The Internal Revenue Service yesterday published formal procedures and time limits for issuers seeking to recover overpayments of arbitrage rebate, penalties in lieu of rebate provisions, or yield reduction payments.
Revenue Procedure 2008-37, which takes effect immediately, replaces Rev. Proc. 92-83, a guidance the IRS published in 1992 that had become outdated, according to agency officials.
The new guidance comes after some issuers complained that the IRS was taking too long to process refund claims and also urged the agency to return overpaid amounts with interest.
Issuers may be disappointed to learn that Rev. Proc. 2008-37 does not require the IRS to pay interest on refunded amounts nor does it require the IRS to meet specific deadlines in returning overpayments. Treasury officials have said in the past that the IRS lacks the statutory authority to make interest payments.
Instead, the revenue procedure puts a two-year limit on the amount of time that issuers have to seek recovery of overpayments. The tax law specifies that issuers rebate arbitrage on an installment basis, at least once every five years, with the last installment to occur no later than 60 days after the day on which the last bond of the issue is discharged.
Issuers of certain construction bonds can elect to pay a penalty in lieu of rebating arbitrage. Issuers of advance refundings can make yield reduction payments to ensure their investment yield will not exceed their bond yield.
Under Rev. Proc. 2008-37, for old bonds, or bonds for which the final computation date was on or before June 24, issuers have two years from July 1 to make refund claims. For other bonds, for which the final computation date is after June 24, issuer refund claims must be filed with the IRS no later than two years after the "final computation date of the issue of bonds to which the refund claim relates," the agency said.
Issuers seeking recovery of overpayments must fill out Form 8038-R and submit the refund claim, along with any required attachments to the IRS' Ogden Submission Processing Center. The IRS staff at the center will determine whether the form and information are sufficient; the issuer previously submitted rebate, penalty or yield reduction payments; and the amount previously submitted is greater or equal to the overpayment amounts sought in the claim. If the IRS staff at the center finds the information is insufficient, it will notify the issuer and the issuer will then have 45 days from that notification to provide more information.
The Ogden center will forward the refund claim to the tax-exempt bond office's compliance and program management group. That group will either authorize, reject or deny the refund. IRS officials can reject the claim if the issuer failed to follow the procedures or failed to provide sufficient information to enable the IRS to determine that an overpayment occurred. They may deny the refund claim if they determine the amount of overpayment is less than the requested refund or that no overpayment occurred.
If the issuer's claim is rejected, it may resubmit its refund claim. "A refund claim that is rejected on the basis of a procedural deficiency or incomplete information is not a refund claim denial," the IRS said. If the claim is preliminarily denied, the issuer will have 21 days to submit additional information to the IRS to buttress its claim. If the IRS sends the issuer a refund claim denial letter, the issuer can appeal the finding within 30 days or accept the IRS' letter as final.
