[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).
0
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]

0
Par. 3. Section 1.6411-2T is removed.
0
Par. 4. Section 1.6411-3 is amended by:
0
1. Revising paragraph (b).
0
2. Revising paragraph (c).
0
3. Revising paragraph (d)(1) introductory text.
0
4. Revising paragraph (d)(1)(ii).
0
5. Revising paragraph (d)(1)(iii).
0
6. Revising paragraph (d)(2).
0
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