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Part 20. Penalty and Interest

Chapter 2. Interest

Section 7. Abatement and Suspension of Interest: IRC 6404 and 7508

20.2.7  Abatement and Suspension of Interest: IRC 6404 and 7508

20.2.7.1  (08-01-2006)
Interest Abatement and Suspension Overview

  1. This chapter includes procedures for abatement or suspension of interest if that interest is:

    • erroneously or illegally assessed [IRC section 6404(a)]

    • attributable to certain errors or delays by the IRS [IRC section 6404(e)(1)]

    • on an erroneous refund [IRC section 6404(e)(2)]

    • due on a deficiency that was not identified by the IRS in a timely manner [IRC section 6404(g)]

    • due on an account for a taxpayer in a combat zone [IRC section 7508]

    • due on an account for a taxpayer located in a declared disaster area [IRC section 7508A]

    Caution:

    Reasonable cause is never a basis for abating interest.

  2. Generally, the term claim relates to items that have been fully paid, and request for abatement refers to unpaid, assessed and/or accrued amounts.

  3. Interest abatement claims should be filed with the campus where the original return was filed or, if unknown, the campus where the taxpayer last filed. The campus would obtain the administrative file and determine what function is at the source of the alleged error or delay and route the file to the Interest Abatement Coordinator (IAC).

  4. If an interest abatement claim is received during the examination, contact the Examination IAC for local procedures to follow.

  5. Although in many instances the taxpayers are instructed to file requests for abatement of interest on Form 843, all written requests should be considered. If necessary information is missing, the claim may be returned informing the taxpayer that additional information must be submitted before a determination can be made.

  6. Contact the IAC regarding any interest abatement requests that are not addressed in this IRM. A list of Interest Abatement Coordinators and their contact information can be found on the Office of Penalties & Interest website http://sbse.web.irs.gov/opi.

20.2.7.2  (08-01-2006)
Interest Abatement Coordinators (IAC)

  1. Interest Abatement Coordinators work claims for abatement of interest as follows:

    1. Maintain manual inventory controls if these claims cannot be controlled on functional control systems such as AIMS/ERCS, ICS or IDRS.

    2. Review claims and make preliminary determinations.

    3. Request necessary documentation including current TXMOD or Master File transcripts.

    4. Claims relating to IRC section 6404(e)(1), coordinate with the area that allegedly caused the error or delay (Generally, the functional area responsible for the alleged error or delay should make the abatement determination. Claims should be worked in the office where the alleged delay or error occurred.)

    5. Determine the dollar amount to be abated, or "from" and "to" dates applicable to the abatement period.

    6. Forward proposed determinations for approval following locally established guidelines.

    7. Advise the taxpayer of the claim determination and reasons for it.

    8. Insure that proper abatement action is completed.

    9. Provide status updates on all requests.

  2. lACs are delegated the authority to issue claim determinations, under IRC section 6404(e)(1) for full disallowance when the claim is immediately disallowed by statute. For example:

    a claim for abatement of interest on an employment tax liability or a claim that pertains to 1978 or prior. See IRM 20.2.7.4.2.

    .

20.2.7.2.1  (07-31-2001)
National Office - Interest Abatement Coordinator

  1. The National Office IAC will:

    1. provide policy and procedures for interest abatement claims.

    2. monitor procedural effectiveness and make recommendations or changes as warranted.

20.2.7.3  (07-31-2001)
Not Legally Due, IRC 6404 (a)

  1. The provisions of IRC section 6404(a) authorize the Secretary to abate the unpaid portion of any tax or any liability in respect thereof (interest);

    • that is excessive in amount, or

    • assessed after the statutory period of limitations has expired, or

    • that is erroneously or illegally assessed.

20.2.7.4  (08-01-2006)
Errors or Delays in Performance of a Ministerial or Managerial Act, IRC 6404(e)(1)

  1. Ministerial act and managerial act are defined as follows:

    1. A "ministerial act" is a procedural or mechanical act that does not involve the exercise of judgment or discretion and occurs during the processing of a taxpayer's case after all prerequisites to the act, such as conferences and reviews by supervisors, have taken place. A decision concerning the proper application of federal tax law is not a ministerial act.

    2. A "managerial act" is 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. Interest attributable to a general administrative decision, such as the IRS's decision on how to organize the processing of tax returns cannot be abated. Further, a decision concerning the proper application of federal tax law is not a managerial act. See Treas. Regulation Section 301.6404-2.

    Note:

    The Service has the authority to abate only the amount of interest that accrued during the period attributable to an unreasonable error or delay in performing a ministerial or managerial act. IRC section 6404(e)(1) applies only to an error or delay that occurs after the date the Service contacts the taxpayer in writing with respect to the deficiency or payment. Accordingly, there is no abatement of interest applicable under this provision from the return due date to the date the Service first contacts the taxpayer in writing.

  2. See LEM 20.2.

  3. If it is determined that the Service will abate interest due to an error or delay, interest on the tax and on any penalties or additions to the tax should be abated.

  4. TEFRA/Partnerships - IRC section 6404(e)(1) applies to partnership/TEFRA examinations:

    1. If a request for abatement alleges an error or delay during the examination of the partnership return, the criteria above will be applied and the determination may be applicable to every partner.

    2. If a request for abatement alleges an error or delay after the close of the partnership examination, the criteria will be applied to each partner's claim individually and any allowable abatement will be determined on a case by case basis.

  5. Error or delay identified by the Service or taxpayer during an examination and before interest has been assessed, when there is sufficient time remaining on the statutory period for assessment and the criteria for interest abatement under IRC section 6404(e)(1) are present:

    1. Contact the field Examination IAC;

    2. Secure a completed Form 843 or an equivalent informal statement (see IRM 20.2.7.1);

    3. Record the action in the workpapers; and

    4. When the case is ready for assessment, forward the case to the IAC with an explanation attached and include special handling instructions on the Form 3198.

  6. When there is not sufficient time on the statutory period for assessment, the examiner should secure a statute extension or notify the taxpayer to file a claim once the liability is assessed. Work the interest abatement issues only after the liability has been protected (i.e., assessed or ASED extended/suspended).

  7. When the taxpayer raises the issue of an error or delay while the taxpayer's account is under a collection employee's control:

    1. Contact the Collection IAC;

    2. Secure a completed Form 843 or an equivalent informal statement;

    3. Record the action in your workpapers; and

    4. Forward the claim and administrative file to the Collection IAC.

  8. When the taxpayer raises the issue of an error or delay while in Appeals, follow guidelines in IRM 8.5.1.8.

  9. All IRS employees are responsible for identifying significant errors or delays associated with the ministerial and managerial acts that occur during work in progress, and for forwarding relevant information to the Area or Campus IAC. Collection employees (Area and Campus) are responsible for making recommendations to the IAC with regard to suspending collection action if a taxpayer's account is under a collection employee's control.

20.2.7.4.1  (08-01-2006)
Ministerial Act or Managerial Act - Delegation of Authority

  1. The authority to abate interest under IRC section 6404(e)(1) can be further explained by the following chart:

    If the Tax Year Then the error or delay
    Begins on/before July 30, 1996 Must be due to a ministerial act
    Begins after July 30, 1996 Must be due to a ministerial act Or managerial act and must be "unreasonable "

  2. For interest abatement claims citing ministerial or managerial act, IRC section 6404(e)(1), Delegation Order 228 (rev. 3), IRM 1.2.51, lists the individuals delegated the authority to abate interest. .

20.2.7.4.2  (08-01-2006)
IRC Section 6404(e)(1) Criteria

  1. Criteria for errors or delays under IRC section 6404(e)(1) are as follows:

    1. If the statutory period of limitations on filing a claim per IRC section 6511 has not expired, and

    2. The claim or request is for tax years beginning after December 31, 1978, and

    3. The claim or request relates to interest on taxes described in IRC section 6212 (a), i.e., income, estate, gift, certain excise taxes [Employment taxes are specifically excluded.], and

    4. An unreasonable error or delay occurred in relation to the performance of a ministerial or managerial act [See definitions and chart for effective date above], and

    5. The error or delay occurred after the taxpayer was contacted in writing with respect to the examination, deficiency, or payment, and

    6. No significant aspect of the error or delay can be attributed to the taxpayer/representative.

20.2.7.4.3  (07-31-2001)
Procedures for Processing

  1. For interest abatement determinations related to IRC section 6404(e)(1) claims, close with one of the following three instructions using established area procedures:

    If the claims is Then
    Disallowed in Full Input TC 290 for zero, Reason Code 80 and send disallowance letter
    Partially Disallowed Input TC 290 for zero, TC 341 for amount of interest abatement, Reason Code 81 and send partial disallowance letter.
    Fully Allowed Input TC 290 for zero, TC 341 for Amount of interest abatement, Reason Code 82 and notify taxpayer.

    Note:

    If the account is in balance due status, it may be necessary to also input a TC 340 for interest accruals. Separate adjustments should be done for the abatement and the accruals.

20.2.7.5  (08-01-2006)
Erroneous Refunds IRC Section 6404(e)(2)

  1. Generally, interest is assessed on an erroneous refund recoverable by suit from the refund date to the day of repayment (IRC sections 6532(b), 6602, and 7405). If the erroneous refund is less than $50,000, the IRS must abate the interest accrued from the refund date to the date of the demand for repayment, unless the taxpayer (or a related party) in any way caused the erroneous refund.

  2. If the refund is greater than $50,000, interest abatement is not required, but may be allowed on a case by case basis. The IRS has the discretionary authority to abate interest on erroneous refunds that exceed $50,000.

    IRS should consider the following facts and circumstances when determining whether or not to abate interest due to erroneous refund:

    • Did the taxpayer cause or contribute to the error or delay?

    • Did the taxpayer fail to return the erroneous refund for a significant period of time after discovery of the error or after the taxpayer reasonably should have discovered the error?

    • Did the taxpayer return the erroneous refund before the IRS notified the taxpayer of the error? or

    • Is the taxpayer sophisticated in tax or business matters?

  3. Abatement of the post-demand interest (charged from the date of demand for repayment to repayment date) is not allowed.

  4. See LEM 20.2.

  5. TC 844 was expanded as of January 1, 1990 to include the date of demand for repayment (Form 4720, Notice to Taxpayer of Incorrect Refund Check, or Letter 510 C, Refund in Error— Return Check) and the portion of the refund that is erroneous.

  6. TC 844 must carry the same date as the erroneous refund. For additional information on erroneous refund case procedures, see IRM 21.4.5, Erroneous Refunds, and IRM 3.17.79, Accounting Refund Transactions.

    Caution:

    Do not input TC 340/341 in these cases.

20.2.7.5.1  (08-01-2006)
6404(e)(2) Delegation of Authority

  1. For interest abatement claims citing IRC section 6404(e)(2), see Delegation Order 231, in IRM 1.2.47.

20.2.7.6  (08-01-2006)
Section 6404(g) Interest Suspension - Background

  1. IRC section 6404(g) suspends interest if the IRS fails to provide taxpayer with a timely and adequate notice of liability and the basis for the liability. IRC section 6404(g)(1)(A) applies only to timely filed individual income tax returns for taxable years ending after July 22, 1998.

  2. Revenue Ruling 2005-4; 2005-4 IRB 1 extends the scope of IRC section 6404(g) to include additional liability reported on amended returns and also on correspondence submitted by the taxpayer (liability increases other than Automated Under Reporter and TC 30X audit adjustments).

  3. The interest suspension applies to an increase in liability for FICA tax, excise tax, or household employee taxes on a Schedule H, reportable in a Form 1040. The provision also applies to an individual's liability, which is a result of an adjustment from a flow-through entity, TEFRA, or disallowed carryback.

  4. Section 903 of the American Jobs Creation Act of 2004 amended IRC section 6404(g) by limiting the interest suspension period for taxpayers participating in a tax shelter. For listed transactions (i.e. Son of Boss, IRS Announcement 2004-46, etc.) and certain reportable transactions, interest suspension period does not continue after October 3, 2004. The continuation of interest accruals after October 3, 2004, requires manual computation and restriction of interest.

20.2.7.6.1  (08-01-2006)
Exclusion from Section 6404(g) Interest Suspension

  1. Interest suspension under IRC section 6404(g) specifically excludes:

    1. suspension of any penalty imposed under section 6651;

      Note:

      Although interest on a reported, but unpaid liability can be suspended under IRC Section 6404(g), the failure to pay penalty imposed on that liability and interest accruing on that penalty will continue to be charged and are not subject to suspension.

    2. any interest, penalty, addition to tax, or additional amount in a case involving fraud;

    3. any interest, penalty, addition to tax, or additional amount with respect to any tax liability shown on the original return;

    4. any interest, penalty, addition to tax, or additional amount with respect to any gross misstatement (applicable to taxable years beginning after December 31, 2003);

    5. any interest, penalty, addition to tax, or additional amount with respect to any reportable transaction to which the requirement of IRC section 6664(d)(2)(A) is not met and any listed transaction as defined in IRC section 6707A(c);

      Note:

      Exclusion of reportable or listed transactions from 6404(g) interest suspension shall apply with respect to interest accruing after October 3, 2004;

    6. any criminal penalty.

20.2.7.6.2  (08-01-2006)
18-Month Period (Notification Period)

  1. The 18-month period is the length of time the Service has to notify a taxpayer of additional liability and provide a basis for the liability. The 18-month period starts on the later of the following:

    • the due date of the return, if filed on or before the return due date, or

    • the filing date of the return, if filed timely under a valid extension

    Note:

    For consistency purposes throughout the Service, we will use the date shown on the transcript (CC TXMODA or IMFOLT) field RET-RCVD-DTor RECEIVED-DATE as the start of our 18-month period.

  2. For IRC section 6404(g) purposes, the 18-month period is calculated by adding 18 months to the "Start" date and subtracting one day.

  3. If the close of the 18-month period falls on a Saturday, Sunday or legal Holiday, the next business day becomes the "End Date" of the 18-month period. For example:

    A 199812 original tax return filed on or before the return due date. The 18-month period " Starts" on the return due date April 15, 1999and "Ends" on Monday, October 16, 2000. For this example, the close of the 18-month period is Saturday, October 14, 2000; therefore, the next business day, Monday is the 18-month period End Date.


    A 200012 original tax return filed on or before the return due date. The 18-month period "Starts" on the return due date, April 15, 2001and "Ends " on Tuesday, October 15, 2002. For this example, the close of the 18-month period is Monday, October 14, 2002, a legal Holiday; therefore the next business day is the 18-month period End Date.


    A 200212 original tax return received by the Service on June 19, 2003, with a valid extension of time to file by August 15, 2003. The 18-month period "Starts" on June 19, 2003, the return received date and "Ends" on Monday, December 20, 2004. For this example, the close of the 18-month period is Saturday, December 18, 2004; therefore the next business day is the 18-month period End Date.


    Note:

    Interest accrues during the 18-month period for 6404(g) purposes.

20.2.7.6.3  (08-01-2006)
Interest Suspension Period

  1. The "Interest Suspension Period" is the length of time the Service must suspend interest for untimely notification of the taxpayer.

  2. Interest suspension starts the next day after the 18-month period end date. Interest is suspended on tax, penalties (except as described in IRM 20.2.7.6.1) and additions to tax reflected on notice or amended return.

  3. Interest suspension ends 21 calendar days after the notice issue date or received date of the amended return/correspondence. Interest resumes the next day or the 22nd day from the notice date or amended received date. Examples of interest suspension period:

    A 199812 tax return filed on April 15, 1999. Examination Report, Form 4549 with 886-A, was issued to taxpayer on September 6, 2001. Interest suspension starts on October 17, 2000, and ends September 27, 2001. Interest resumes September 28, 2001.

    A 200012 tax return filed on April 15, 2001. Form 1040X with additional liability received March 1, 2004. Interest suspension starts on October 16, 2002, and ends March 22, 2004. Interest resumes March 23, 2004.

    A 200212 tax return received June 19, 2003 with a valid extension of time to file by August 15, 2003. On December 2, 2005, the Service sent the taxpayer an Examination Report, Form 4549 with 886-A. Interest suspension starts on December 21, 2004, and ends December 23, 2005. Interest resumes December 24, 2005.

20.2.7.6.4  (08-01-2006)
Section 6404(g) Notice

  1. A notice should be written and contain adequate information regarding the adjustment to enable the taxpayer to challenge the adjustment.

  2. The notice requirement applies separately to each item or adjustment. An adequate notice provided within the prescribed time period (18 months) prevents the suspension of interest only on those items or adjustments described in that notice.

  3. In general, math error notices, Underreporter Program notices, an Examination Changes Report with explanation of adjustments, Summary Report with Forms 4605-A, 886-A and 886-S (TEFRA cases, IRM 4.31.2.2.9.3), amended returns or a signed taxpayer correspondence is adequate notice.

  4. For Examination, explanation of each item of adjustment by using one of the following methods provides adequate notice:

    • Using the standard paragraphs in IRM 4.2.8 (the standard paragraphs are accessible in RGS)

    • Using an attached Form 886-A, Explanation of Adjustments, which references each adjustment and gives the reason(s) for each adjustment, or

    • Attaching copies of examination workpapers that reference each adjustment and explains each item of adjustment and the basis for the adjustment.

  5. For Automated Under Reporter (AUR) the CP-2000 is adequate notice.

20.2.7.6.5  (08-01-2006)
Multiple Section 6404(g) Notices

  1. An Examiner may issue more than one report for a tax return during the course of an examination. If a subsequent report does notcontain new items or adjustments, there is one Section 6404(g) notice date. For example:

    A 199812 tax return filed on April 15, 1999. Examiner issued Form 4549 on December 1, 2000, with liability of $4,000 due to disallowed charitable contributions deductions. Taxpayer provided proof for part of deductions. Examiner revised and issued report with liability of $2,500 on February 6, 2001.

  2. If a subsequent report contains new items or adjustments, there are separate Section 6404(g) notice dates. For example:

    A 199812 tax return filed on April 15, 1999. AUR generated a CP 2000 notice on December 1, 2000, due to omission of interest income resulting in tax liability of $4,000. Audit transferred to field office. Examination Changes Report; Form 4549, was issued on May 31, 2001, with a tax liability of $6,000, resulting from omission of income plus $6,000 disallowance of charitable contributions.

  3. An examination report and an amended return issued/received for the same tax return qualify as separate notices for 6404(g) purposes. For example:

    A 199912 tax return, filed on April 15, 2000. The Service received a Form 1040X on May 3, 2002, with liability of $998, due to unreported income. An examination report was issued on January 10, 2003, with a liability of $6,908 and accuracy penalty of $1,382 due to unreported income and Schedule A adjustments.

    Both notices were issued after the " 18-month period or notification period" therefore, the liability and basis on both notices are subject to section 6404(g) interest suspension.Interest resumes on different dates depending on the liability and basis shown on each notice.

20.2.7.6.6  (08-01-2006)
Section 6404(g) Interest Computation

  1. Interest is computed systemically if there is only one Section 6404(g) notice date and the module is not restricted. If the account is not restricted, IDRS/Master File would compute interest as follows (illustration purposes only):

    A 199812 tax return, filed on April 15, 1999. Notice with liability of $4,000.00 due to disallowed charitable contributions deductions was issued on December 1, 2000.

    • Interest is computed on $4,000.00 from 04-15-1999 to 10-16-2000 is $536.21. Note:The close of the 18-month period, 10-14-2000 was a Saturday, therefore, the next business day is the 18-month end date, 10-16-2000.

    • Suspend interest on $4,536.21 (tax and interest up to 10/16/2000) from 10-17-2000 (day after the 18-month end date) to 12-22-2000 (21 calendar days after the 6404(g) notice date).

    • Resume interest on $4,536.21 from 12-23-2000 to one of the stop dates (waiver plus 30 days, 23C assessment date or payment date, whichever is the earliest).

  2. Interest must be restricted if there are multiple 6404(g) notice dates.

    A 199812 tax return, filed on April 15, 1999. AUR generated a CP 2000 on December 1, 2000, due to omission of interest income resulting in tax liability of $4,000.00. Case transferred to field office.

    An examination report, which included omission of interest income plus disallowed contributions, was issued on May 31, 2001, with tax liability of $6,000.00. Taxpayer paid in full on July 27, 2001.

    Note:To illustrate the interest routine that occurs when there are multiple 6404(g) notices, we will separate the liability according to their notice dates.

    Interest on liability & basis on the first 6404(g) notice (CP 2000) is as follows:

    • 04-15-1999 to 10-16-2000 on $4,000.00 = $536.21.

    • 10-17-2000 to 12-22-2000 on $4,536.21 = .00 (Suspend interest)

    • 12-23-2000 to 07-27-2001 on $4,536.21 = $230.30 (Resume interest)

    Interest on liability & basis on the second 6404(g) notice (examination report) is as follows:

    • 04-15-1999 to 10-16-2000 on $2,000.00 = $268.10

    • 10-17-2000 to 06-21-2001 on $2,268.10 = .00 (suspend interest)

    • 06-22-2001 to 07-27-2001 on $2,268.10 = $ 16.28

    Total tax liability is $6,000.00 with interest (TC 340) of $1,050.89

  3. Revenue Ruling 2005-4 (effective 01-07-2005) expanded section 6404(g) interest suspension relief to include liabilities reported on amended returns filed for tax years 199812 and subsequent. A 6404(g) Recovery Project(identified with TC 971, AC 199) was conducted to correct underpayment interest charged on amended return adjustments (not AUR or Exam) that posted to Master File on or before January 7, 2005. Due to the volume of cases identified in the ‘extract’, an interest program was developed to systemically compute the correct amount of interest due. Systemic computation of interest on the 6404(g) Recovery Project follows the above computations with one exception:

    • The Interest Suspension Period ended 21 calendar days after the 23C date of the amended return adjustment (23C date of TC290). For example: Taxpayer Z has a TC 290 posting on 12–30–2004 (23C date), would have an interest suspension end date of 01–20–2005.

      The difference between the posted interest and the systemically computed interest was abated or assessed via CCs REQ54/ADJ54 by employees in the Andover and Memphis campuses. Although these interest adjustments post with Doc Code 54, they are to be treated as systemic action. See LEM 20.2

      Note:

      Interest will be calculated as such for all modules identified with TC971, AC 199, during that period/time.

  4. Interest suspension on reportable or listed transaction cases end on 10-03-2004, as amended by Section 903 of the American Jobs Creation Act of 2004. Interest on reportable or listed transaction cases resumed on 10-04-2004. Examiners must correctly flag these cases before sending them to Centralized Case Processing to close.

20.2.7.6.7  (08-01-2006)
Recording Section 6404(g) Notice Date

  1. Examiners must note on Form 3198 (or equivalent), whether or not section 6404(g) applies. Examiners will record the section 6404(g) notice of delivery date and liability amount as follows:

    • (1) On Form 4549 in the "other information" section using RGS, and

    • (2) The Form 3198

  2. Examining officers must note on Form 3198 (or equivalent), whether or not section 6404(g) applies.

    If notice was Then the IRC section 6404(g) notice date is
    Hand-carried to taxpayer/representative Date given to the taxpayer/representative
    Sent by regular mail to last known address Date of mailing
    Sent Certified United States Postal Service (USPS) Date of USPS stamp
    An Amended Return filed Date amended return received in IRS office/campus.

  3. Under examination and AUR situations, the date "adequate notice" is provided is the section "6404(g) notice date. " The received date of an amended return received later than 18 months from the original return due date or file date is also deemed the " 6404(g) notice date."

  4. For additional information on recordation of section 6404(g), see IRM 4.10.8.12.

20.2.7.6.8  (08-01-2006)
Input of section 6404(g) Notice Date on Master File

  1. Section 6404(g) notice dates must be entered on Master File if notification is not made within the 18-month period . Case Processing function will be responsible for the input of the section 6404(g) notice date as provided to them by the examining officer on Form 3198 and/or Examination Changes Report.

  2. Transaction Code (TC) 971 with Action Code 064 will be input to record the untimely notification date on Master File. The 6404(g) notice date is entered in the TRANS-DT field of CC FRM77. Effective January 1, 2004, the liability amount applicable to the 6404(g) notice is entered in the FREEZE-RELEASE-AMT field of CC FRM77. Transaction Code 972 with Action Code 64 reverses the transaction.

  3. After input of the TC 971, Master File uses the notice date to determine if taxpayer notification occurred within the 18-month period. If notification occurred after the 18-month period, Master File suspends interest

    FROM: The day after the end of the 18-month period
    TO: 21 calendar days after the notice date, or
      21 calendar days after the received date of amended return/taxpayer correspondence with liability.

  4. Effective January 1, 2005, for amended returns to provide for systemic calculation of interest when the suspension applies and there are no prior TC 290 blocked 500-519, 550-589, 600-619, 650-679, or TC 30X posted to the module, follow existing procedures for processing the amended return and enter:

    • the received date of the amended return in the AMD-CLMS-DT field of CC ADJ54

    • the received date of the amended return TRANS-DT field of CC FRM77, for TC 971, AC 064. Master File program will calculate interest factoring in the applicable suspension period when the Amended Claims Date and TC971, AC064, notice date are the same.

20.2.7.7  (08-01-2006)
Combat Zone - Section 7508

  1. This section provides guidance for identifying and resolving cases for taxpayers who are or have served in the following:

    1. In an area designated as a combat zone,

    2. In a contingency operation designated by the Department of Defense,

    3. In a qualified hazardous duty area as defined by Congress, or

    4. In direct support of military operations in a combat zone certified by the Department of Defense (DOD certified).

      Note:

      Descriptions of a combat zone or other military service areas are provided in IRM 25.6.16.1, Combat Zone Overview.

  2. Combat Zone accounts are identified as follows:

    • The literal COMBAT ZONE appears in the entity portion of CCs ENMOD, IMFOL, SUMRY, TXMOD, TDINQ, MRS and real time transcripts. The literal remains on the transcript even after the MF freeze code is released.

    • A Master File Freeze Code -C is set by TC 150 with Computer Condition Codes K and Z. It was also set by a Return Processing Code R used only for the Bosnia conflict.

    • TC 500 with any of these closing codes (Closing Codes 52/53, 54/55, 56/57).

    • In cycles 200348 and 200349 the systemic download of combat zone information from Department of Defense started. These transactions have a unique DLN of "28277-999-99999-3" which is shown on CCs ENMOD or IMFOLE.

  3. IRM 25.6.16.8 provides a list of combat zones, qualified hazardous duty areas, and DOD certified areas; the most current list of such areas should be on the IRS web page (www.irs.gov) for Individuals under " Tax Information for Members of the U.S. Armed Forces."

20.2.7.7.1  (08-19-2004)
Time Disregarded by Reason of Combat Zone Service

  1. Combat Zone suspense period begins with the TC 500 cc 52/54/56 (entry) transaction date and ends with the TC 500 cc 53/55/57 (exit) transaction date, plus 180 days. The amount of any liability, penalty and underpayment interest that accrued before the date of entry are not affected by the suspension, although those amounts cannot be collected until the suspension period ends. For example:

    A 200412 individual return filed on 04–15–2005 with a balance due of $500. Taxpayer entered a combat zone on 07–27–2005. The liability of $500 plus applicable penalty and underpayment interest up to 07–26–2005 cannot be collected until the suspension period ends.

    If Then
    Entry and Exit dates are LATER than the return due date of the tax year being worked Suspend penalties and underpayment interest from the Entry date to the Exit date PLUS180 days to resume P & I computations.
    Special consideration is needed when the act for which time is disregarded involves a period for acting such as the filing season for an income tax return.
    Taxpayer in CZ the ENTIRE filing period (January 1 - April 15) of the tax year being worked.     		Suspend penalties and underpayment interest from the Entry date to the Exit date plus 180 days PLUSan additional 105 days (106 leap year) to resume P & I computations.
    Taxpayer ENTERS the CZ AT ANY TIME during the filing period (January 1 - April 15) of the tax year being worked. Suspend penalties and interest from the Entry date to the Exit date plus 180 days PLUS the number of days REMAINING in the filing period.Example:200212 tax year, Entry date 04–01–2003 and Exit date 08–31–2003. There are 15 days remaining of filing period. Suspend penalties and interest from Entry date to the Exit date PLUS 180 days Plus 15 days to resume P & I computations.

    Note:

    If taxpayer is hospitalized due to an injury sustained while in CZ, the time spent in the hospital is also included in the suspension period above.

  2. Underpayments:

    • Do not charge interest on any debit during these periods.

    • Abate any assessed interest for this period.

  3. Overpayments:

    • Allow interest from the due date of the return, without regard to the late return rule (IRC section 6611(b)(3) ), or the 45 day rule (IRC section 6611(e) ), for individuals who file timely, taking into account Sec. 7508 extension provisions.

    • Do not enter the Amended Claims Date on ADJ54 when the Combat Zone Indicator is present.

20.2.7.7.2  (07-31-2001)
Prisoners of War (POW) and Persons Missing in Action (MIA)

  1. Sec. 7508(d) provides that the period of servi