Purpose: This section provides guidance to field examiners who receive formal or informal requests for Net Rate Netting (NRN). NRN requests will not be subject to formal claims procedures during examination consideration. The purpose of this guidance is to ensure that LB&I field examiners properly handle cases with NRN requests so that case processing functions in SB/SE or Appeals can properly compute interest after the case is closed. These procedures do not apply to NRN requests worked in case processing units.

Audience: LB&I examiners

Policy Owner: Assistant Deputy Commissioner Compliance Integration

Program Owner: LB&I Policy Office

Primary Stakeholders: Stakeholders include Centralized Case Processing (CCP) and Office of Servicewide Interest.

Field examiners are more likely to encounter NRN requests in cases with complex returns than in cases with less complex returns.

In such cases, the field examiner will determine if it is beneficial to discuss NRN with the taxpayer during the planning stage of the examination. If so, such discussions should clarify the following points:

If a taxpayer requests a “net” balance during an examination, it may be a request for either “offsetting” or “net rate netting”. NRN is not the same as offsetting between tax years.

NRN equalizes/eliminates the interest rate differential between overpayments and underpayments of two or more tax modules for the "same" taxpayer during overlapping periods so that the interest rate differential is netted to zero. See IRM 20.2.14.6, Net Rate Interest Netting, for more information. The taxpayer must provide a written request for NRN. Use NRN in the following situations at the taxpayer’s request:

Offsetting is transferring credit from an overpaid tax module to an underpaid tax module. The IRS generally offsets unsettled modules through Master File programming, however, it can be done manually by processing personnel. An unsettled module is a module with either a credit (refund due taxpayer) or debit (taxpayer owes) balance. See IRC 6402(a) and IRM 20.2.5.13, Underpayment Interest on Liabilities Paid by Credit/Offset.

Offsetting is done before any NRN adjustments. The following are examples of offsets that will be done before processing a NRN request:

Requests for NRN may be received by either the campus or the field examiner.

When the campus receives a NRN request, the campus will follow the procedures in IRM 20.2.14 (outlined below in IRM 4.10.26.4.1, Requests for Net Rate Netting Received by the Campus, and IRM 4.10.26.4.2, Requests for Net Rate Netting Received by CCP).

When the field examiner receives a NRN request during an examination, the field examiner will follow the procedures in IRM 4.10.26.4.3 below.

The field examiner must review the NRN request to determine whether the request includes more than one TIN. (A net rate adjustment cannot be made between different taxpayers.) If so, the field examiner must make a determination whether the TINs are the "same" taxpayer for purposes of IRC 6621(d) and whether IRC 6621(d) applies.

The field examiner must determine whether the required information is present on the NRN request. See IRM 20.2.14.6.1.1(5) and Rev. Proc. 2000-26.

The NRN request may not be surveyed or excluded from an examination plan. Risk analysis factors will not apply.

The field examiner will document all activity and appropriately index all workpapers related to a NRN request.

The field examiner will ascertain the facts surrounding the relationships between TIN holders and analyze the facts in terms of applicable law.

If the field examiner determines that the multiple TINs are the "same" taxpayer for NRN purposes, the field examiner will:

If the field examiner determines that the multiple TINs are not the "same" taxpayer, the field examiner will:

If there are other issues that require Appeals consideration, the field examiner should notate the NRN request on Form 4665, Report Transmittal, and explain the facts and law surrounding the NRN issue.

Example 1: Corporation A files a NRN request with multiple TINs. Corporation A has overpayments for periods 1, 2, and 3 and an underpayment for period 4. Subsidiary B has underpayments for periods 1, 2, 3, and 4. Subsidiary B joined the consolidated group at the beginning of period 2. Subsidiary B cannot net its underpayment with the overpayment of parent A for period 1, but the overpayments and underpayments of periods 2 and 3 can be netted.

Example 2: Parent Corporation A files a NRN request for overlapping periods of underpayment and overpayment interest involving Corporation A and its subsidiaries B and C. These three entities have separate TINs. The IRS determines that Corporation A is not the same taxpayer as Corporations B and C for purposes of interest rate netting because Corporation A’s underpayment was incurred before Corporations B and C became members of a consolidated group with Corporation A as the parent. Therefore, Corporations B and C are not jointly liable with Corporation A for the income tax underpayment. However, the IRS determines that Corporation B can file a net rate request for its own underpayment of employment taxes and its own overpayment of excise taxes. Similarly, the IRS determines that Corporation C can file its own net rate request. The IRS will advise Parent Corporation A (the entity that filed the net rate request) that its request will not be approved, but that Corporations B and C should file their own requests for their own overlapping periods.

An imperfect NRN request is one where the taxpayer has not provided adequate information as required by Rev. Proc. 2000-26. See IRM 4.10.26.8.2. However, if the NRN request is imperfect due to unresolved tax period(s), it is not an imperfect request. See IRM 4.10.26.2.1 for the definition of an unresolved tax period.

NRN requests are not refund claims for the purposes of IRC 7422. Accordingly, field examiners will not disallow a NRN request using the formal claim disallowance process. Instead, they will return any imperfect request to the taxpayer.

Pursuant to IRC 7422, taxpayers may file a claim for refund and receive judicial review by a United States District Court or Court of Federal Claims if the accounts involved are first paid in full. See Flora v. United States, 362 U.S. 145 (1960).

When a field examiner determines that a taxpayer’s NRN request does not have the required information (see IRM 4.10.26.8.2 (1) below) or the information provided is not accurate, the field examiner will:

If the taxpayer later files a perfected request, the perfected request will be date-stamped and used to determine all applicable statute of limitations dates.

The field examiner will document all activity and appropriately index all workpapers related to a NRN request.

The field examiner will forward all perfected NRN requests to CCP using a Form 3198, Special Handling Notice for Examination Case Processing, unless it is determined that the case will close agreed in 90 days or less. If the case will close in 90 days or less, the field examiner will hold the NRN request and close it out with the administrative file at the conclusion of the examination, see IRM 4.10.26.7 for specific instructions.

An Appeals Officer will not work a NRN request that was returned to the taxpayer. If the NRN request was returned and the date crossed out, the taxpayer must file another NRN request to be considered by Appeals. However, if the taxpayer has paid the interest and files a NRN request, even if imperfect, it could be considered an informal claim. See IRM 25.6.1.10.2.6, Claims for Credit or Refund – Form and Content.

For perfected NRN requests where the associated case will not be closing within 90 days, the field examiner will forward the request to CCP on a Form 3210, Document Transmittal.

For perfected NRN requests where the associated open case will close agreed within 90 days, the field examiner will:

Field examiners will use form letters to acknowledge, perfect, or return NRN requests.

These letters are intended for the exclusive use of field or office examiners and Appeals Officers. They may be used by tax examiners or other campus employees involved in the processing of the requests. Separate procedures for campus staff may be found in IRM 20.2.14, Netting of Overpayment and Underpayment Interest.

General Instructions for NRN Letters. Complete the following fields: