- 20.2.1.1 Introduction
- 20.2.1.2 Overview
- 20.2.1.3 Administrative
- 20.2.1.4 Taxpayer Communication
- 20.2.1.5 Taxpayer Advocate
- 20.2.1.6 Terminology
- Exhibit 20.2.1-1 IRM Part Numbers by Process
- Exhibit 20.2.1-2 Definition of Terms
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Internal Revenue Manual (IRM) 20.2, Interest, replaces lRM 104.8 and IRM 121.1, Normal and Restricted Interest. IRM 20.2 also replaces all other internal management documents dealing with the administration of interest (e.g., IRMs, handbooks, desk guides, etc.).
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This IRM contains information specific to interest computations for all areas of the Service. Instructions for case processing for individual functions can be found in IRM's for specific business functions.
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Certain exhibits are located at the end of each chapter and are numbered according to the chapter.
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For the following exhibits see Section 15 of this IRM.
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Interest Rates
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Interest Tables
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Julian Date Calendar (Perpetual)
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Julian Date Calendar (Leap Years Only)
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Daily Compounding Interest Factors (Base 365)
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Daily Compounding Interest Factors (Base 366)
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Daily Interest Factors for Abusive Tax Shelters (Base 365 and 366)
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The Internal Revenue Service (IRS) administers the internal revenue laws, including the laws that govern the computation and payment of interest.
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The National Director, Self Employed/Small Business, Reporting Compliance, Penalties and Interest (S:C:CP:RC:P), has the overall responsibility for coordinating and approving updates to this IRM.
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This multi-functional IRM provides instructions for computing interest and applies to all functional areas and Business Operating Divisions, as well as Appeals, Taxpayer Advocate, and Criminal Investigation.
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Policy Statements that relate to interest are found in the IRM Policies of the Internal Revenue Service.
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Procedures in IRM 20.2, Interest, refer to the Law Enforcement Manual (LEM) 20.2, Interest, where needed.
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This section provides administrative guidelines.
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Area Directors and Service Center Directors are authorized to perform all administrative actions on all interest cases including restricted interest rates, except those:
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involving suits for refund filed by taxpayers in which a credit (overpayment) is determined by a court, or
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requiring review by the Joint Committee on Internal Revenue Taxation.
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All reference materials involving interest must be consistent with the procedures in this IRM and must be approved by the interest analysts in SBSE, Compliance, Compliance Policy, Reporting Compliance, Penalties and Interest (S:C:CP:RC:P).
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Report all problems and/or proposals to:
Internal Revenue Service (IRS)
New Carrollton Federal Bldg.
500 Ellin Road
N
(Interest Analyst)
S:C:CP:RC:P -
This includes the following:
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Systems Production Evaluation Report: Use Form 5715 to report systemic programming and operational problems that need immediate attention (work stoppage situations only).
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Procedures/Systems Change Request: Use Form 5391 to request a change or improvement to the interest IRM, Interest Program, or processing system. See IRM, ADP System Change Request, for complete information on preparing and routing of this form.
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Editorial Change Request: Use Form 9345 to report either typographical or printing errors. Form 9345 is not controlled upon receipt and will not receive a written response.
Note:
Do not report operational problems or defects on this form.
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Use the following materials to help understand this IRM:
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IRM Part Number and Business Processes List See Exhibit 20.2.1 - 1.which lists Part numbers of IRMs that are referenced throughout this IRM.
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Definition of Terms See Exhibit 20.2.1 - 2.which defines terms used throughout this IRM.
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Use the Penalty and Interest Notice and Explanation (PINEX) or a clearly legible print from a nationally approved interest computation tool to provide the taxpayer with an explanation of credit or debit interest related to his or her account. See Section 3 of this IRM for PINEX instructions and see Section 6 of this IRM for Methods of Computing Interest.
If And Then A taxpayer inquires about computer generated interest by telephone, You cannot obtain by Command Code "INTSTD" Prepare Form 4442 and route to an interest specialist
A taxpayer questions a manual computation of interest,
You are unable to match the interest assessed,
Obtain the original source document that outlines how the interest was computed. Verify it and provide a copy of this information to the taxpayer, or route to an interest specialist.
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If during a taxpayer contact it appears there may be a hardship situation, complete Form 911, Application for Taxpayer Assistance Order, and refer the taxpayer to the Taxpayer Advocate System (TAS). See IRM Part 13 or IRM 21 .1.3.17 for more information.
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The terminology used in this handbook is described in this section.
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The statutory requirements for calculating interest on underpayments and overpayments are contained in IRC section 6601 and IRC section 6611. The payment of interest on underpayments and overpayments under these provisions is mandatory unless specifically prohibited by law.
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The two types of interest are:
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Credit Interest (overpayment)—interest paid to the taxpayer by the IRS on an overpayment of tax, and
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Debit Interest (underpayment)—Interest charged to the taxpayer when tax, penalty, or interest is owed to the IRS.
Note:
Different interest rates may apply to underpayments and overpayments.
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The term simple interest refers to interest that is computed only on the principal amount owed. Simple interest accrued on overpayments or underpayments of tax and penalties before January 1, 1983.
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The term compound interest refers to interest that accrues on both the principal amount and on any interest charged on the principal (i.e., interest on interest).
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The IRS is required to compound interest daily, effective January 1, 1983.
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When it is necessary to manually compute compound interest, refer to the factor tables found in Section 15 of this IRM or use an approved interest computation tool.
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The term normal interest refers to interest that is computed without regard to any restrictions.
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On an underpayment, normal interest is computed from the date the liability is due and unpaid to the date paid.
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On an overpayment, normal interest is computed from the date of the overpayment to the date provided within IRC section 6611, depending on whether the amount is credited or refunded.
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Generally, it is not necessary to manually compute and adjust normal interest. It is computer generated based on debits and credits posted to the tax module.
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The term restricted interest refers to any interest that is computed from other than the normal interest start and stop dates.
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The rules that govern restricted interest are more complex than those for normal interest. The variables of time and rate differ.
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In many instances, Master File programming cannot accurately compute restricted interest. Because of this, you must manually compute and adjust interest when Master File restrictions prevent the correct generation of interest.
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The term annual netting refers to a method of computing interest which equalizes the difference between credit and debit interest rates within a single tax module during periods of mutual indebtedness (e.g., if the taxpayer received a refund with interest and it is later determined that a deficiency exists in that module for the same time period, the debit and credit interest are netted within that tax module). It is not necessary to manually compute and input annual netting if there is no other reason to manually compute and input interest.
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The term Net Rate Interest Netting refers to the method of computing interest which equalizes/eliminates the interest rate differential between overpayments and underpayments (for the same taxpayer between the same or different types of tax). The overlapping debit and credit interest are not usually within the same tax module. See Section 14 of this IRM for instructions on net rate interest netting.
Note:
Modules with net rate netting are alwaysrestricted from computation by computer programming.
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The debit interest rate is applied to the time period between when the tax, penalty and interest become due and when the tax, penalty, and interest are paid.
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The credit interest rate is applied to the time period from the credit availability date to the date the overpayment is either refunded (with applicable back off period) or offset.
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The interest rates are determined quarterly.
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Separate computations of interest are needed when the time period extends across quarters for which different interest rates apply. These computations are done by Master File or by approved interest computation tools.
| IRM REFERENCE LIST | |
|---|---|
| IRM | TITLE |
| Part 1 | Organization, Finance and Management |
| Part 2 | Information Systems |
| Part 3 | Submission Processing |
| Part 4 | Examining Process |
| Part 5 | Collecting Process |
| Part 6 | Human Resources Management |
| Part 7 | Rulings and Agreements |
| Part 8 | Appeals |
| Part 9 | Criminal Investigations |
| Part 11 | Communications and Disclosure |
| Part 13 | Taxpayer Advocacy |
| Part 20 | Penalties and Interest |
| Part 21 | Customer Accounts Service |
| Part 22 | Taxpayer Education and Assistance |
| Part 25` | Special Topics |
| Part 30–42 | Chief Counsel Directives Manual (CCDM) |
| DEFINITION OF TERMS |
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| ABATED INTEREST — The portion of the interest liability on a given module or account which has been reversed. |
| ACCRUED INTEREST — The unassessed portion of the total interest liability on a specified module or account at any given date. It is the difference between interest assessed and total interest due. |
| ADDITIONS TO THE TAX — Amounts imposed and added to the tax based on a specified percentage of the tax. These additions are commonly referred to as penalties. |
| ADVANCE PAYMENT — A payment made prior to assessment of a determined, pending, or proposed liability. |
| ALLOWABLE INTEREST — Interest (provided by law) which is allowed on an overpayment. Also known as overpayment interest or credit interest. |
| ANNUAL INTEREST NETTING — Method of computing interest which equalizes the rate difference between credit and debit interest within a single tax module during periods of mutual indebtedness. |
| ASED — Assessment Statute Expiration Date. The date established by law by which the Service must assess any tax due for a given tax period. |
| ASSESSED INTEREST — The portion of the interest liability on a given module or account which has been recorded to a given assessment date (23C date). |
| ASSESSMENT DATE (23C DATE) — The date that a taxpayer's liability for tax, penalty, and applicable interest is recorded. It is also the date that the notice for payment of that amount is issued to the taxpayer. |
| AVAILABILITY DATE OF CREDIT — The date an amount becomes available to credit against an outstanding IiabiIity or refund to the taxpayer. |
| CARRYBACK — The application of a net operating loss, net capital loss, and certain unused non-refundable tax credits to taxable years preceding the year in which the excess amount is generated. See Losing module and Gaining module. |
| CARRYBACK YEAR — The year to which a net operating loss, net capital loss, or other unused non-refundable tax credits is carried. |
| CARRYFORWARD — A carryover of unused net operating loss, net capital loss, or other unused non-refundable tax credits to years following the tax year in which the excess amount is generated. |
| CLAIM — A request by the taxpayer to reduce a liability owed, to receive an amount paid, or to request abatement. A claim may be formal or informal. |
| COMPOUND INTEREST — Interest computed on interest already assessed or accrued. Compound interest applies to interest accruing after December 31, 1982. |
| CREDIT INTEREST — Interest on an overpayment. Also known as overpayment interest or allowable interest. |
| CREDIT INTEREST RULES — The rules that define how allowable interest is computed on overpayments. |
| CSED — Collection Statute Expiration Date. The date established by law by which the Service must collect any amount due from a taxpayer for a given tax period. |
| CYCLE — One week's processing at a Service Center, Martinsburg, or Detroit Computing Center. There are 52 cycles in a year. |
| DEBIT INTEREST — Interest charged when the taxpayer owes a liability to the government. Also known as deficiency interest or underpayment interest. |
| DEBIT INTEREST RULES — The rules that define how debit interest is computed on underpayments. |
| DEFICIENCY — The amount by which the tax imposed by Subtitle A or B, or chapter 41, 42, 43, or 44 exceeds the excess of the sum of the amount shown as the tax on a return filed by the taxpayer, plus any amounts previously assessed (or collected without assessment) as a deficiency over the amount of rebates made. (See rebate) |
| DESIGNATED PAYMENT — A payment designated by the taxpayer to be applied to a particular tax, penalty, or interest liability. These payments are identified by TCs 640, 680, or 690. |
| DESIGNATED PAYMENT CODES (DPC) — A two digit code which identifies a payment designated by the taxpayer for a type of tax. See Document 6209, ADP and IDRS Information, for a listing of specific DPCs. |
| DIFFERENTIAL INTEREST RATES — The rate difference between the debit interest and credit interest rates. Differential interest rates began on January 1, 1987 and ended for individual taxpayers only on January 1, 2000. |
| DUE DATE — The date a liability is due. |
| EFFECTIVE DATE — Generally, the date a transaction (either debit or credit) posts to a taxpayer's module. The effective date for beginning a computation of debit or credit interest may be different than the posted transaction date. |
| ERRONEOUS REFUND — A refund to which a taxpayer is not entitled. |
EXTENDED RETURN DUE DATE — The date for which an extension of time to file a return has been granted. The extended return
due date affects the date interest begins on certain penalties.
Note:May also refer to a return due date extended by certain provisions such as combat zone participants or residents of a disaster area. |
| FREEZE — An instruction applied to a Master File account that restricts normal computer actions. |
| GAINING MODULE — The module to which a credit is applied (see losing module.). |
| INSTALLMENT PRIVILEGE — The right, as provided in the Internal Revenue Code (IRC), to pay a liability in installments. |
| INTEREST — The amount computed on an underpayment or overpayment of tax for the time the taxpayer has use of the government's money or for the time the government has use of the taxpayer's money. It is known as underpayment (debit) interest when the taxpayer owes the government and overpayment (credit) interest when the government owes the taxpayer. |
| INTEREST ABATEMENT — The reduction of all or part of previously assessed interest. |
| INTEREST DUE — Total interest due on a module, which includes assessed interest and accrued interest, less interest paid. |
| INTEREST FREE PERIODS ON OVERPAYMENTS — Periods on which credit interest is not allowed (paid). |
| INTEREST FREE PERIODS ON UNDERPAYMENTS — Periods on which debit interest is not computed (charged). |
| IRS COMPUTED FORM — A partially completed form submitted by the taxpayer, asking the IRS to figure the tax. |
| LIABILITY — The amount owed on a tax module or tax account. |
| LOSING MODULE — The module from which a credit originates that is moved to a liability module (see gaining module). |
| MANAGERIAL ACT — An administrative act that occurs during the processing of a taxpayer's case involving the temporary or permanent loss of records or the exercise of judgment or discretion relating to management of personnel. A decision concerning the proper application of federal tax law (or other federal or state law) is not a managerial act. Further, interest attributable to a general administrative decision, such as the IRS's decision on how to organize the processing of tax returns or its delay in implementing an improved computer system, cannot be abated. |
| MINISTERIAL ACT — A procedural or mechanical act that does not involve the exercise of judgement or discretion, and that occurs during the processing of a taxpayer's case after all prerequisites to the act, such as conferences and review by supervisors have taken place. A decision concerning the proper application of federal tax law (or other federal or state law) is not a ministerial act. |
| MODULE — All information contained on the Master File for a specific type of tax for one tax period for one taxpayer. A module is a portion of a Master File tax account. |
| NET RATE INTEREST NETTING — The interest computation method to equalize/eliminate the interest rate differential between overpayments and underpayments. (for the same taxpayer between the same or different types of tax). |
| NON MASTER FILE — A manual accounting system which processes documents, returns, or adjustments that are not posted to the Individual or Business Master File. |
| NORMAL INTEREST — Interest, debit or credit, which is not restricted. |
| NOTICE DATE — The date a notice (bill) for payment is issued to the taxpayer. |
| OFFER IN COMPROMISE (OIC) — An offer by the taxpayer to settle a tax liability or a penalty for an amount less than that previously assessed or proposed. |
| OFFSET — The transfer of an available credit from one type of tax or tax period to an outstanding liability of another type of tax or another tax period. |
| OUTSTANDING BALANCE — The unpaid amount of overpayment or underpayment existing in a module. On IDRS or Master File transcripts, a hyphen (-) following the figure indicates a credit balance while the figure standing alone will indicate a debit balance. |
| OUTSTANDING LIABILITY — Total amount of unpaid tax, penalties, and interest due. |
| OVERPAYMENT — Any payment in excess of the total liability including tax, penalties, and interest for a specific type of tax and taxable period. |
| PAYMENT DATE — The received date of a payment. |
| REBATE — The amount of an abatement, credit, refund or other payment made on the ground that the tax imposed by subtitle A or B, or chapter 41,42,43, or 44 was less than the excess of the amount shown as the tax on a return filed by the taxpayer plus amounts previously assessed (or collected without assessment) as a deficiency over the rebates previously made. (See deficiency) |
| RECOMPUTATION — The computation of interest after all transactions with money amounts are sorted in effective date sequence. |
| REFUND — An overpayment, plus any allowable interest, which is issued to the taxpayer. |
| RESTRICTED INTEREST — Interest computed from other than the normal start and stop dates. Interest may be restricted because it is prohibited or limited to specific time periods by law or when conditions exist in which the computer cannot accurately determine a correct computation. |
| RETURN DUE DATE (RDD) — The required date by law that a return must be filed (with regard to extensions). |
| RETURN RECEIVED DATE — The received date of a timely filed return (including extensions) or the date that a late filed return is received by the Service. |
| RSED — Refund Statute Expiration Date. The date established by law that a taxpayer must file a claim for credit or refund for a given tax period. |
| RUNNING MODULE BALANCE — The balance of tax, penalty and interest, occurring as money amounts are sorted in effective date sequence. |
| SCHEDULE DATE — The date on which an overpayment is certified for refund. |
| SIMPLE INTEREST — Interest computed on a principal amount only. (The Service computed simple interest before January 1, 1983). |
| SUBSEQUENT PAYMENT — A payment (TC 670) made after a return is filed or in response to a subsequent liability. |
| SUBSTITUTE FOR RETURN (SFR) — A return prepared by the Service under the authority of IRC section 6020 (b), using information from third party sources because the taxpayer did not file a return. |
| TAXPAYER DELINQUENT ACCOUNT (TDA) — A computer generated print out or manually issued Form 4907 stating that a taxpayer's balance due account or module has reached delinquent status. |
| WAIVER — A document (usually a form 870) signed by a taxpayer in which the taxpayer certifies proposed overassessments as correct or consents to the assessment and collection of proposed deficiencies. |
| WAIVER DATE — The date a waiver is effective. This is also referred to as the "870 date" or "agreement date" . |