IRS pays millions in unnecessary NOL payments

Oct 18, 2012

The 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 by the Treasury Inspector General for Tax Administration.

This audit was initiated to determine whether the IRS was processing NOL cases in a timely fashion 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%) were not processed within 45 days. TIGTA estimates that the IRS could pay about $334 million of avoidable interest payments and delay payment to more than 74,000 individual taxpayer accounts in the next five years because of delays with processing NOL cases.

Reasons that cases were not processed within 45 days included:

  • Cases reassigned multiple times before closure.
  • Cases not given the proper priority code on the monitoring and tracking system.
  • Manual refunds not always issued when required.

TIGTA also found that current performance measures are not ensuring that NOL cases are worked promptly. 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 promptly 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.

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

Read the full report.