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Treasury Inspector General for Tax Administration

Press Release

October 15, 2012
TIGTA - TIGTA - 2012-54
Contact: David Barnes
(202) 622-3062

Delays in Processing Net Operating Loss Cases Resulted in Millions of Dollars in Unnecessary Interest Payments

WASHINGTON – The Internal Revenue Service (IRS) pays millions of dollars in interest payments annually because many Net Operating Loss (NOL) cases are not processed within the required 45 days, according to a new report publicly released today by the Treasury Inspector General for Tax Administration.

When taxpayers experience significant financial losses, their deductions can exceed their income, creating an NOL that can be carried back and applied against prior year taxes or carried forward for up to 20 years after the year the loss occurred. Interest is paid to the taxpayer if the IRS does not process an NOL case within 45 days.

This audit was initiated to determine whether the IRS was processing NOL cases timely to minimize interest payments and taxpayer burden.

TIGTA’s analysis of a statistical sample of 334 of 86,483 NOL carryback tax abatements that posted to individual taxpayer accounts during Calendar Year 2010 showed 64 (19 percent) were not processed within 45 days. TIGTA estimates that the IRS could pay approximately $334 million of avoidable interest payments and delay payment to more than 74,000 individual taxpayer accounts in the next five years due to delays with processing NOL cases.

Reasons that cases were not processed within 45 days included:

TIGTA also found that current performance measures are not ensuring that NOL cases are worked timely. Neither interest paid on NOL cases nor the 90-day statutory time period for processing tentative applications is monitored to help determine if the IRS is timely processing NOL cases.

“This situation is costly to the Government and creates a burden to taxpayers when their refunds are delayed,” said J. Russell George, Treasury Inspector General for Tax Administration.

TIGTA made five recommendations. IRS management agreed with TIGTA’s recommendations and plans to take appropriate corrective actions.

Read the report.


Note: The difference between the date TIGTA issues an audit report to the Internal Revenue Service and the date TIGTA publicly releases the report is due to TIGTA's internal review process to ensure that public release is in compliance with Federal confidentiality laws.

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