I was reading today a letter to the editor of Tax Notes from Professor George K. Yin, here, formerly tax counsel to the Joint Committee on Taxation. George K. Yin, Let's Get the Facts of the Couzens Investigation Right!, 2013 TNT 165-12 (8/26/13). The subject is some esoterica about the requirement that, prior to making a $2 million refund, the IRS must submit a report to the Joint Committee on Taxation ("JCT"). Section 6405(a), here. The staff reviews and comments on the refund. Technically, the review is not a veto, but given JCT's role in the system it might practically have that effect.
Professor Yin reviews the history for the provision. His concluding paragraph makes a good point about the requirement for JCT staff review of refunds but not of IRS decisions to forgo deficiencies, both of which have the same effect on the revenue and both of which could be means for effecting agency favoritism (which was the concern in enacting Section 6405). Here is the paragraph:
Congress's fixation on refunds might be of mere historical curiosity but for the fact that it had clear policy consequences: Congress gave the Joint Committee authority to review all large tax refunds, a responsibility that continues to this day. The irony of this decision is quite evident. While it was true that the Board of Tax Appeals provided independent review of certain agency decisions prior to the assessment of taxes, the only ones considered by the Board were those unfavorable to taxpayers. Agency decisions improperly favorable to taxpayers were not appealed, and therefore never reached the Board or any other independent reviewer. Yet a taxpayer-favorable decision not to assert a deficiency was directly analogous to an unjustified refund that Congress was so suspicious about. Indeed, a failure to assert a deficiency was actually much more worrisome than a refund. Because a refund involved an affirmative act that went through several levels of agency review for approval, an illegal refund required the unlikely existence of widespread corruption throughout the agency. In contrast, a decision not to assert a deficiency conceivably could have begun and ended with the inaction of a single, rogue employee. Thus, if Congress was seriously concerned with possible, corrupt favoritism by the agency (rather than mere posturing to gain political advantage), it badly missed the mark.
For those desiring an introduction to the JCT refund revise process, I cut and paste below my discussion (footnotes omitted) of Section 6405 in my Tax Procedure book:
IV. Joint Committee Review of Large Refunds.
Section 6405(a) prohibits refund of income or estate and gift taxes and most other refunds in excess of $2,000,000 until 30 days after the IRS has submitted a report to the Joint Committee on Taxation (“JCT”), where it is reviewed by the staff of the JCT. The $2,000,000 threshold is determined based on net over-assessments for the audit cycle in a multi-year review. The IRS report details the IRS's findings and conclusions with respect to the refund it proposes to make. This gives the Joint Committee Staff an opportunity to review the proposed refund and comment thereon.
