An offset against the taxpayer's valid refund was timely

Plain-English summary

Chief Counsel considered the timing of IRS offsets involving an erroneous refund and an identity theft return. The IRS first offset a refund claimed on the identity theft return, then reversed that offset, creating a nontax liability for the taxpayer. The advice states that the IRS could recover that liability through common-law offset. Courts generally apply section 6532(b)'s two-year erroneous-refund recovery period to such an offset, beginning when the IRS made the first offset. The later offset against the refund claimed on the taxpayer's valid return occurred within two years and was therefore timely.

Ruling snapshot

• Question: Was the later offset against the refund on the taxpayer's valid return made within the applicable recovery period?
• Outcome: Advice given, the offset was timely
• Key authorities: IRC § 6532(b); common-law offset

Full text (IRS public release)

ID:      CCA_2016051915040254
UILC:    6532.01-00

Number: 201625014
Release Date: 6/17/2016
From:
Sent: Thursday, May 19, 2016 3:04:02 PM
To:
Cc:

Bcc:
Subject: RE: follow-up on advice you provided to TAS re: identity theft and erroneous refunds


Thanks for your patience while I studied this more closely and asked CC:PA to weigh
in.

The IRS offset the refund claimed on the identity theft return to cover the erroneous
refund. The advice from SBSE Counsel addressed whether it was appropriate to make
the offset based on an identity theft return, and concludes that yes, it was
appropriate. When the IRS did the offset and then subsequently reversed it, that
created a nontax liability for the taxpayer. The IRS may use common law offset to
recover that liability. With respect to common law offset, courts have generally applied
the 2-year IRC section 6532(b) ERSED. Thus, the 2-year IRC section 6532(b) ERSED
began running when the IRS offset the refund claimed on the identity theft return. At the
conclusion of the examination in 2015, the IRS then offset the refund claimed on the
taxpayer’s return (the good return). That offset was within 2 years of the offset based
on the identity theft return, so it was timely. Thus, there was no violation of the 2-year
ERSED.

Unless you have any further questions, I am closing my file on this case.
Thanks.