Main Street Practitioner Blog

Nina Olson, National Taxpayer Advocate, recently presented her Annual IRS Report to Congress. One of the “Most Serious Problems” she covered was inefficient refund disallowance notices. By looking closely at the Taxpayer Bill of Rights, it becomes clear where the IRS is failing.

The Service uses of a patchwork of over 50 different claim disallowance notices, some of which are required by statute, to notify taxpayers of its decision to deny or partially deny a refund claim. In an obvious attempt to comply with 6402(l), various subsections of the IRM require these claim disallowance notices to contain specific reasons for the disallowance and an IRC section where possible.

The Annual Report categorizes the claim disallowance notices it reviewed as either statutory or non-statutory. The statutory notices are those the Service is required by statute to send by certified or registered mail to commence the two-year statute of limitations for challenging the denial by filing a refund suit in a United States District Court or the Court of Federal Claims. They include stand-alone notices such as Letters 105C and 1364 as well as any number of so-called combo-notices, such as Letter 3219 or even a Statutory Notice of Deficiency issued during an examination in which a refund claim is pending.

The non-statutory notices alert the taxpayer that a refund claim was denied, but have no effect on the statute of limitations for filing a refund suit. They include Letter 569 (SC), the initial letter from Examination proposing to deny or partially deny a claim for refund, and Letters 2681 and 2683 from Appeals sustaining a prior decision to deny a refund claim. Non-statutory notices may be sent before or after a statutory notice a statutory notice of claim disallowance. For example, Appeals may issue a non-statutory notice informing a taxpayer of its decision to sustain the denial of a refund where Examination has already sent a statutory notice of claim disallowance. There are some instances where the non-statutory notice is the only notice ever sent (i.e., cases where the taxpayer has signed a waiver of his or her right to statutory notice of claim disallowance).

TAS also included in its review what it called “no consideration” letters, which notify a taxpayer IRS will not consider his or her refund claim because it is somehow deficient. It makes sense to include these no consideration letters in the review because they work to deny refund claims in cases where the no consideration letter itself is so deficient the taxpayer has inadequate information with which to respond and remedy the defects in the original refund claim.

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