- 20.2.4.1 Overpayment Interest Overview
- 20.2.4.2 Definition of Overpayment
- 20.2.4.3 Availability Dates for Overpayments
- 20.2.4.4 Availability Dates for Unprocessible Returns
- 20.2.4.5 Applying Overpayments as Credits
- 20.2.4.6 Offsets
- 20.2.4.7 Refunds
- 20.2.4.8 Special Rules
- 20.2.4.9 Special Credit Interest Rules for Corporations
- 20.2.4.10 Seized Property
- 20.2.4.11 Erroneous Interest Computations
- Exhibit 20.2.4-1 Automatic Offset
- Exhibit 20.2.4-2 Generated Allowable Interest-IMF
- Exhibit 20.2.4-3 Generated Allowable Interest-BMF
- Exhibit 20.2.4-4 No Allowable Interest-45 Days
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Per IRC section 6611(a), interest is allowed and paid on any overpayment of tax at the overpayment rate established under IRC section 6621.
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The allowance of interest is authorized only on overpayments. There is no overpayment until the entire tax liability is satisfied.
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The Restructuring and Reform Act of 1998 (RRA '98) eliminated the interest rate differential for non-corporate taxpayers. See IRC 6621(d).
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Credit interest is allowed if the overpayment is:
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offset against a liability.—IRC section 6611(b)(1). See Section 4.6.1., or
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refunded to the taxpayer.—IRC section 6611(b)(2). See Section 4.9..
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An overpayment includes any amount that is:
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erroneously assessed and collected;
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assessed and collected after the applicable period of limitation has expired;
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a refundable credit that exceeds the tax liability against which the credit is allowed;
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tax withheld at the source that exceeds the tax liability against which the withheld tax is allowed as a credit;
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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);
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.
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an excess payment of tax, penalty, addition to tax, or interest,
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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.
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Prepaid 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.
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Prepaid credits are available for refund or offset as of the return due date.
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Interest allowed on overpayments based on prepaid credits can accrue interest no earlier than the due date of the return.—IRC section 6513(b)
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For late filed returns, interest is allowed from the received date of the return.—IRC section 6611(b)(3)
Exception:
Interest is allowed on excess prepaid credits on delinquent returns filed on or before October 3, 1982, from the due date of the return for both refunds and offsets.
Example:
A taxpayer late files his Forms 1040 for 1998, 1999, and 2000 on August 16, 2001. There is an overpayment on the 1999 tax period that fully pays the balances owing on 1998 and 2000. The credit from 1999 is available to be applied to the balance on 1998 on April 15, 2000. Debit interest runs from April 15, 1999 to April 15, 2000 on the 1998 balance when it is fully paid by offset of the taxpayer's 1999 overpayment. The overpayment from 1999 is available to pay the 2000 balance in full on April 15, 2001. However, no credit interest can be allowed on the 1999 overpayment until it is filed. Therefore, credit interest on the 1999 overpayment remaining after both 1998 and 2000 are fully paid begins on August 16, 2001.
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Payments made after the return due date are available for refund or offset as of the received date of the payment or the delinquent return received date, whichever is later..
If the return is Then timely filed compute interest from the payment received date late filed compute interest from the later of the payment received date or the return received date -
If a return is postmarked (U.S. or Designated Delivery Service) on or before the due date, the return is considered timely filed.—IRC section 7502(a)
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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.
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A Substitute For Return (SFR) (IRC IRC section 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:
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the payment received date, or
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the delinquent return received date, or
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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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See LEM 20.2.
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A return is not considered filed for interest computation purposes until the return is received in processible form.—IRC section 6611(h)
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A return is in processible form if it:
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is filed on a permitted form;
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contains the taxpayer's name, address, and identifying number;
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has the required signature(s); and
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contains sufficient information (whether on the return or on required attachments) to permit the mathematical verification of the tax liability shown on the return.
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When an unprocessible return is received, Document Perfection or the Entity Function corresponds for the missing information.
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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).
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If no reply is received or the reply is incomplete, the return is "U" coded to restrict credit interest (IMF), or coded with 9's in the RPD field (IMF and BMF),
Note:
Unprocessible returns are identified on TXMOD by a display of all 9s in the CRD field.
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Unprocessible returns 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: Return Processible Date Not a processible return Credit interest is not allowed
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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 original refund from the updated RPD.
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The RPD is updated through CC ADJ54. See IRM, IDRS Terminal Input, for input instructions.
Note:
The computer will not adjust the interest on refunds previously issued.
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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.
Note:
Once a return is processible, a subsequent request for additional information does not affect the RPD.
Example:
Code and Edit requests a signature and it is received on April 30, 2001. The RPD for credit interest is April 30, 2001. Master File will allow credit interest for refunds FROM: April 30,2000.
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IRC section 6402(a) allows the Service to credit an overpayment, including any interest on the overpayment, against outstanding liabilities.
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Prior to August 1, 1983, interest was not allowed for overpayments applied to unpaid tax, interest, penalty, or addition to tax for the same tax period.
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Effective August 1, 1983, Rev. Proc. 83–58 provides that if an overpayment is applied as a credit to an unpaid liability for the same taxpayer, same tax period, and same type of tax, interest is allowed from the availability date to the due date of the liability to which the overpayment is applied.
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Effective August 25, 1992, overpayments applied to underpayment interest must be applied on a daily basis as the interest accrues, as opposed to the assessment date of that underpayment interest.
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See Exhibit 20.2.4 - 1.for an example of an automatic (computer generated) offset.
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In some situations, a liability is satisfied by a credit and the credit is then "released" to be applied to another tax liability or refunded when a credit with an earlier availability date is used to satisfy the same liability. The availability date of the released credit for interest purposes is:
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The date the released credit was first applied, if no interest was allowed when the released credit was first applied.
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The date the released credit was available, if no interest was allowed because there was no interest period (e.g., the released credit was first used to satisfy a liability that arose before the date of availability of the credit).
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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:
Form 1040 for 1998 was timely filed and paid. An examination of the return resulted in a tax increase paid by an offset from an overpayment of the taxpayer's Form 1040 for 2000. Later the taxpayer files Form 1040X for 1998 for a tax decrease equal to the examination assessment . Interest begins on the amount offset from 2000 on April 15, 2001, the date it became available to be applied to the 1998 balance.
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An overpayment and credit interest on the overpayment may be applied as an "offset" against any outstanding liability of tax, interest, additional amount, additions to the tax, or penalty on another tax period.—IRC section 6402(a)
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Use the earliest available overpayments in the module to satisfy the outstanding liabilities.
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Once all outstanding liabilities are satisfied, refund any excess overpayment (plus interest) to the taxpayer.
Caution:
In order to be "outstanding" a balance must be unpaid, even if the payment is made later than the offset is available.
Example:
Due to a tax decrease on a taxpayer's 1998 Form 1120, there is credit of $20,000 available to be offset or refunded with an availability date of March 15, 1999. The taxpayer's Form 1120 for 1997 was examined and additional tax assessed for $10,000, which the taxpayer paid with interest on December 23, 2000. Although the 1998 overpayment is available prior to the December payment, the balance on 1997 is no longer "outstanding" and the entire $20,000 will be refunded from 1998, if there are no other outstanding liabilities.
Reminder:
The most recent unused payments in the tax module are refunded.
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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:
Appeals determines that a taxpayer has an overpayment of $15,000 on his 1998 Form 1120 and an underpayment of $25,000 on his Form 1120 for 1999. The taxpayer has not paid the balance on the 1999 tax period and requests that his overpayment be applied. Assuming that no other interest issues are present, credit interest is allowed on the $15,000 from March 15, 1999 (the due date of the 1998 return) to March 15, 2000 (the due date of the 1999 return). Both the $15,000 and the accrued interest are applied to the 1998 balance on March 15, 2000.
If the overpayment is applied to: Then Unpaid liabilities (including tax, penalties, additions to tax) due beforethe 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
TO: the due date of liabilityUnpaid liability for another taxpayer due after the availability date Credit interest is allowed
FROM: the availability date
TO: the 23C date of the credit transfer applying credit to the liability.
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The due date for debit interest 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 the assessment date of interest Accrued AFTER December 31, 1982 as the interest accrues
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An overpayment exists when the amounts paid exceed the liability. Generally, the overpayment is applied to the oldest outstanding liability, that is, the oldest CSED.
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Do not credit an overpayment (other than an overpayment of an installment) against an installment of future tax unless the taxpayer has requested, in writing, that the Service do so. Do not ask taxpayers to allow the Service to credit the overpayment. Do not transfer an overpayment beyond the current installment.
Example:
On May 15, 2001, a taxpayer files a Form 1120X for 199912 requesting a tax decrease of $5,000. The taxpayer asked that the overpayment be applied to his Form 1120X for 200112. Inform the taxpayer that his overpayment will be applied to his first installment for 200112. Allow overpayment interest from the credit availability date to April 15, 2001 and apply the credit with the April 15, 2001 date.
Reminder:
If the taxpayer is requesting the overpayment be applied to the next succeeding tax period, transfer as credit elect and allow no credit interest.
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Master File can generally perform systemic offsets within the same account (same taxpayer) correctly and will also transfer allowable interest.
Master File Transaction Code Action TC 826 Transfer overpayment out of a module. TC 706 Transfer credit into a module. TC 856 Transfer overpaid allowable interest out of a module. TC 736 Transfer allowable interest into a module. Note:
Effective cycle 199501 and subsequent, TC 856/736 posts with the TC 776 transaction date, which is the date to which credit interest is computed.
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An overpayment and the interest thereon may be credited to the liability of a different taxpayer with the overpaid taxpayer's consent.
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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).—Revenue Procedure 65–20
Example:
Taxpayer A is requesting a $10,000 overpayment be transferred from his 1999 Form 1120 to Taxpayer B's 1998 Form 1120. The Service is processing the request on August 2, 2001. Compute credit interest on Taxpayer A from the availability date of the credit to August 13, 2001 (the 23C date of the credit transfer) and apply the $10,000 overpayment as well as the related credit interest on August 13, 2001. Debit interest continues to run on Taxpayer B on the $10,000 and allowable credit interest until August 13, 2001.
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Any overpayment remaining after all outstanding balances are satisfied is refunded along with applicable credit interest.
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Credit interest is allowed from the effective date of the latest available refundable credit to the refund schedule date (less the applicable back-off period).
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All refunds issued by a service center must be certified by the service center director as valid. A schedule of the refunds issued is prepared each week.
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The Refund Schedule Date is the date that the service center director certifies that all refunds shown on the schedule are valid and are to be paid.
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Additional credit interest is not computed on an overpayment for any period after the date the refund schedule is signed.
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Credit interest on refunds is computed:
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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 31, 2000, Master File computes allowable interest on the overpayment to July 18, 2000. See Exhibit 20.2.4 - 2..
Note:
Prior to July 10, 1984, credit interest on IMF accounts was computed to the 23C date less 12 days.
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On BMF accounts, to the 23C date less 9 days (the tenth day preceding the refund check date (BMF).
Example:
If the date of a systemic BMF refund (TC 846) is July 3, 2000, Master File will compute allowable interest on the overpayment to June 24, 2000. See Exhibit 20.2.4 - 3.
Note:
Prior to July 10, 1984, interest was computed to the 23C date less 7 days.
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The 45–day rule provides for a processing period during which credit interest is limited in certain situations.—IRC section 6611(e)
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For income tax returns with due dates prior to January 1, 1994, without regard to extension, interest was not paid on an overpayment when it was refunded within 45 days of the date the return was filed in processible form.—IRC section 6611(e)
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IRC section 6611(e) applied to , and
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Only to income tax; and
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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.
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For returns with due dates on or after January 1, 1994, without regard to extension, the 45–day rule was expanded to apply to all types of tax returns.—IRC section 6611(e)(1) as amended by PL 103–66.
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To determine whether the 45 day period has been met, consider these dates:
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the normal return due date
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the return received date, without regard to extensions
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the Return Processible Date (RPD), if present (also known as the Correspondence Received Date).
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the received date of a formal or informal claim
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Add 45 days to the later of these dates. If the refund is not made on or before that date, interest must be allowed on the refund.
Note:
The refund check date for computer-generated refunds is:
IMF: 23C date less 3 days
BMF: 23C date less 1 day -
Master File computes allowable interest to:
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IMF: 23C minus 13 days
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BMF: 23C minus 9 days
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Compute allowable interest on manual refunds to the date certified by Accounting for allowing the refund.
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See Exhibit 20.2.4 - 4.No Allowable Interest-45 Days
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The 45–Day rule was further expanded to include amended returns and claims for credit or refund filed on or after January 1, 1995.
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When an overpayment results from a claim or amended return and the refund is issued within 45 days of the received date of the processible claim or amended return, no interest is allowed from the received date of the claim/amended return received date. Credit interest is allowed from the credit availability date to the received date of the processible claim/amended return.
Example:
A claim for a refund of timely filed prepaid credit for a 200012 Form 1040 is received on August 14, 2001. The refund is issued on September 20, 2001, within the 45–days. Credit interest is allowed from April 15, 2001, the return due date to August 14, 2001, the claim received date.
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When an overpayment results from a claim or amended return and the refund is not issued within 45 days of the received date, credit interest is allowed from the availability date to the refund schedule date.
Caution:
For manual computations, be sure to consider the received date of the amended return/claim in the same manner.—IRC section 6611(e)(2)
Exception:
For carryback claims of Foreign Tax Credit (FTC) filed prior to January 1, 1995, see IRM 21.16, Carryback DP Adjustments. Carryback claims of FTC filed on or after January 1, 1995, are subject to the 45–day rule under OBRA 1993.
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Master File uses the amended claims date field (AMD–CLMS–DT) to apply the 45–Day Rule.
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Follow existing procedures to determine the received date of an amended return/claim. Always enter the date the processible amended return or claim was received by the Service in the AMD–CLMS–DT field.
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The AMD-CLMS-DT field must be completed for all 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)
If a 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 dateFiled on or after January 1, 1995 refunded within 45 days of received date Credit interest is allowed
FROM: the 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 received date Credit interest is allowed
FROM: the availability date
TO: the refund schedule date (less 9/13 day back-off period)Note:
If the AMD–CLMS–DT is prior to the return due date, including extensions, 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 days.
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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 otherwise would have been allowed. This rule applies to any refund paid on or after January 1, 1995, regardless of the taxable period to which the refund relates.
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An IRS Initiated Adjustment is an adjustment initiated by the Service without the taxpayer's request.
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. The resulting refund is taxpayer initiated.
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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.
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The 45–Day rule for IRS initiated adjustments IS APPLIED TO OFFSETS. Subtract 45 days from the date to which credit interest is computed.
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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). The 54/58 days is a combination of the 9/13 and 45 day period. If PC 3 is not used with a refund adjustment, Master File only backs off the 9/13 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 54/58 day back-off period when both criteria apply. 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.
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Credit interest is computed according to the date of the refund schedule prepared by the Accounting Function.
Note:
When manually computing interest, attach the supporting documentation/computation to the manual refund documents before routing to Accounting.
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When the 45 day period is in jeopardy, consider issuing a manual refund.
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For specific instructions on preparing manual refunds, see Customer Service IRM 21.4, Manual Refund.
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Special rules apply for interest on:
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Cash Bonds
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Credit for Increasing Research Activities-Suspension Periods
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Unidentified Remittances
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Credit Elects
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Credit interest is NOT allowed on a cash bond deposit, or on any portion of a cash bond deposit that is offset to other tax liabilities or returned to a taxpayer, before assessment.—Revenue Procedure 84–58
Exception:
If an assessed amount was paid by a cash bond deposit and is later abated, in whole or in part, interest is allowed on the overpayment amount from the date the abated tax was originally assessed to the date of refund or offset.
Example:
A taxpayer submits a cash bond deposit in the amount of $1000. At the end of the examination, the taxpayer is assessed a total of $800. The amount available for refund or offset is $200 (credit interest is not allowed on the $200 overpayment). It is later determined that the actual assessment should have been $500. Credit interest is allowed on $300 from the date of assessment to the date the overpayment is either refunded or offset.
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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.
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For Cash Bond payments posted after January 1, 1990, the blocking series is 990–999.
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Prior to cycle 198427, interest is not allowed on the refund or offset of any portion of a posted TC 640 cash bond.
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After cycle 198427, only those TC 640s blocked "999" are refunded or offset without interest.
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When an amount is accepted as an advanced payment of a liability and it is later refunded (in whole or in part), interest is allowed on the overpayment from the received date of the payment to the offset or refund schedule date.
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The Tax Relief Extension Act of 1999 reinstated this credit retroactively for the period July 1, 1999–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.
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First suspension period: Credit arising from July 1, 1999–September 30, 2000 cannot be taken into account prior to October 1, 2000.
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Second suspension period: Credit arising from October 1, 2000–September 30, 2001 cannot be taken into consideration prior to October 1, 2001.
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Credit interest must be manually computed and adjusted. Compute credit interest with a start date of the latest of:
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the day after the suspension date (October 1, 2000 for first suspension period, October 1, 2001 for the second.),or
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the due date of a timely filed and paid return, or
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the delinquent received date of a late filed return, or
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the payment date.
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The 45–day interest free provision of OBRA '93 applies.
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See Customer Service IRM 21.7.4.4.8.3.4 for processing instructions for claims involving the suspension periods.
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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. Credit interest is allowed from the payment received date, the return due date or return received date, whichever is later.
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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.
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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.
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If the taxpayer requests permission to change a credit elect to a refund, interest is not allowed on the refund. See Policy Statement P–2–88 for the circumstances in which the credit can be reversed.
Example:
Taxpayer Mary Jones timely files her 200012 Form 1040 showing an overpayment of $500 which she requests be applied to her estimated payments for 200112. In August 2001, she requests that the credit elect be refunded. She states that she has sufficient withholding to cover her 2001 taxes and that she is experiencing a severe hardship and needs the credit elect refunded. The credit elect is refunded without interest.
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See IRM 20.2.5 for instructions on debit interest and credit elect.
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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.
Note:
A C corporation is any BMF taxable entity with a significant Form 1120 filing requirement, or any BMF entity with an Exempt Organization Section with a corporate indicator.
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The corporate overpayment interest rate is applicable to:
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Form 1120 returns
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Form 940, 941, 720 with corporate filing requirements
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Form 990C and T with Exempt Organization indicator of 1.
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Master File sets a corporate indicator (the literal " GATT" on CC TXMOD) for BMF returns subject to the corporate overpayment rate.
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BMF taxpayers that are notcorporate filers are allowed overpayment interest at the equalized non-corporate rate.
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See IRM 20.2.5 for debit interest on corporate taxpayers.
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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 (Forms 1120, 990C, 990T).
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Interest on overpayments for non-corporate BMF taxpayers is not subject to the GATT rate.
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Credit interest accrued through December 31, 1994, is not considered for purposes of determining whether the $10,000 threshold has been reached.
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All overpayments for a particular tax year are added together to determine whether the $10,000 threshold is met. 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 credit elect.
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To determine if the threshold has been met:
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Add all previous overpayments for the tax module to the amount that you are currently processing.
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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.
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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.
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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).
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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
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Normal corporate credit interest on the excess amount is computed from the credit availability date to December 31, 1994, then
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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.
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The total of the normal corporate credit interest and the interest at the GATT rate is the allowable interest on the refund or offset.
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Prior to January 1, 1998, Master File programming computed GATT (Pre-Counsel GATT computation) as follows:
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Normal credit interest was computed on the entire overpayment from the availability date to December 31, 1994.
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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.
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GATT rates were applied only to the excess principal from January 1, 1995 to the refund schedule or offset date.
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Do not change or "correct" credit interest only because it was computed under Pre or Post Counsel GATT computationsbefore January 1998.
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The GATT rate affects annual and net rate netting computations.
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When netting the interest on a module in which credit interest was allowed at the lower GATT rate, the deficiency/debit interest is computed at the GATT rate during the applicable overlapping period. See IRM 20.2.15 for specific netting instructions.
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The amount of GATT interest allowed on the refund that is subject to netting must be manually determined so that the refund may be netted at the normal or GATT rate, whichever applicable, during the overlapping period.
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For netting purposes, use Pre- or Post-Counsel GATT computation in the same manner it was used on the original overpayment.
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If a 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.
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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.
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Interest on wrongfully seized property or levied upon amounts is determined at the overpayment rate under IRC section 6621.
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Overpayment interest is not to be paid on amounts returned to the taxpayer.
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There are times when interest on a module is computed incorrectly. Different procedures apply to the following:
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Excessive overpayment interest paid.
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Insufficient overpayment interest paid.
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Credit interest allowed on an overpayment is NOT part of the overpayment. Excessive credit interest paid to a taxpayer generally cannot be recovered by assessment.
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Ask the taxpayer to voluntarily repay the amount of excessive interest paid.
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If the taxpayer does not respond to the request and the interest was applied as a credit, reverse the credit and collect any outstanding amount to which the credit was applied.
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If the interest was refunded and the taxpayer refuses to pay it, see IRM 21.8 for Erroneous Refund Procedures.
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Erroneous refunds that must be recovered by suit accrue interest at the rate specified by IRC section 6621, from the refund date to the date of recovery.—IRC section 6602
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See IRM 20.2.7, Interest on Erroneous Refunds, for exceptions. See IRM 21.8 for Erroneous Refund Procedures.
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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. If the claim is denied, the taxpayer can protect his/her right to such interest only by filing a civil suit within six years from the schedule date on which the overassessment was originally certified on Form 2188, Voucher and Schedule of Overpayment and Overassessment. There is no valid extension of this period.
Note:
The period of limitation also applies for recovery of incorrectly computed credit interest on an overpayment of tax, whether or not an error was made by the Service.—Revenue Ruling 56–506 and 57–242
Reminder:
When such interest is applied as a credit to an outstanding liability, interest is charged on the amount so satisfied from the due date to the availability date of the credit interest (availability date of the credit interest is the date to which interest was computed). When interest is applied as a credit, the liability amount is considered paid as of the availability date of the credit interest.