 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. Similarly, 
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 it 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 which 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:
    (i) An amount with respect to which the taxpayer is delinquent.
    (ii) An amount the time for payment of which has been extended 
under section 6164 and which is due and

[[Page 48936]]

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 in his discretion, shall 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 
which 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.
    (e) Effective/applicability date. (1) These regulations apply with 
respect to applications for tentative refund filed on or after August 
27, 2007.
    (2) The applicability of this section expires on or before August 
24, 2010.

Kevin M. Brown,
Deputy Commissioner for Services and Enforcement.
    Approved: August 1, 2007.
Eric Solomon,
Assistant Secretary of the Treasury (Tax Policy).
 [FR Doc. E7-16878 Filed 8-24-07; 8:45 am]
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