Doug O'Donnell, the commissioner of the IRS Large Business and International Division, said it was working with the Joint Committee on Taxation to streamline the process. The IRS' experience processing claims from the 2008 financial crisis helped prepare it for the potential onslaught, O'Donnell said during a webcast held by KPMG LLP.
The IRS must submit reports to the JCT when it issues refunds of more than $2 million for individual taxpayers or $5 million for corporations — usually a routine task, but one that many now fear could become a bottleneck as profits vanish during the economic downturn brought on by the novel coronavirus pandemic.
"We know that there's going to be a significant uptick in net operating losses that will need to be carried back; that's going to put a significant amount of stress on the joint committee process that we have in place," O'Donnell said.
Many provisions in the $2 trillion Coronavirus Aid, Relief, and Economic Security Act
gave corporations and pass-through entities more flexibility to move their 2020 losses and apply them to prior profitable years, so they can access refunds on taxes they've already paid and use them to try to get through the rest of this year.The legislation allows companies to carry losses back for five years, predating 2017, when the corporate tax rate was 35%. The law also removes an 80% restriction on carrying losses forward.
The JCT's role in reviewing tax refunds from the IRS goes back to its founding in 1926 as a congressional oversight on an agency seen as wasteful and prone to fraud. The IRS must submit not only reports for each individual refund explaining the taxpayer's history and reasoning behind the claim, but also any supporting documentation. While the JCT doesn't have the authority to reject or void refunds, it can recommend adjustments to the IRS and also inform Congress of any systemic issues.
O'Donnell said the agency believes the current economic slowdown could have a "broader impact" than the recession provoked by the 2008-09 financial crisis.
"We're looking to bolster our joint committee teams that are within the commissioner's operations in LB&I," he said. "We've got some real lessons learned from the financial crisis, where we might be able to streamline some of our reviews internally."
Representatives of the Joint Committee on Taxation were not immediately available for comment.
--Editing by Tim Ruel.
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