20.2.4  Overpayment Interest

20.2.4.1  (09-03-2010)
Overpayment Interest Overview

  1. IRC 6611(a) provides that interest shall be allowed and paid on any overpayment of tax at the overpayment rate established under IRC 6621.

  2. The allowance of interest is authorized only on overpayments. There is no overpayment until the entire tax liability (including any interest, addition to the tax, or additional amount) is satisfied.

  3. Credit interest is generally allowed if an overpayment is:

    1. Offset against a liability — IRC 6611(b)(1). See IRM 20.2.4.6.1, Interest on Offsets, or

    2. Refunded to the taxpayer — IRC 6611(b)(2). See IRM 20.2.4.9, Special Credit Interest Rules for Corporations.

20.2.4.2  (09-03-2010)
Definition of Overpayment

  1. An overpayment includes any amount that is:

    1. Erroneously assessed and collected;

    2. Assessed and collected after the applicable period of limitation has expired;

    3. A refundable credit that exceeds the tax liability against which the credit is allowed;

    4. Tax withheld at the source that exceeds the tax liability against which the withheld tax is allowed as a credit;

    5. Paid in response to a proposed examination assessment that is later determined to be in excess of the liability for tax, penalty and interest due for the year in which submitted (see Rev. Proc. 84-58 and Rev. Proc. 2005-18);

      Example:

      A taxpayer fully pays a deficiency including tax, penalties, and interest. It is later determined by Appeals that part of the tax, all of the penalties, and part of the interest should be abated. In this situation, the abatements result in an overpayment.

    6. An excess payment of tax, penalty, addition to tax, or interest;

    7. An amount paid after a 90-Day letter was mailed that is in excess of the finally determined deficiency.

      Note:

      If the taxpayer files a petition to Tax Court, the court must determine (as a part of its decision) that there is an overpayment and that such portion was paid after the notice of deficiency was mailed.

20.2.4.3  (09-03-2010)
Availability Dates for Overpayments

  1. Prepayment credits (payments made before the due date of the return) are deemed paid as of the due date of the return (determined without regard to any extension of time to file) whether the return is timely or late filed.

    • Prepayment credits are available for refund or offset as of the return due date (determined without regard to any extension of time to file such return).

      Exception:

      An overpayment of prepayment credits shown on a return filed before its unextended return due date may be refunded and/or offset by the Service prior to the unextended return due date. When such an offset occurs, it will carry the 23C Date of the posted TC 150 of the tax module from which the offset originated. The offset is available to reduce the debit balance on the receiving module as of the same 23C Date.

    • Interest allowed on overpayments based on prepayment credits can accrue interest no earlier than the due date of the return (determined without regard to any extension of time to file such return). — IRC 6611(d) and IRC 6513(b).

    • For late filed returns, interest is allowed from the received date of the return. — IRC 6611(b)(3). Also see IRM 20.2.4.4, Availability Dates for Unprocessible Returns.

      Exception:

      Interest is allowed on excess prepayment credits on delinquent returns filed on or before October 3, 1982, from the due date of the return for both refunds and offsets.

    Example:

    On August 16, 2008, a taxpayer late files, and the Service subsequently processes, Form 1040, U.S. Individual Income Tax Return, for tax period ending December 31, 2006, which results in an overpayment that is comprised entirely of prepayment credits. The overpayment is then offset to a balance due on the taxpayer's Form 1040 module for the period ending December 31, 2008, which has a liability date of April 15, 2009. Although the prepayment credit from the 2006 tax module is available for offset as of the unextended return due date (April 15, 2007), credit interest on the offset will not begin to accrue until the date the 2006 return was filed (August 16, 2008). The offset is applied to the 2008 tax module with the credit availability date of April 15, 2009. Credit interest on the offset is computed from August 16, 2008 to April 15, 2009.

  2. Payments made on or after the return due date (determined without regard to any extension of time to file) are available for refund or offset as of the received date of the payment. Interest on payments made on or after the return due date is allowed from the received date of the payment, delinquent return received date or return processible date, whichever is later.

    If the return is And Then
    timely filed, determined with regard to extensions, the payment is made on or after the return due date, determined without regard to extensions compute interest from the payment received date
    late filed, determined with regard to extensions, the payment is made on or after the return due date, determined without regard to extensions compute interest from the later of the payment received date, delinquent return received date or return processible date.

  3. If a return is postmarked (U.S. or designated Private Delivery Service) on or before the due date, the return is considered timely filed (IRC 7502(a)). Pursuant to Treas. Reg. 301.7502-1(d), a document filed with an authorized electronic return transmitter is deemed to be filed on the date of the electronic postmark given by the electronic return transmitter. See IRM 25.6.1.6.15, When a Document is Treated As Filed Under the IRC, for additional information. Pursuant to Rev. Rul. 2002-23, a document officially postmarked in a foreign country may be accepted if postmarked on or before the last day for filing.

  4. A return filed by an extended due date is timely filed.

    Caution:

    This extension does not apply to payments. If a payment is received within the extended due date, but after the normal return due date, the payment is delinquent.

  5. A Substitute For Return (SFR) [IRC 6020(b)] is a return prepared by the Service. No credit interest is allowed until a delinquent return or signed waiver is received by the Service. Then, the overpayment availability date is the later of:

    1. The payment received date, or

    2. The delinquent return received date, or

    3. The date the taxpayer signed an agreement to make the assessment.

      Note:

      If the taxpayer does not provide a return or signed waiver, input TC 770 .00 to prevent credit interest from being paid.

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20.2.4.4  (09-03-2010)
Availability Dates for Unprocessible Returns

  1. IRC 6611(g) prohibits the payment of interest until a return is in processible form (IRC 6611(g)).

  2. A return is in processible form if it:

    • Is filed on a permitted form;

    • Contains the taxpayer's name, address, and identifying number;

    • Has the required signature(s); and

    • Contains sufficient information (whether on the return or on required attachments) to permit the mathematical verification of the tax liability shown on the return.

  3. When an unprocessible, original tax return is received, Document Perfection (Code and Edit or Entity Function) or Input Correction corresponds with the taxpayer and/or representative for the missing information.

    1. If the requested information is received after the return due date (RDD), the return is processed with a Return Processible Date (RPD) reflecting the date the information was received. This date is also known as the Correspondence Received Date (CRD).

    2. If no reply is received or the reply is incomplete, the return is "U" coded to restrict credit interest (IMF), or coded with 9s in the RPD field (IMF and BMF).

    Note:

    Unprocessible returns are identified on TXMOD by a display of all 9s in the CRD field.

  4. Original tax returns that are unprocessible have the following availability (FROM) date for computing credit interest on overpayments.

    If the requested information results in Then
    A processible return Credit interest is allowed FROM the Return Processible Date
    A non-processible return Credit interest is not allowed

  5. Besides changing the date an original tax return is considered to be received, and thus the date interest will begin to accrue on any overpayment on the tax module, IRC 6611(g) is also considered when determining if the 45-day interest-free period has been met for an original tax return or an amended tax return or claim. See IRM 20.2.4.7.5, 45-Day Rule, and its related subsections, for additional information.

20.2.4.4.1  (09-03-2010)
Updating the RPD on Unprocessible Returns

  1. When the taxpayer supplies the additional information that results in a processible return, update a previously established RPD with the date the additional information is received. Credit interest is allowed on the overpayment that comprised the original refund from the later of the payment received date, the delinquent return received date, or the date of the updated RPD.

  2. The RPD is updated through CC ADJ54. See IRM 2.4, IDRS Terminal Input-Command Code REQ54 and ADJ54, for input instructions.

  3. If a return was erroneously coded as unprocessible or the RPD was input incorrectly and a correction to the RPD is input later, manually recompute any interest allowed on the original refund and input with TC 770. This action is required because Master File will not adjust the interest on refunds previously issued.

    Note:

    Once a return is processible, a subsequent request for additional information not needed to make the return processible does not affect the original RPD.

    Example:

    Code and Edit requests a signature to process an original 200712 tax return and it is received on April 30, 2008, which becomes the RPD for credit interest. The Service then requests an attachment that is received on May 13, 2008. The attachment, however, was not needed to permit the mathematical verification of the tax liability shown on the return. Thus, the RPD for credit interest will remain April 30, 2008.

20.2.4.5  (09-03-2010)
Applying Overpayments as Credits to Liabilities for the Same Tax Period

  1. The Service has, over the years, had different procedures concerning the accrual of overpayment interest on credits applied to liabilities for the same tax period.

  2. Prior to August 1, 1983, interest was not allowed on an overpayment applied to unpaid tax, interest, penalty, or addition to tax for the same tax period because an overpayment was not deemed to exist for the tax period until the entire liability was satisfied. See Rev. Proc. 60-17.

  3. Effective August 1, 1983, Rev. Proc. 83-58 provided that if an overpayment was applied as a credit to an unpaid liability for the same taxpayer, same tax period, and same type of tax, interest was allowed from the availability date to the due date of the liability to which the overpayment was applied.

  4. Rev. Rul. 98-37 announced the obsolescence of Rev. Proc. 83-58 based on changes made to the Internal Revenue Code and accompanying regulations in order to conform to the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) and the Deficit Reduction Act of 1984, section 158 (DEFRA). Therefore, when an overpayment of any credits made on or after August 25, 1992 is applied to unpaid interest, penalties, or additions to tax due for the same year and the same type of tax, interest is not allowed to accrue on the overpayment.

20.2.4.5.1  (09-03-2010)
Availability Date of Released Credits

  1. In some situations, a credit used to satisfy a liability may later be "released" when a credit with an earlier availability date is used to satisfy the same liability. When this occurs, the availability date of the released credit is:

    • The date the released credit was available, if no interest was allowed because there was no interest period.

      Example:

      An examination of a taxpayer’s Form 1040 for the 200612 tax year results in a tax increase, which is paid by an overpayment offset comprised entirely of prepayment credits from the taxpayer’s 200712 tax module. The offset is applied to the 200612 tax module with an availability date of April 15, 2008. No interest is allowed on the offset. Later, the taxpayer files Form 1040X, Amended U.S. Individual Income Tax Return for year 200612 for a tax decrease equal to the assessment which releases the credit that was originally offset from year 2007. The availability date of the released credit is April 15, 2008, the date with which it was originally applied to the 200612 tax module.

    • The date to which interest was allowed on the released credit, if interest was allowed on the released credit when it was first applied.

      Example:

      The facts are the same as in the above example, except the liability exists on tax year 200812. The overpayment offset from year 200712 is applied to the 200812 tax module on the liability due date of April 15, 2009. Credit interest on the offset is allowed from the availability date of the overpayment (April 15, 2008) to the liability due date. When Form 1040X is filed for year 200812, and releases the credit that was applied from year 200712, the availability date of the credit is April 15, 2009, the date with which it was originally applied.

20.2.4.6  (09-03-2010)
Offsets

  1. An overpayment and credit interest on the overpayment may be applied, within the applicable period of limitations, as an "offset" against any "outstanding" liability of tax, interest, additional amount, additions to the tax, or penalty on another tax period — IRC 6402(a).

    1. Use the earliest available overpayments in the module to satisfy the "outstanding" liabilities in the order of first-in, first-out.

      Caution:

      In order to be "outstanding" , a balance must be unpaid. Also, an overpayment may not be applied to a satisfied account, even if a potential overpayment for offset has an earlier availability date than the credit that was used to satisfy the liability.

      Example:

      Due to a tax decrease on a taxpayer's 2004 Form 1120, there is credit of $20,000 available to be offset or refunded with an availability date of March 15, 2005. The taxpayer's Form 1120 for 2003 was examined and additional tax assessed for $10,000, which the taxpayer paid, with interest, on December 23, 2006. Although the 2004 overpayment is available prior to the December payment, the balance on 2003 is no longer "outstanding" and, provided there are no other outstanding liabilities, the entire $20,000 will be refunded from 2004.

    2. Once all "outstanding" liabilities are satisfied, refund any excess overpayment (plus interest, if applicable) to the taxpayer.

    Reminder:

    The most recent unused payments/credits in the tax module are refunded in the order of last-in, first-out.

20.2.4.6.1  (09-03-2010)
Interest on Offsets

  1. Generally, when an offset is made, interest is allowed from the availability date of the overpayment to the due date of the outstanding liability to which it is applied.

    Example:

    A taxpayer has an overpayment of prepayment credits of $15,000 on his 200612 Form 1120 and an underpayment of $25,000 on his Form 1120 for 200712. The taxpayer has not paid the balance on the 2007 tax period and requests that his overpayment from tax period 2006 be applied. Assuming that no other interest issues are present, credit interest is allowed on the $15,000 from March 15, 2007 (the availability date of the overpayment on the 2006 return) to March 15, 2008 (the due date of the liability on the 2007 return). Both the $15,000 and the credit interest on the offset are applied to the 2007 tax period with an availability date of March 15, 2008.

    If an overpayment is applied to: Then
    Unpaid liabilities (including tax, penalties, additions to tax) due before the overpayment availability date No interest is allowed on the overpayment.
    Unpaid liabilities due after the overpayment availability date Credit interest is allowed
    FROM: the availability date of the overpayment
    TO: the due date of the liability
    Unpaid liability for another taxpayer due after the availability date Credit interest is allowed
    FROM: the availability date of the overpayment
    TO: the 23C date of the credit transfer applying the credit to the liability.

    Caution:

    Although underpayment interest on an assessment of tax may not begin until a date later than the actual due date (typically due to use of money per Rev. Rul. 99-40), overpayment interest on the amount offset into the module will stop on the liability due date. This rule also applies to the recapture of previously allowed carryback credit. When a carryback recapture is satisfied by an offset, any overpayment interest will be computed to the loss year return due date, not the date of the carryback refund.

    Example:

    A taxpayer has an overpayment of $25,000 on his Form 1120 for 200512, and an underpayment on his Form 1120 for 200712 that arose from a tax assessment of $40,000. At the time of the assessment on the 200712 tax period, the provision of Rev. Rul. 99-40, (as it relates to unpaid installments of estimated tax), was applied by the Service which resulted in deficiency interest being charged on the assessment from the estimated tax installment due date of December 15, 2008, instead of the return due date of March 15, 2008. Although the date deficiency interest began on the assessment was changed, the tax liability due date did not. Thus, credit interest on the offset of $25,000 is computed from March 15, 2006 (the availability date of the 200512 overpayment) to March 15, 2008 (the due date of the 200712 liability). Both the $25,000 and the credit interest on the offset are applied to the 200712 tax period with an availability date of March 15, 2008.

20.2.4.6.2  (09-03-2010)
Overpayments Offset Against Debit Interest

  1. The due date for debit interest when paid by an overpayment offset is as follows:

    If the debit interest Then the due date for debit interest is
    Accrued ON OR BEFORE December 31, 1982 (i.e., "simple interest" ) the assessment date of the debit interest charge.
    Accrued AFTER December 31, 1982 as the interest accrues.

20.2.4.6.3  (09-03-2010)
Rules for Applying Offsets

  1. An overpayment exists when the amounts paid exceed the liability. Generally, an overpayment is applied to the oldest outstanding liability, that is, the liability with the oldest CSED.

  2. Do not credit an overpayment against an installment of future tax unless the taxpayer has requested, in writing, that the Service do so. In general, if the taxpayer makes such a request, but does not specify a particular installment the overpayment is to be applied, credit it to the first installment. If the taxpayer requests the application of the overpayment to a future installment in which the interest rates are unknown/not determined, calculate credit interest on the offset at the prevailing rate(s).

    Example:

    On April 2, 2007, a taxpayer files a Form 1120X for 200512 requesting a tax decrease of $5,000. The taxpayer requests that the overpayment be applied to his/her 200712 estimated tax account. Inform the taxpayer that the overpayment will be applied to the first estimated tax installment for 200712. Allow interest on the overpayment from its credit availability date to April 15, 2007, and apply the credit with an availability date of April 15, 2007.

    Reminder:

    If the taxpayer is requesting that all or part of the overpayment shown on the return (or amended return) is to be applied to the estimated tax account of the next succeeding taxable year (i.e., credit elect), allow no interest on the portion of the overpayment so credited.

  3. A refund should not be delayed to accommodate the possibility of a future offset. The Service may, however, credit an overpayment against a liability when a determination of liability has been made and a notice of deficiency has been issued, even though the deficiency has not been formally assessed. (See Rev. Rul. 2007-51).

    Exception:

    An overpayment may not be credited against a liability that has been prepaid by an advanced payment.

    Example:

    A taxpayer files Form 1120X for 200812 reporting a tax decrease of $30,000. The amended return is accompanied with a request that the Service credit the overpayment to a liability of $40,000 on the 200612 tax period for which a 90-day letter has been issued. Although the deficiency has not been assessed, the overpayment from tax year 2008 may be credited to 2006 because a liability for that year has been determined and is unpaid.

20.2.4.6.4  (09-03-2010)
Master File and Systemic Offsets

  1. Master File can generally perform systemic offsets correctly within the same account (same taxpayer) and will also transfer credit interest.

    Master File Transaction Code Action
    TC 826 Transfer overpayment out of a module.
    TC 706 Transfer credit into a module.
    TC 896 Debit of an overpayment from an IMF module to a BMF module.
    TC 796 Credit of an overpayment from an IMF module to a BMF module.
    TC 856 Transfer credit interest out of a module.
    TC 736 Transfer credit interest into a module.
    TC 876 Debit of credit interest from an IMF module to a BMF module.
    TC 756 Credit of credit interest from an IMF module to a BMF module.

    Note:

    Effective Cycle 199501 and subsequent, TC 856/736 posts with the TC 776 transaction date (the date to which credit interest is computed).

    Exception:

    When an overpayment is available earlier than a liability and a manual offset is required, credit interest on the offset must be manually computed on the module that generated the overpayment. Master File will only generate the correct amount of overpayment interest if it originates the offset.

    Caution:

    When Master File is allowed to offset manually computed overpayment interest, it will use the 23C Date of the TC 770 for both the TC 856 and 736, which can cause erroneous underpayment interest accruals on the module where the TC 736 posts. When a TC 770 must be offset, a manual transfer using TC 850/730 should always be used. Debit with TC 850 using the 23C Date of the TC 770, and credit with TC 730 using the date interest on the TC 770 was computed to (e.g., CR-INT-TO-DT of TC 770).

20.2.4.6.5  (09-03-2010)
Different Taxpayers and Offsets

  1. An overpayment and the interest thereon may be credited to the liability of a different taxpayer with the overpaid taxpayer's consent.

  2. Allow interest on the overpayment from the date it arose to the 23C Date of the transfer actually applying the credit to the other taxpayer's liability (i.e., If the cases are being closed on the same day, then compute credit interest to the current 23C Date and apply the overpayment to the liability as of that same day). — Rev. Proc. 65-20.

    Example:

    Taxpayer A is requesting a $10,000 overpayment be transferred from his 200712 Form 1120 to Taxpayer B's 200612 Form 1120. The Service is processing the request on August 6, 2008. Compute credit interest on the module of Taxpayer A from the availability date of the credit to August 18, 2008 (the 23C Date of the credit transfer) and apply the $10,000 overpayment, as well as the related credit interest, on August 18, 2008. Debit interest continues to run on the tax module of Taxpayer B - on the $10,000 and allowable credit interest - until August 18, 2008.

20.2.4.7  (09-03-2010)
Refunds

  1. Within the applicable period of limitations, the Service will refund any overpayment remaining after all outstanding balances are satisfied, along with applicable credit interest.

  2. Credit interest is allowed from the effective date of the latest available refundable credit(s) to the refund schedule date (less the applicable back-off period). See IRM 20.2.4.7.1.1, Systemic Refund Dates for IMF and BMF.

20.2.4.7.1  (03-01-2002)
Refund Schedule Dates

  1. All refunds issued by a campus must be certified by the campus director as valid. A schedule of the refunds issued is prepared each week.

  2. The Refund Schedule Date is the date that the campus director certifies that all refunds shown on the schedule are valid and are to be paid.

  3. Additional credit interest is not computed on an overpayment for any period after the date the refund schedule is signed.

20.2.4.7.1.1  (09-03-2010)
Systemic Refund Dates for IMF and BMF

  1. IRC 6611(b)(2) provides that interest on overpayments refunded to taxpayers will run until a date "preceding the date of the refund check by not more than 30 days."

  2. Currently, credit interest on systemic refunds is computed:

    • On IMF accounts, to the 23C Date less 13 days (the fourteenth day preceding the refund check date).

      Example:

      If the date of a systemic IMF refund (TC 846) is July 28, 2008, Master File computes credit interest on the overpayment to July 15, 2008.

      Note:

      Prior to July 10, 1984, credit interest on IMF accounts was computed to the 23C Date less 12 days.

    • On BMF accounts, to the 23C Date less 9 days (the tenth day preceding the refund check date).

      Example:

      If the date of a systemic BMF refund (TC 846) is July 7, 2008, Master File will compute credit interest on the overpayment to June 28, 2008.

      Note:

      Prior to July 10, 1984, credit interest on BMF accounts was computed to the 23C Date less 7 days.

    • On an account where a direct deposit of the refund is made, an additional 7 days is added to the back-off periods described above. Thus, the back-off period for a direct deposit refund on an IMF account is a total of 20 days (13 days plus 7 days), and it is 16 days (9 days plus 7 days) on a BMF account. To determine if the TC 846 amount was direct deposited, look for an indicator on TXMOD or IMFOLT (DD: "0" for paper check, "9" for direct deposit) near the right margin either on the same line as the TC 846 or the next line. See IRM 3.14.1.5.4.3, Direct Deposit Refunds for additional identifiers for direct deposit refunds.

  3. The 9/13/16/20-day back-off period is applicable to systemic refunds, not manual refunds.

20.2.4.7.2  (09-03-2010)
Undeliverable, Returned, and Intercepted Refund Checks

  1. This section provides instructions for determining when undeliverable, returned, and intercepted refund checks are to receive credit interest.

20.2.4.7.2.1  (09-03-2010)
Undeliverable Refund Checks

  1. To determine if additional interest is allowed on an undeliverable refund check, you must determine whether the refund check was undeliverable through fault of the taxpayer or any government agency, such as the United States Postal Service (Rev. Rul. 76-74).

    If check is undeliverable Then
    Through the fault of a government agency Additional interest is allowed to the new refund schedule date (less the applicable back-off period).
    Through no fault of a government agency No additional interest is allowed for the period of the delay.

    Note:

    See Command Code CHK64 in IRM 2.4.21, IDRS Terminal Input, Command Codes CHK64 and CHK64R.

  2. Transaction code 740 and Freeze Code "S-" post on IDRS and Master File to denote an undeliverable refund check that has been redeposited. When the address is updated, the freeze is removed.

  3. Additional instructions are found in IRM 21.4.3.4.3, Undeliverable Refund Checks.

20.2.4.7.2.2  (09-03-2010)
Returned and Intercepted Refund Checks

  1. There are times when it is necessary for the Service to intercept (prevent the issuance of) a refund check, and others when a refund check is returned by the taxpayer. When a refund is canceled, a "P-" freeze will be reflected on the transcript for the module. The DLN of the TC 841 will indicate whether the refund was returned by the taxpayer or intercepted by the Service. See IRM 21.4, Returned Refunds/Releases, Refund Inquiries, for the DLN definers.

  2. When a refund check is returned to the IRS:

    If Then
    Taxpayer returns check without cashing it Make necessary adjustments to the module, if necessary, and issue correct refund.
    Taxpayer returns check requesting that it be applied to a different module Post the check as a subsequent payment (TC 670) on the date the returned refund check is received. The posted credit may only include the interest (if any) allowed on the returned refund. Do not allow additional interest.
    The IRS determines the amount of the refund to be correct Reissue the refund with no additional interest.
    The original refund was for the wrong amount Issue correct refund with interest to the new refund schedule date (less the applicable back-off period).

  3. When a refund check is intercepted by the IRS, and the resulting overpayment:

    Is Then
    Applied to unpaid liabilities (including tax, penalties, additions to tax) due before the overpayment availability date No interest is allowed on the overpayment.
    Applied to unpaid liabilities due after the overpayment availability date Credit interest is allowed
    FROM: the availability date of the overpayment
    TO: the due date of the liability

  4. When a refund check is returned by the taxpayer or intercepted by the IRS because it was issued for the wrong amount, the account must be analyzed and the appropriate adjustments made before allowing a second check to be issued. The account should be adjusted to reflect the correct transactions and amounts for the taxpayer. Erroneously applied credits must be reversed and reapplied to the correct account. Interest will be paid on the correct refund amount only if interest would normally be due.

20.2.4.7.3  (09-03-2010)
Non-Receipt of Refund Check

  1. When a second refund (replacement) check is issued which contains no additional interest beyond that included in the original refund check, and it can be determined that non-receipt of the original refund check, or an abnormal delay in issuance of a second check, is the fault of an agency of the U.S. Government, additional interest may be allowed.

    If non-receipt of the refund check was Then
    Through the fault of a government agency Additional interest is allowed to the new refund schedule date (less the applicable back-off period).
    Through no fault of a government agency No additional interest is allowed.

  2. If the taxpayer submits Form 3911, Taxpayer Statement Regarding Refund, and the reissued check is issued within 120 days from receipt of the Form 3911 , no additional interest is allowed on the refund. If not, additional interest is allowed from the 121st day TO the refund schedule date, even if a government agency is not at fault. The additional interest is computed on the amount of the original check: FROM the 120th day after receipt of Form 3911TO the new refund schedule date (less the applicable back-off period).

20.2.4.7.4  (09-03-2010)
Non-Negotiable Refund Checks

  1. If, through fault of the IRS, a refund check is issued in non-negotiable form and a new check is issued, correct the entity and allow interest to the new refund schedule date, less the applicable back-off period.

  2. If a refund check is issued in non-negotiable form, through no fault of the IRS, correct the entity and reissue the refund with no additional interest.

20.2.4.7.5  (09-03-2010)
45–Day Rule

  1. The 45-day rule provides for a processing period during which credit interest is limited in certain situations. — IRC 6611(e).

    Note:

    When the 45-day interest-free period is in jeopardy, consideration should be given to issuing a manual refund.

    Note:

    An exception to the 45-day rule applies to individuals who have served in a combat zone. If a taxpayer's original return is timely filed (determined by taking into account the combat zone suspension period), the 45-day rule of IRC 6611(e)(1) through IRC 6611(e)(3) shall not apply [see IRC 7508(b)(2)].

    Note:

    Under IRC 7502(a), if a timely mailed return is received after the due date, the date of the postmark (U.S. or designated Private Delivery Service) is considered to be the date filed. There is no provision excepting IRC 6611(e) from the provisions of IRC 7502. Thus, for those situations in which IRC 7502 shall apply, the 45-day interest-free period begins on the date the return was postmarked. See Rev. Rul. 74-236.

20.2.4.7.5.1  (09-03-2010)
45-Day Rule and Original Income Tax Returns

  1. For original income tax returns with due dates prior to January 1, 1994, without regard to extensions, interest was not paid on an overpayment when it was refunded within 45 days of the later of the normal return due date, the return received date (determined without regard to any extension of time for filing), or the date the return was filed in processible form. — IRC 6611(e).

  2. IRC 6611(e) applied to:

    • Only income tax; and

    • Only to overpayments reflected on an original return (either timely filed or delinquent).

    Exception:

    For tax periods ending 197412 through 197511, substitute 60 days for 45 days.

20.2.4.7.5.2  (09-03-2010)
45-Day Rule and All Original Tax Returns

  1. For returns with due dates on or after January 1, 1994, without regard to extensions, the 45-day rule was expanded to apply to all types of tax returns (i.e., employment, excise, estate and gift taxes), not just income tax returns. — IRC 6611(e)(1), as amended by the Omnibus Budget Reconciliation Act of 1993 (P.L. 103–66).

  2. To determine whether the 45-day period has been met, consider these dates:

    • The return due date (determined without regard to any extension of time for filing the return).

    • The return received date (used when the return is filed after the return due date, determined without regard to any extension of time for filing the return).

    • The date the return was received in processible form (Return Processible Date (RPD), or Correspondence Received Date (CRD) may be present).

  3. Add 45 days to the later of these dates. If the date of the refund check is not on or before that date, interest must be allowed on the refund.

    Note:

    The date of the refund check for computer-generated refunds is:
    IMF (Individual Master File): 23C Date of the refund less 3 days.
    BMF (Business Master File): 23C Date of the refund plus 1 day.

  4. Master File computes credit interest TO:

    • IMF: 23C Date minus 13 days (20 days for direct deposit refunds).

    • BMF: 23C Date minus 9 days (16 days for direct deposit refunds).

  5. Compute credit interest on manual refunds to the date certified by Accounting for allowing the refund.

20.2.4.7.5.3  (09-03-2010)
45–Day Rule and Amended Returns and Claims, OBRA 1993

  1. The 45-day rule was further expanded to include amended returns and claims for credit or refund filed on or after January 1, 1995, regardless of the taxable year to which the credit or refund relates. — IRC 6611(e)(2).

  2. When an overpayment results from a claim or amended return and the refund is issued within 45 days of the later of the:

    • Received date of the claim/amended return, or the

    • Processible date of the claim/amended return.

    no interest is allowed from the received date of the claim/amended return to the refund schedule date. Credit interest is, however, allowed from the credit availability date to the received date of the claim/amended return.

    Example:

    A claim, Form 1040X, is received on August 14, 2008, resulting in an overpayment comprised of prepayment credits originally reported on a timely filed 200712 Form 1040. The refund is issued on September 20, 2008, within 45 days of receipt of the claim. Interest is allowed from April 15, 2008, the credit availability date, to August 14, 2008, the claim received date.

  3. When an overpayment results from a claim or amended return and the refund is not issued within 45 days of the later of the received/processible date of the claim/amended return, interest is allowed from the credit availability date to the refund schedule date (less the applicable back-off period).

  4. When a carryback claim or application is processed within 45 days of the later of: (1) the due date of the loss year return; (2) the received date of the delinquent loss year return; (3) the date the loss year return is filed in processible form; (4) the application or claim received date, or; (5) the application or claim processible date, no credit interest is allowed on the resulting overpayment that is refunded. If the 45-day period is not met, credit interest is generally paid from the due date of the loss year return to the refund schedule date. See IRM 20.2.9.2, Determining the Overpayment Interest Period, for exceptions.

    Note:

    The 45-day interest-free period for carryback claims and applications was effective as of October 4, 1982 (TEFRA 1982), and therefore, predates OBRA 1993.

    Exception:

    For carryback claims of Foreign Tax Credit (FTC) filed prior to January 1, 1995, credit interest is allowed from the loss year return due date to the refund schedule date less the applicable back-off period. Carryback claims of FTC filed on or after January 1, 1995, are subject to the 45-day rule under OBRA 1993.

20.2.4.7.5.4  (09-03-2010)
45-Day Rule and Master File (Amended Returns and Claims)

  1. Master File uses the amended claims date field (AMD–CLMS–DT) to apply the 45-day Rule.

  2. The AMD-CLMS-DT field is completed for all overpayment adjustments resulting from claims or amended returns, including the adjustments input by the Code and Edit Function (CC ADJ54–TC 29X and Blocking Series 200–299), regardless of whether or not the 45-day period is met.

  3. When a claim or amended return results in an overpayment, enter the date the processible amended return or claim was received by the Service in the AMD-CLMS-DT field. (Follow existing procedures to determine the received date of an amended return/claim.) The AMD-CLMS-DT field IS NOT used for CP 09/27 (EIC eligibility inquiry) overpayment adjustments.

    If claim or amended return is And the overpayment is Then
    Filed before January 1, 1995 refunded Interest is allowed
    FROM: the overpayment availability date
    TO: the refund schedule date
    Filed on or after January 1, 1995 refunded within 45 days of the later of the received date or the claim/amended return processible date Credit interest is allowed
    FROM: the overpayment availability date
    TO: the received date of claim. No interest is allowed from the received date to the refund schedule date.
    Filed on or after January 1, 1995 NOT refunded within 45 days of the later of the received date or the claim/amended return processible date Credit interest is allowed
    FROM: the overpayment availability date
    TO: the refund schedule date (less 9/13/16/20-day back-off period).

  4. An AMD-CLMS-DT may be input on an amended return that is filed and received before the return due date. If the AMD-CLMS-DT is prior to the return due date, and the refund is issued within 45 days of RDD, credit interest is not allowed. If the refund is not issued within 45 days of RDD, credit interest is allowed from the interest start date to the 23C Date, less 9/13/16/20 days.

20.2.4.7.5.5  (09-03-2010)
45-Day Rule and IRS Initiated Adjustments

  1. If an IRS-initiated adjustment results in a refund or credit of an overpayment, 45 days are subtracted from the number of days that interest would otherwise be allowed. This rule applies to any credit or refund paid on or after January 1, 1995, regardless of the taxable period to which the credit or refund relates. - IRC 6611(e)(3).

  2. An IRS-Initiated Adjustment is an adjustment initiated by the Service without the taxpayer's request.

    Note:

    Overpayment adjustments resulting from responses to CP 09/27 EIC eligibility inquiries are deemed IRS-initiated adjustments subject to the credit interest rules outlined below.

    If Then
    An IRS action, such as an examination or appeal, is the result of a formal or informal taxpayer claim, The resulting overpayment is taxpayer-initiated.
    The taxpayer files a claim after an IRS action, such as an AUR or examination assessment, is closed, The resulting overpayment is taxpayer-initiated.
    Information discovered during an IRS action results in an overpayment, The resulting overpayment is IRS-initiated.
    The taxpayer requests an abatement based on an issue unrelated to the IRS action, The resulting overpayment is taxpayer-initiated.
    IRS informs the taxpayer that an additional credit may be available and the taxpayer responds, The resulting overpayment is IRS-initiated.

    Example:

    IRS has proposed a deficiency on a taxpayer's Form 1120 for depreciation expense. When the taxpayer's receipts are examined, it is discovered that the taxpayer is actually entitled to additional depreciation expense. The resulting overpayment is IRS-initiated.

    Example:

    AUR generates a notice to the taxpayer regarding unreported interest income. The taxpayer responds that the income was unreported, but includes additional itemized deductions, which creates an overpayment. The resulting refund is taxpayer-initiated.

  3. When the Service prepares an SFR for a taxpayer who later files a delinquent return, or signs an examination report that is deemed to be a return, any resulting adjustment is not"IRS-INITIATED." These adjustments are a result of the filing of an original delinquent return or the signing of an examination report, and any refund is subject to the 45-day rule for original returns.

  4. The 45-day rule for IRS-initiated adjustments IS APPLIED TO OFFSETS subtract 45 days from the date to which credit interest is otherwise allowed.

    Example:

    The Service initiates an adjustment on a Form 1120 for tax year 2005 resulting in an overpayment that is offset to a liability on tax year 2007. The availability date of the overpayment is March 15, 2006; the due date of the liability is March 15, 2008. Interest on the offset is computed from March 15, 2006 to January 30, 2008 (March 15, 2008, less 45 days). When offset, the overpayment will be applied to the 2007 tax module with the liability due date of March 15, 2008. If the credit interest is also offset, it will be applied with a date of January 30, 2008.

  5. When processing an IRS-initiated adjustment via Document Code 47 or 54, input Priority Code (PC) 3. Priority Code 3 will allow credit interest to be computer generated from the interest start date to the 23C Date less 54 days (BMF) or 58 days (IMF) (61 days for BMF direct deposit refunds; 65 days for IMF). The 54/58/61/65 days is a combination of the 9/13/16/20 and 45-day period. If PC 3 is not used with a refund adjustment, Master File only backs off the 9/13/16/20-day period.

    Note:

    For Document Code 47 , Priority Code 3 is also used as the settlement amount/amended return freeze "unpostable bypass." Master File "reads" PC 3 for the unpostable bypass and the 54/58/61/65-day back-off period when both criteria applies. When a refund adjustment is not being processed, Master File reads the PC 3 for only the unpostable bypass. When a refund adjustment is processed with PC 3, and the 45-day rule is not applicable, manually compute the credit interest and input it with TC 770.

    Note:

    For Document Code 54, Priority Code 3 should be used when it is necessary to bypass Unpostable Code 180, Reason Code 2, and apply the 45-day back-off period that is applicable to IRS-initiated adjustments.

  6. When processing a manual refund, 45 days are backed-off from the refund schedule date. The additional 9/13/16/20-day back-off period is applicable only to systemic refunds.

20.2.4.7.6  (09-03-2010)
Manual Refunds

  1. A manual refund (TC 840) is a refund that is not generated systemically (TC 846).

  2. Before issuing a manual refund, the actual overpayment available for refund must be determined.

    Consider previously assessed failure to file and failure to pay penalties and interest that will be affected by the adjustment action. Any decrease in penalties or interest, which have been paid, must be added into the overpayment amount. In addition, unassessed accruals of penalty and/or interest may reduce the overpayment amount.

    Verify the taxpayer has no outstanding liabilities that must be satisfied. Offset capability is lost when a manual refund is issued.

    When an outstanding tax debt is identified, a manual refund may only be issued for the amount of overpayment in excess of the balance due. (Exception: an Offset Bypass Refund (OBR) indicator may be used to bypass outstanding debts when economic hardship exists).

  3. Credit interest is computed according to the date certified by the Accounting Function for allowing the refund. Each IRS Campus will have local instructions for the interest TO date because the certified date is affected by how close or how far the Regional Finance Center is in relation to the Campus for which it prints checks.

    Example:

    Suppose your Campus currently uses two working days for the interest TO date. If you input a manual refund on the fifth of the month, the interest TO date is the seventh of the month (provided a holiday or weekend is not involved). The interest TO date will be adjusted by the appropriate number of days if a holiday or weekend falls in the sequence of the working days. For example, the interest TO date for a manual refund input on a Thursday would be the following Monday.

    Caution:

    The Accounting Function may also establish a cut-off time for manual refund processing. Any manual refunds input on IDRS (Integrated Data Retrieval System) after the cut-off time are included in the next working day's business. In this instance, the interest TO date is two working days after the day on which Accounting considers the refunds input. The local cut-off time may change according to current local needs. In addition, processing times may vary depending on whether the manual refund is on a Form 5792, Request for IDRS Generated Refund (IGR), or Form 3753, Manual Refund Posting Voucher.

  4. The interest TO date for a manual refund may not be the same as the refund posting date on Master File/IDRS. When backing into a posted manual refund, it may be necessary to add or subtract one or more working days to/from the posting date.

  5. When the 45-day period is in jeopardy, consider issuing a manual refund.

  6. Manual refunds of $1,000,000 or more require a technical review of the interest computation by a senior interest specialist before documentation is sent to the Accounting Function for processing of the refund.

  7. When manually computing interest, attach the supporting documentation/computation to the manual refund documents before routing to Accounting.

  8. For specific instructions on preparing manual refunds, see IRM 21.4.4, Manual Refunds.

20.2.4.8  (09-03-2010)
Special Rules

  1. Special rules apply for interest on:

    • Cash Bonds.

    • IRC 6603 Deposits.

    • Credit for Increasing Research Activities-Suspension Periods.

    • Unidentified Remittances.

    • Credit Elects.

20.2.4.8.1  (09-03-2010)
Cash Bonds

  1. Credit interest is NOT allowed on a cash bond deposit, or any portion of a cash bond deposit that is offset to other tax liabilities or returned to the taxpayer, before or after assessment — Rev. Proc. 84-58.

    Exception:

    In the event a deposit in the nature of a cash bond is posted to a taxpayer's module as a "payment of tax," interest is allowed under IRC 6611 on an overpayment later determined to be due from the date the deposit was posted as a "payment of tax" to the date of refund or offset.

  2. Rev. Proc. 84-58 provides that a deposit in the nature of a cash bond will be posted to the taxpayer's account as a "payment of tax" as of the date the assessment is made (typically, the 23C Date of the deficiency assessment). The amount designated as a "payment of tax" cannot exceed the proposed deficiency plus any interest that has accrued on the deficiency. Any amount of a deposit that is not posted as a "payment of tax" because it exceeds the liability, will continue to be considered a deposit and, provided no other liabilities exist, will be returned to the taxpayer without interest. If another liability does exist, the deposit will not convert to a "payment of tax" until it is offset and applied to another assessed liability. Credit interest cannot accrue on a cash bond deposit until it is converted to a "payment of tax."

    Example:

    A taxpayer submits a cash bond deposit of $6,000, dated October 18, 2000, that exceeds the proposed deficiency on his 199812 tax module. At the end of the examination, the taxpayer is assessed a liability of $4,500. The Service then transfers the remaining cash bond of $1,500 to an unpaid tax deficiency of $2,000 on year 199912 (assessed on November 7, 2000) using debit and credit transaction codes TC 640/642, and a debit and credit transaction date of October 18, 2000. No credit interest is allowed on the transfer. Although the transferred cash bond is available to reduce debit interest as of its availability date of October 18, 2000, credit interest cannot accrue on the deposit, if the deficiency for tax year 199912 is subsequently reduced, until November 7, 2000, the assessment date of the 199912 deficiency, and the date the deposit was converted to a "payment of tax."

  3. If, as of the date of a deficiency assessment, a deposit in the nature of a cash bond is posted to a taxpayer's module as a "payment of tax," any subsequent full or partial abatement of the deficiency that results in an offset or refund will accrue credit interest from the date the abated deficiency was originally assessed (i.e., the date it became a "payment of tax" ).

    Example:

    A taxpayer submits a cash bond deposit of $1,000 for an assessment of the same amount. It is later determined that the actual assessment should have been $800. Credit interest is allowed on $200 from the 23C Date of the $1,000 assessment to the date the overpayment is either refunded or offset.

  4. A taxpayer may request the return of all or part of a deposit made in the nature of a cash bond at any time before the Service is entitled to assess the tax. That amount will be returned to the taxpayer, without interest , unless the Service determines that assessment or collection of the tax determined to be due would be in jeopardy, or that the amount should be applied against any other liability. In such cases, the deposit will not be returned, but will be applied against a jeopardy or termination assessment or against the other liability.

  5. Cash bond deposits are identified by a TC 640 (Advanced Payment of Determined Deficiency or Underreporter Proposal), Blocking Series "999" and Designated Payment Code (DPC) 12.

    • For cash bond payments posted after January 1, 1990, the Blocking Series is 990–999.

    • Prior to cycle 198427, interest is not allowed on the refund or offset of any portion of a posted TC 640.

    • After cycle 198427, and prior to January 1, 1990, only those TC 640s blocked "999" are refunded or offset without interest.

    Note:

    When moving a deposit in the nature of a cash bond from one tax module to another, maintain the identity of the cash bond on the receiving module by using Designated Payment Code (DPC) of 12 on the credit side of the transfer.

  6. There is no systemic means to identify and allow a Master File calculation of credit interest on a deposit in the nature of a cash bond. When credit interest is permitted, it must be manually computed and input with TC 770.

20.2.4.8.2  (09-03-2010)
IRC 6603 Deposits

  1. The American Jobs Creation Act of 2004, P.L. 108-357, 118 Stat. 1418 (the "Act" ) was enacted on October 22, 2004. Section 842 of the Act added new IRC 6603 to permit taxpayers to make deposits to suspend the running of interest on potential underpayments of tax. Rev. Proc. 2005-18 provides guidance establishing procedures for taxpayers to make, withdraw, or identify deposits to suspend the running of interest on potential underpayments under IRC 6603. Remittances submitted to suspend the running of interest under this section are referred to as "6603 deposits." This revenue procedure supersedes Rev. Proc. 84-58, 1984–2 C.B. 501, which provided procedures for taxpayers to make remittances (cash bonds) in order to suspend the running of interest on deficiencies.

  2. IRC 6603 codifies the taxpayer's right to make a deposit in lieu of a payment to stop the running of interest on a potential deficiency, and, for the first time, provides for the accrual of interest on a deposit returned to the taxpayer to the extent that the deposit is attributable to a disputable tax. The amount and nature of the disputable tax must be identified at the time the amount is remitted to the Service, or the date a converted cash bond is identified by the taxpayer as a 6603 deposit. Until further guidance is issued, taxpayers are permitted to use any reasonable method for calculating the amount of disputable tax. However, to the extent that a taxpayer's calculation of a disputable tax exceeds the amount proposed as a deficiency in a 30-Day letter issued to the taxpayer, or the taxpayer desires to remit a deposit prior to receiving the 30-Day letter, the taxpayer must provide a written statement to the Service identifying and describing the amount of the disputable tax at the time the deposit is remitted. The written statement must also include:

    1. The taxpayer's calculation of the amount of disputable tax;

    2. A description of any item of income, gain, loss, deduction or credit for which the taxpayer has a reasonable basis for the treatment of the item on its return, and for which the taxpayer reasonably believes that the Service also has a reasonable basis for disallowing the taxpayer's treatment of the item; and

    3. The basis for the taxpayer's belief that it has a reasonable basis for the treatment of any item on its return and that the Secretary also has a reasonable basis for disallowing the taxpayer's treatment of such item.

  3. If a taxpayer has been issued a 30-Day letter, the amount of disputable tax is, at a minimum, the amount of the proposed deficiency specified in the letter.

  4. If a taxpayer fails to identify the amount and nature of the disputable tax in writing or provide a copy of the 30-Day letter at the time of the deposit, the payment of interest will not be allowed if the deposit is later withdrawn by the taxpayer unless the taxpayer subsequently provides the Service a written statement identifying and describing the amount of the disputable tax. In such cases, interest will be allowed on the deposit under IRC 6603 as of the date on which the amount and nature of the disputable tax is identified.

20.2.4.8.2.1  (09-03-2010)
Identification and Rate of Interest for 6603 Deposits

  1. Remittances submitted after October 22, 2004, identified as "6603 deposits" are processed and posted in the same manner as the Service previously processed a cash bond remittance. Deposits are identified by TC 640 (Advance Payment of Determined Deficiency or Underreporter Proposal), Blocking Series "990-999" and Designated Payment Code (DPC) 12.

    Caution:

    Because a 6603 deposit is posted in the same manner that the Service used to process a cash bond remittance after January 1, 1990 (TC 640, Blocking Series 990 to 999 and Designated Payment Code (DPC) 12), the payment posting date alone cannot be relied upon as the date a deposit is subject to the provisions of IRC 6603. This applies to a deposit made after October 22, 2004, and before March 28, 2005, and also for a cash bond deposit that is being "converted" to a 6603 deposit. The IRC 6603 effective date for such deposits is, instead, the date the Service receives the written statement. See IRM 20.2.4.8.2.3, Designating a Deposit Made Under Rev. Proc. 84-58 (Cash Bond) as a Deposit Under IRC 6603.

    Note:

    A deposit made after the effective date of IRC 6603 cannot be designated as a deposit in the nature of a cash bond. Likewise, a 6603 deposit cannot be re-designated as a deposit in the nature of a cash bond. See IRM 20.2.4.8.2.3, Designating a Deposit Made Under Rev. Proc. 84-58 (Cash Bond) as a Deposit Under IRC 6603.

    Note:

    When moving a 6603 deposit from one tax module to another, maintain the identity of the deposit on the receiving module by using Designated Payment Code (DPC) of 12 on the credit side of the transfer.

  2. To the extent a deposit is attributable to a disputable tax, IRC 6603(d) provides for a unique rate of interest, known as 6603 deposit interest, to be paid on 6603 deposits. The rate of interest is the Federal short-term rate provided under IRC 6621(b), compounded daily. The ACT/DMI Program (version 6.13 and subsequent) provides a Federal Short-Term Rate Chart specifically for computing interest on 6603 deposits. The rate of interest allowed is lower than the rates for overpayments.

    Example:

    IRC 6621(b) provides for the payment of interest on overpayments at the Federal short-term rate plus 3 percentage points (2 percentage points in the case of a corporation, and for corporate overpayments exceeding $10,000, only a "0.5" percentage point is added). If the prevailing corporate overpayment rate is 5%, then the Federal short-term rate is 3%. For an individual, if the overpayment rate is 6%, the Federal short-term rate is still 3%. The Federal short-term rate is the same whether the overpayment is for an individual or corporation.

  3. Rev. Proc. 2005-18 provides that a 6603 deposit will be posted to the taxpayer's account as a "payment of tax" as of the date the assessment is made (typically, the 23C Date of the deficiency assessment). The amount designated as a "payment of tax" cannot exceed the determined deficiency plus any interest that has accrued on the deficiency. Any amount of a 6603 deposit that is not posted as a "payment of tax" because it exceeds the liability as ultimately determined, will continue to be considered a 6603 deposit and, provided no other liabilities exist, will be returned to the taxpayer with interest. Interest on the returned deposit, to the extent the deposit is attributable to a disputable tax, will be allowed at the Federal short-term rate from the date of the deposit until the date it is refunded, less the applicable back-off period (9/13/20 days). If another liability does exist, the deposit will not convert to a "payment of tax" until the assessment date of the liability the deposit is applied. If the liability to which the deposit is applied is either partially or fully abated, 6603 deposit interest (i.e., interest at the Federal short-term rate) is allowed from the date of deposit. See IRM 20.2.4.8.2, IRC 6603 Deposits, if the deposit exceeds the amount of disputable tax.

    Example:

    A taxpayer submits a 6603 deposit of $6,000, dated June 12, 2008, that exceeds the proposed deficiency on his 200612 tax module, but not the amount of disputable tax as calculated by the taxpayer. At the end of the examination, the taxpayer is assessed a liability of $4,500. The Service then transfers the remaining 6603 deposit of $1,500 to an unpaid tax deficiency of $2,000 on year 200512 (assessed on September 16, 2008) using debit and credit transaction codes TC 640/642, and a debit and credit transaction date of June 12, 2008. No interest is allowed on the transfer. The transferred 6603 deposit is available to reduce deficiency interest on tax year 200512, as of its availability date of June 12, 2008. Although the deposit was converted to a "payment of tax" on September 16, 2008 (the assessment date of the 200512 deficiency), interest will accrue on the deposit at the Federal short-term rate, if the deficiency for tax year 200512 is subsequently reduced, from June 12, 2008, the date of the deposit.

  4. If, as of the date of a deficiency assessment, a 6603 deposit is posted to a taxpayer's account as a "payment of tax," any subsequent full or partial abatement of the deficiency that results in an overpayment will accrue interest (to the extent the deposit is attributable to a disputable tax), from the date of the deposit to the date of refund or offset.

    Example:

    A taxpayer submits a 6603 deposit of $100,000, dated February 5, 2008, for an assessment of disputable tax of the same amount on the Form 1120 account of tax year 200612. It is later determined that the actual assessment should have been $80,000. The Service offsets $15,000 of the overpayment to a liability on tax year 200812, due March 15, 2009. The remaining overpayment of $5,000 is refunded. Because the amount of the deposit did not exceed the amount of disputable tax, as originally determined, the excess remittance of $20,000 retains its character as a deposit and bears interest at the Federal short-term rate, for both the offset and the refund, from the date of deposit. Thus, interest on the offset is allowed from the deposit date of February 5, 2008, to the liability date on the 200812 tax period of March 15, 2009. Interest on the refund is allowed from the deposit date of February 5, 2008, to the refund schedule date (less the 9/13/16/20-day back-off period).

    Example:

    A taxpayer submits a 6603 deposit of $5,000 for an assessment of disputable tax, comprising $4,700 of tax and $300 of interest. After the assessment, the taxpayer files a claim for abatement of interest. The Service determines that the $300 interest amount is excessive, and the taxpayer was properly liable for only $200 of interest. Because the amount of the deposit did not exceed the amount of disputable tax, as originally determined, the excess remittance of $100 retains its character as a deposit and bears interest at the Federal short-term rate from the date of deposit to the date of refund or offset.

  5. There is no systemic means to identify and allow a Master File calculation of interest at the Federal short-term rate on 6603 deposits. IRC 6603 deposit interest must be manually computed and input with TC 770.

  6. Interest allowed on 6603 deposits does not qualify for interest netting under IRC 6621(d) (net rate interest netting) or Rev. Proc. 94-60 (within module [annual] netting).

  7. The provisions of IRC 6611(e) (i.e., the 45-day back-off period) do not apply to IRC 6603 deposits.

20.2.4.8.2.2  (09-03-2010)
Request for Return of an IRC 6603 Deposit

  1. IRC 6603(c) provides that, based on a written request, the Service will return to the taxpayer any amount of a deposit to the extent the deposit has not been used to pay tax, unless collection of the tax is in jeopardy. Deposit remittances submitted after October 22, 2004, are allowed credit interest if, by request, the deposit is returned to the taxpayer. A taxpayer may request the return of all or part of a deposit at any time before the deposit is used for a payment of tax.

  2. Taxpayers who desire the Service return a deposit must submit a written statement to the Internal Revenue Service Campus or examining office to which the original deposit was remitted requesting that the deposit be returned. The written statement also must include:

    1. The date(s) and amount(s) of the original deposit(s);

    2. The type(s) of tax to which the deposit was intended to be applied;

    3. The tax year(s) to which the deposit was intended to be applied.

  3. The deposit will be returned to the taxpayer and, to the extent the deposit is attributable to a disputable tax, interest determined using the Federal short-term rate, compounded daily, for the period from the date of deposit to a date not more than 30 days preceding the date of the check paying the return of the deposit will be included.

20.2.4.8.2.3  (09-03-2010)
Designating a Deposit Made Under Rev. Proc. 84–58 (Cash Bond) as a Deposit Under IRC 6603

  1. Remittances submitted prior to October 22, 2004, that were posted as "cash bonds" (per Rev. Proc. 84-58) may, upon written request, be "converted" to a "6603 deposit" for purposes of earning interest. Any portion of a cash bond made under Rev. Proc. 84-58 will not earn interest unless the Service receives a written statement to identify/convert these previously posted cash bonds as "6603 deposits."

  2. The date the Service receives the written statement is the date a "converted" 6603 deposit can begin to bear interest (see exception for converted cash bonds in Paragraph 4, below). Taxpayers requesting conversion of a cash bond to a 6603 deposit must send the written statement to the IRS Campus or examining office where the deposit was originally submitted. If the deposit relates to a tax year under examination or in Appeals, the statement should be submitted to that office.

  3. The written statement must include:

    1. The date(s) and amount(s) of the original cash bond deposit(s);

    2. The type(s) of tax to which the cash bond deposit was applied;

    3. The tax year(s) to which the cash bond was applied;

    4. The deposit amount attributable to "disputable tax" for the underpayment tax period. The amount determined as "disputable tax" may require an examination of the return and case records.

  4. In the case of an amount held as a cash bond under Rev. Proc. 84-58 on October 22, 2004, the deposit will be treated as made on October 23, 2004 (for purposes of allowing interest on the returned deposit) if the taxpayer provides the written statement identifying the cash bond as a "6603 deposit" before May 27, 2005.

    Example:

    1: Taxpayer Y submitted a cash bond payment for the 2002 tax year on July 7, 2004. Taxpayer Y then submitted a written statement on March 10, 2005, requesting that the cash bond be converted to a 6603 deposit. On November 7, 2005, Taxpayer Y requests that the deposit be returned (the deposit has not been used to pay any tax liability nor is collection in jeopardy). Since Taxpayer Y provided the written statement for the bond conversion before May 27, 2005, interest is allowed at the Federal short-term rate FROM October 23, 2004, to the date the deposit is scheduled to be refunded.

    Example:

    2: The facts are the same except that the written statement was received June 3, 2005. If the taxpayer requests that the deposit be returned, the date from which interest begins is June 3, 2005.

  5. Case file documentation is critical when a taxpayer requests that an amount be treated as a 6603 deposit of a previously posted cash bond that is "converted" to a 6603 deposit. The date of the taxpayer letter requesting the "conversion" must be reflected in the source documents maintained with the case file. To document the request, date stamp the original letter maintaining it in the case file and provide the taxpayer a copy advising them to maintain it for their records. Except as provided in Paragraph 4, above, the date on which the Service receives the written statement is the date that a converted deposit begins to accrue interest.

  6. Because IRC 6603 superseded Rev. Proc. 84-58, Rev. Proc. 2005-18 does not permit taxpayers to designate a deposit made under IRC 6603 as a deposit under Rev. Proc. 84-58. In addition, no provision of IRC 6603 or Rev. Proc. 2005-18 permits a taxpayer to convert a designated deposit to a payment or undesignated remittance. Once designated, a 6603 deposit remains a designated deposit until it is applied by the Service as described by Rev. Proc. 2005-18.

20.2.4.8.3  (09-03-2010)
Credit for Increasing Research Activities-Suspension Periods

  1. The Tax Relief Extension Act of 1999 reinstated this credit retroactively for the period July 1, 1999 through June 30, 2004. However, it provided for two suspension periods where a portion of the credit could not be taken into account until certain dates.

    1. First suspension period: Credit arising from July 1, 1999 to September 30, 2000 cannot be taken into account prior to the later of October 1, 2000, or the date the return (which includes all or part of the first suspension period) is considered filed, including approved extensions.

    2. Second suspension period: Credit arising from October 1, 2000 to September 30, 2001 cannot be taken into consideration prior to the later of October 1, 2001, or the date the return (which includes all or part of the second suspension period) is considered filed, including approved extensions.

    Note:

    Returns which are timely filed by the approved extension date are considered timely filed on the original return due date.

  2. Credit interest must be manually computed and adjusted. Compute credit interest with a start date of the later of:

    1. The day after the suspension date (October 1, 2000 for first suspension period or October 1, 2001 for the second).

    2. The due date of a timely filed and paid return.

    3. The delinquent received date of a late filed return.

    4. The payment date.

  3. The 45-day interest-free provision of OBRA 1993 applies.

  4. Suspended research credit adjustments can be identified by TC 299 with an interest computation date of the later of the due date of the return that includes the suspension period (assuming the return was timely filed by the due date, including extensions), or the day after the suspension period ends (October 1, 2000 for the first suspension period or October 1, 2001 for the second suspension period).

  5. Notice 2001-2 provides information to assist taxpayers who filed claims related to the suspension periods. It appeared in Internal Revenue Bulletin 2001-2, dated January 8, 2001. Notice 2001-14 provides information on Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns, filed for returns involving the suspension periods. It appeared in Internal Revenue Bulletin 2001-14, dated April 2, 2001.

20.2.4.8.4  (09-03-2010)
Unidentified Remittances

  1. Credit interest is allowed on a payment in the Unidentified or Excess Collection accounts when it is applied to a correct tax module and an overpayment results. Compute credit interest from the later of the payment received date, the return due date, the return received date (if delinquent), or the return processible date.

  2. If a payment in the Unidentified or Excess Collection accounts is refunded because it cannot be associated with a correct tax module, credit interest is not allowed on the refund.

20.2.4.8.5  (09-03-2010)
Credit Elect

  1. When an overpayment reported on a return or amended return is applied as a credit elect to estimated tax for the succeeding year, credit interest is not allowed on that overpayment. See Treas. Reg. 301.6402-3(a)(5) and Treas. Reg. 301.6611-1(h)(2)(vii).

  2. If the Service made an error and posted the overpayment as a credit elect instead of a refund, appropriate credit interest may be allowed when the error is corrected.

  3. If the taxpayer is not liable for estimated tax payments, and he/she erred in entering the overpayment as a credit elect, credit interest is not allowed when the error is corrected.

  4. If the taxpayer requests permission to change a credit elect to a refund, Policy Statement 2-88, in IRM 1.2.12.1.14, provides, "When an income tax overpayment is elected for credit to estimated tax for the following year, it must be so applied. If the taxpayer wishes to change his/her election (after the filing of the overpayment return) in order to have the overpayment refunded, the refund may be made only upon a showing that the taxpayer would suffer undue financial hardship. Refunds in such cases will be limited to individual taxpayers whose requests are submitted far enough in advance to permit refund to be made prior to the end of the taxable year to which the credit was applied. Interest will not be allowed on the overpayment for the reason that the Service was precluded from making the refund within the usual 45-day interest-free period."

    Example:

    Taxpayer Mary Jones timely files her 200712 Form 1040 showing an overpayment of $500 which she requests be applied to her estimated tax payments for 200812. In August 2008, she requests that the credit elect be refunded. She states that she has sufficient withholding to cover her 2008 taxes and that she is experiencing a severe hardship and needs the credit elect refunded. The credit elect is reversed and refunded, without interest, from the 200712 tax period.

  5. See IRM 20.2.5, Interest on Underpayments, for instructions on debit interest and credit elects.

20.2.4.9  (09-03-2010)
Special Credit Interest Rules for Corporations

  1. Effective January 1, 1999, debit and credit interest rates were equalized for all returns except for "corporations" (RRA '98 section 3302). A corporate overpayment interest rate is established for returns deemed to be corporations.

  2. A corporation is any BMF taxable entity with at least one of the following significant filing requirements:

    • Form 990-C, Return of Organization Exempt From Income Tax.

    • Form 990-T, Exempt Organization Business Income Tax Return (and proxy tax under section 6033(e)), with Org. Code 4 or 5.

    • Form 1120 with Doc. Code other than 16 (i.e., Form 1120S).

  3. Generally, Master File/IDRS sets a corporate indicator (the literal "GATT" on CC TXMOD) for BMF returns subject to the corporate overpayment rate.

  4. BMF taxpayers that are not corporate filers are allowed overpayment interest at the equalized non-corporate rate.

  5. See IRM 20.2.5.8, Large Corporate Underpayment (LCU), for procedures for debit interest on corporate taxpayers.

20.2.4.9.1  (03-01-2002)
GATT Credit Interest - Computations on Overpayments

  1. Effective after December 31, 1994, the General Agreement on Tariffs and Trade (GATT) established a lower credit interest rate for large corporate overpayments. The GATT rate is one and a half points below the normal corporate credit interest rate for overpayments exceeding $10,000 for all business taxpayers with a corporate filing requirement.

  2. Interest on overpayments for non-corporate BMF taxpayers is not subject to the GATT rate.

  3. Credit interest accrued through December 31, 1994, is not considered for purposes of determining whether the $10,000 threshold has been reached.

20.2.4.9.2  (09-03-2010)
Determining the GATT Threshold

  1. The GATT threshold consists of any and all overpayments previously refunded or offset (excluding overpayment interest). Do not add overpayments from other tax periods or types of tax to determine whether the threshold amount is exceeded. The threshold is determined separately for each tax module.

    Note:

    Overpayments include amounts refunded, offset, or applied as a credit elect.

    Note:

    Prior to January 1, 1999, only the principal component of refunds (TC 840, 846) were considered by Master File to reduce the threshold. Overpayments offset to other modules (TC 820, 826, 830, 836, etc.) did not reduce the threshold.

  2. To determine if the threshold has been met:

    1. Add all previous overpayments (excluding overpayment interest) for the tax module to the amount that you are currently processing.

    2. If the total is less than or equal to the $10,000 threshold amount, then the overpayment being processed is subject to normal corporate credit interest rates.

    3. If the total exceeds the $10,000 threshold, the excess amount represents the portion of the current overpayment that is subject to the lower GATT rate. Any difference between the current overpayment amount and the GATT overpayment amount is subject to corporate credit rates.

20.2.4.9.3  (09-03-2010)
GATT Rate

  1. The reduced GATT rate applies not only to the excess portion of an overpayment that exceeds $10,000, but also to the interest that accrued on the excess portion under pre-GATT law (Post-Counsel GATT computation).

    1. Normal corporate credit interest is computed on the $10,000 from the credit availability date to the scheduled refund date or the offset date, and

    2. Normal corporate credit interest on the excess amount is computed from the credit availability date to December 31, 1994, then

    3. Interest on the excess amount and on the related normal corporate credit interest accrued through December 31, 1994, is computed at the GATT rate to the scheduled refund date or the offset date.

    4. The total of the normal corporate credit interest and the interest at the GATT rate is the allowable interest on the refund or offset.

  2. Prior to January 1, 1998, Master File programming computed GATT interest (Pre-Counsel GATT computation) as follows:

    1. Normal credit interest was computed on the entire overpayment from the availability date to December 31, 1994.

    2. Normal credit interest rates were used to compute interest on all interest accruals to December 31, 1994 and the $10,000 threshold amount to the refund or offset date.

    3. GATT rates were applied only to the excess principal from January 1, 1995 to the refund schedule or offset date.

    4. Under pre-counsel GATT, offsets and amounts applied as a "credit elect" were not considered in determining the GATT threshold amount.

      Note:

      An offset or credit elect not previously considered in determining the GATT threshold should be considered when a new overpayment is processed after post-counsel GATT was implemented.

    5. Do not change or "correct" credit interest only because it was computed under pre or post-Counsel GATT computations before January 1998.

  3. The GATT rate affects annual and net rate interest computations.

    • When netting the interest on a module in which credit interest was allowed at the lower GATT rate, the debit interest is computed at the GATT rate during the applicable overlapping period. See IRM 20.2.14, Netting of Credit and Debit Interest, for specific netting instructions.

    • The amount of GATT interest allowed on the refund that is subject to netting must be manually determined so that the overpayment amount may be netted at the normal or GATT rate, whichever is applicable, during the overlapping period.

    • For netting purposes, use pre or post-Counsel GATT computation in the same manner it was used on the original overpayment.

  4. The ACT software provides special transactions for use with modules involving GATT considerations. These transaction codes are TC 1003 (transaction type "Interest" ), and TC 1004 (transaction type "Interest High" ). These transactions allow ACT to properly handle interest and principal for GATT purposes (they are not necessary for modules not affected by GATT). The ACT software recognizes both TC 1003 and 1004 as interest, and will not apply a TC 1003 or 1004 amount to the GATT threshold. When entering tax module data on ACT, use the refund transaction from the transcript (TC 840 or 846) to show the refund of principal only. Use TC 1004 for the interest portion if any of the refund interest was computed at the normal corporate, "High" rate (or interest on the first $10,000 of principal if the refund was issued before January 1, 1995). Use TC 1003 if the refund interest is entirely computed at the GATT rate.

20.2.4.10  (09-03-2010)
Seized Property

  1. If the wages, bank account, etc., of an individual other than the taxpayer (who actually owed the tax liability) are wrongfully levied upon, interest is paid when the levied amount(s) are returned to the individual. Compute interest from the date the money was originally received by the Service to the refund schedule date (less the applicable back-off period).

  2. If property of an individual other than the taxpayer is wrongfully seized and sold, interest is paid when the proceeds from the sale of that property is returned to the individual. Compute credit interest from the date of the sale of the property to the refund schedule date.

  3. Interest on wrongfully seized property or levied upon amounts is determined at the overpayment rate under IRC 6621.

  4. Overpayment interest is "not" to be paid on amounts returned to the taxpayer.

20.2.4.11  (09-03-2010)
Erroneous Interest Computations

  1. There are times when overpayment interest on a module is computed incorrectly. Different procedures apply to the following:

    • Excessive interest paid.

    • Excessive interest paid and refunded and/or offset.

    • Insufficient interest paid.

20.2.4.11.1  (09-03-2010)
Excessive Interest Paid

  1. Excessive interest allowed, which has not refunded or offset, may be adjusted without a period of limitation.

20.2.4.11.2  (09-03-2010)
Excessive Interest Paid and Refunded and/or Offset

  1. As described in IRM 21.4.5, Erroneous Refunds, there are five categories of erroneous refunds (A1, A2, B, C, and D), each having specific methods of recovery. The method of recovery may, depending on the category of classification, include: assessment, erroneous refund lawsuit, offset, and voluntary repayment. Of these techniques, the method of assessment cannot be used to recover excessive credit interest paid to a taxpayer because there is no statutory authority for assessing the amount of money erroneously paid as overpayment interest. (Generally, the term "assessment" is used to describe circumstances in which deficiency procedures or other assessment procedures apply to create a liability [e.g., assessment of a tax adjustment]).

  2. Erroneous refunds that are not assessable under the Internal Revenue Code (IRC), including refunds of excessive credit interest paid to a taxpayer, are currently categorized as Category D Erroneous Refunds, and can be recovered only by the following methods:

    • Voluntary repayment.

    • Erroneous Refund Suit under IRC 7405 within two years from the time the refund is received by the taxpayer. (Five years if the erroneous refund was "induced by fraud or misrepresentation of a material fact." ) See IRC 6532(b).

      Note:

      Coordinate with local Counsel before any action is taken to pursue recovery under the five-year statute.

    • Offset. The IRS possesses a "Common Law Right to Offset" against a refund due the taxpayer to recover the full amount of an erroneous refund within certain boundaries.

  3. Under the "Common Law Right to Offset" , an erroneous refund is recoverable within the following boundaries:

    1. The erroneous refund may be offset, without a period of limitation, against any refund otherwise due the taxpayer so long as the offset involves the same taxpayer, the same type of tax, and the same tax period to which the refund is related.

    2. If the erroneous refund and the refund to be offset do not arise within the same tax module and the same tax period of the same taxpayer, the offset must be made within the applicable Erroneous Refund Statute Expiration Date (ERSED).

  4. Erroneous refunds that are recovered by suit accrue interest at the rate specified by IRC 6621 from the refund date to the date of recovery — IRC 6602. See IRM 20.2.7.5, Erroneous Refunds IRC 6404(e)(2), for exceptions.

  5. An erroneous offset of overpayment interest can be reversed so long as it has not refunded from the account to which it was applied, and so long as the 10-year collection period described in IRC 6502 for the account to which the offset was applied has not expired. Also, the period (normally the collection period) applicable to adjusting the account from which the overpayment was derived and to which it is to be returned cannot be expired. If a refund was issued from the account to which the offset was applied, and said refund included all or a portion of the offset, the offset reversal can be made so long as the erroneous credit is first recovered by means of voluntary repayment, erroneous refund suit, or right of offset.

  6. See IRM 21.4.5.5, Account Actions for Category D Erroneous Refunds, and IRM 21.4.5.14, Collection Methods for Category D Erroneous Refunds, for further information.

20.2.4.11.3  (09-03-2010)
Insufficient Interest Paid

  1. The allowance of interest under IRC 6611 is usually made at the time the overpayment is scheduled. In cases where interest on refunds or credits was insufficient and is legally payable, an informal claim or claim filed on Form 843, Claim for Refund and Request for Abatement, is sufficient notice to consider and allow additional overpayment interest. Any adjustment of such interest may be allowed and paid upon request at any time within six years of the date on which the overpayment was scheduled. See 28 U.S.C. § 2401(a) (district courts) and 28 U.S.C. § 2501 (U.S. Court of Federal Claims).

  2. If the claim is denied, the taxpayer can protect his/her right to such interest only by filing a civil suit within six years of the date on which the overpayment was scheduled. There is no valid extension of this period. The IRS may, however, allow and pay additional overpayment interest if the taxpayer files an administrative claim for additional interest within the six-year period of limitations under 28 U.S.C. §§ 2401 and 2501 and it expires without the taxpayer filing a suit. Regardless of whether the taxpayer files a suit, the IRS continues to have authority under IRC 6611 to consider a timely filed administrative claim for additional interest. Nevertheless, taxpayers should continue to be cautioned that filing a claim for overpayment interest with the IRS within the 6-year period of limitation does not toll or protect the six-year statute under 28 U.S.C. §§ 2401 and 2501. See Rev. Proc. 2000–26 and Rev. Rul. 57–242.


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