20.2.5  Interest on Underpayments

Manual Transmittal

February 04, 2015

Purpose

(1) This transmits revised IRM 20.2.5, Interest,Interest on Underpayments.

Material Changes

(1) Minor editorial changes have been made throughout this IRM. Forms, letters, and IRM references were reviewed and updated as necessary. Significant changes to this IRM are reflected in the table below:

(2)

Reference Description of Change
IRM 20.2.5.1 ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Revised the note information regarding timely payments.
IRM 20.2.5.2 Exception statement revised to expand information related to the affect of Form 872, Consent to Extend the Time to Assess Tax, on the statute of limitations for filing a claim. Added new paragraph (6) regarding correcting erroneous interest abatements or overpayments that were offset instead of refunded.
IRM 20.2.5.3 IPU 14U0043 dated 01-08-2014 (reissued IPU 101748 dated 12-22-2010).
• Revised paragraph (2)(a) to correct the reference in the exception statement to the late filed penalty per IRC 6699 from Form 1120, U.S. Corporation Income Tax Return to Form 1120S, U.S. Income Tax Return for an S Corporation
• Added new text at paragraph (3) to explain in more detail the 50% interest component that was added to the negligence and fraud penalties for returns due after December 31, 1981, and before January 1, 1989.
IRM 20.2.5.3 IPU 14U0043 dated 01-08-2014
• Added IRC 6653 and IRC 6662A to the list of penalties that start interest on the return due date or extended due date.
• Renumbered paragraph (6) corrects reference for the return due date chart exhibit.
IRM 20.2.5.4(5) Added text to provide that the Federal Payment Levy Program (FPLP) is also allowed 30 days to pay.
IRM 20.2.5.4(6) IPU 14U0043 dated 01-08-2014 added new paragraph (6) that offsets receive benefit of notice and demand procedures.
IRM 20.2.5.5(1) Clarified when returns and payments are considered timely made.
IRM 20.2.5.5(3) IPU 14U0043 dated 01-08-2014 revised the interest table for payments when the return due date falls on a weekend or holiday and added a paragraph.
IRM 20.2.5.5(4) IPU 14U0043 dated 01-08-2014 corrected to provide the new IRM citation for the list of legal holidays.
IRM 20.2.5.6 Revised to explain the suspension of interest on deficiencies and where to locate more information on computing suspensions. Adds Form 4089, Notice of Deficiency-Waiver, to the list of forms a taxpayer can sign to agree to an adjustment.
IRM 20.2.5.7.1 The paragraph (1)(b) note statement was added to explain how the ACT/DMI program must be used to prevent erroneous within module netting.
IRM 20.2.5.7.2(2) IPU 14U0043 dated 01-08-2014 (reissued IPU 101748 dated 12-22-2010). The caution statement was revised to state that computer condition code 8 (which indicates that annualization was used to compute the estimated tax penalty), only applies to BMF modules.
IRM 20.2.5.7.2(2) Added a note that Rev. Rul. 99-40 does not apply to the original tax or an assessment after a substitute for return (SFR) has posted. Also clarified when a claim or request can be sent to Appeals.
IRM 20.2.5.7.2 (3)(c) Changed the example of a refundable credit from telephone excise tax (TETR) to withholding, since the TETR credit only applies to the 2006 returns.
IRM 20.2.5.7.2(5) IPU 14U0043 dated 01-08-2014 (reissued IPU 101748 dated 12-22-2010). Revised the If/Then table for computing Rev. Rul. 99-40 when a refund is issued prior to the return due date. Moved from paragraph (6) to (5), the Appeals link to the tax computation specialist spreadsheets and refers users to their SharePoint site.
IRM 20.2.5.7.2(6) Text revised to add a caution statement regarding when to manipulate ACT/DMI to prevent erroneous within module netting.
IRM 20.2.5.7.4 Expanded the explanation and example regarding how to prevent erroneous within module netting when there are carryback adjustments in addition to Rev. Rul. 99-40.
IRM 20.2.5.8 The subsection title was revised to "Large Corporate Underpayment Introduction" and now provides an overview of large corporate underpayment (LCU) interest.
IRM 20.2.5.8.1 The subsection title was revised to "Requirement for Application of LCU Rate" and lists the rules for applying the LCU interest rate. Former text at this subsection was moved to IRM 20.2.5.8.1.2.
IRM 20.2.5.8.1.1 New text at IRM 20.2.5.8.1.1 was added to include IPU 14U0043 dated 01-08-2014 (reissued IPU 101748 dated 12-22-2010) and provides the definition of "C" corporation for purposes of LCU rate and is titled "Definition of "C" Corporation" . Former text at this subsection was moved to IRM 20.2.5.8.1.3.
IRM 20.2.5.8.1.2 Former text at IRM 20.2.5.8.1 was moved to new subsection and titled "Threshold Underpayment for LCU" and explains how the threshold underpayment is determined for pre-98 and post-98 large corporate underpayment interest rules.
IRM 20.2.5.8.1.2(9) IPU 14U0043 dated 01-08-2014 (reissued IPU 101748 dated 12-22-2010). Text formerly contained at IRM 20.2.5.8.1 was moved and revised to state that the IRS will NOT follow the court case ruling of Med James, Inc. v. Commissioner, 121 T.C. 147,151 (2003) because carryback credits are not considered payments for purposes of determining a threshold underpayment.
IRM 20.2.5.8.1.3 Text at former IRM 20.2.5.8.1.1 was renumbered to new subsection IRM 20.2.5.8.1.3 and explains how payments and offsets are considered for purposes of computing interest on large corporate underpayments.
IRM 20.2.5.8.1.3(2) IPU 14U0043 dated 01-08-2014 (reissued IPU 101748 dated 12-22-2010). Text formerly contained at IRM 20.2.5.8.1.1 was moved to new subsection revising the example to state that 6603 deposits and cash bonds are not considered as payments for purposes of the large corporate underpayment rate.
IRM 20.2.5.8.2 Subsection title revised to "Start Date for LCU Interest Rate" . IPU 14U0043 dated 01-08-2014 expanded with additional text and examples how to determine the interest start date for LCU for pre-98 and post-97 rules.
IRM 20.2.5.8.3 Subsection title revised to "Master File and the LCU Interest Rate" . IPU 14U0043 dated 01-08-2014 added:
  • Procedures for the correction or removal of an applicable date.

  • To provide that tax assessments input through Command Code (CC) AMCLS require a manual computation and restriction of interest if the LCU rate applies.

  • Adjustments requiring an interest computation date must have interest manually computed when LCU applies.

IRM 20.2.5.8.4 Subsection title revised to "Computation of the LCU Interest Rate" and clarifies instructions on the computation of interest at the LCU rate.
IRM 20.2.5.8.5 Subsection title revised to "Special Application of LCU Interest for Periods Before and After December 31, 1997" and added text on the application of the LCU rate when there are unpaid notices or letters before and after December 31, 1997 on the same tax module.
IRM 20.2.5.9(3) IPU 14U0043 dated 01-08-2014 (reissued IPU 101748 dated 12-22-2010). Added paragraph advising that a taxpayer may be liable for both large corporate underpayment (LCU) and tax motivated interest (TMT).
IRM 20.2.5.9.1(2) Added new paragraph and refers user to IRM 20.2.5.9.5.2 for an example of a TMT interest computation.
IRM 20.2.5.9.1(3) Added new paragraph explaining how interest is computed when both LCU and TMT apply.
IRM 20.2.5.9.2.1(1) and (2) Clarified the definition of TMT reference numbers.
IRM 20.2.5.9.3 Clarified the references to IRC 6653(a)(1)(B) and IRC 6653(b)(1)(B) which relate to the law prior to the 1989 amendment. Also, refers user to IRM 20.2.5.3 on how to compute the 50% interest portion of the negligence or fraud penalty.
IRM 20.2.5.9.4 The subsection title was revised to "Waiver Date Processing Regarding TMT Interest and Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)" . Replaced the terms "870" and "Form 870 agreement" with the term "waiver" . Paragraph (1) revised to add that TMT TEFRA assessments can be made without a statutory notice of deficiency.
IRM 20.2.5.9.5 The subsection title was revised to "Partial Payment Allocation for Tax Motivated Transactions" . A caution statement was added on the requirement to separate interest computations using ACT/DMI when TMT tax is full paid and there are subsequent unpaid penalties.
IRM 20.2.5.9.5.1 IPU 14U0043 dated 01-08-2014 (reissued IPU 101748 dated 12-22-2010). Replaced the term "870" with the term "waiver" .
IRM 20.2.5.9.5.1(3) Added an example that corresponds to the answers in Figure 20.2.5-1 and Figure 20.2.5-2 of IRM 20.2.5.9.5.2.
Figure 20.2.5-1 IPU 14U0043 dated 01-08-2014 (reissued IPU 101748 dated 12-22-2010). Revised the dates shown in the figure answer.
IRM 20.2.5.9.5.2(2) Clarified the paragraph regarding how to compute TMT interest when using ACT/DMI.
IRM 20.2.5.9.5.3 Revised the dates used in the TMT interest example. Clarified text regarding how to update TMT interest when using ACT/DMI.
IRM 20.2.5.11(1) IPU 14U0043 dated 01-08-2014 (reissued IPU 101748 dated 12-22-2010). Corrected IRM references.
IRM 20.2.5.11(5) Clarified when IRC 1363(d)(2) applies.
IRM 20.2.5.13(1) Added a caution statement about when offsetting to a liability module, only offset enough to full pay the balance due.
IRM 20.2.5.13 (3)(c) IPU 14U0043 dated 01-08-2014 (reissued IPU 101748 dated 12-22-2010). Clarified information regarding the debit interest computation ending date.
IRM 20.2.5.13(5) Clarified that no debit interest is charged on a liability satisfied by an offset.
IRM 20.2.5.13.1(1) IPU 14U0043 dated 01-08-2014 added text to state that research may be required to determine if the taxpayer is the same person (entity) or different taxpayer.
IRM 20.2.5.13.1(2) IPU 14U0043 dated 01-08-2014 revised example from a corporation to an individual.
IRM 20.2.5.14(2) IPU 14U0043 dated 01-08-2014 added text to state that when levy proceeds are returned a manual computation of interest is not required unless the module is already restricted.
IRM 20.2.5.14(2) Updated dates in the example to more current years.
IRM 20.2.5.14(3) IPU 14U0043 dated 01-08-2014 added text to state that interest may require a manual computation if the credit due to a wrongful levy is refunded or offset using a different date than when it was applied.
IRM 20.2.5.14(4) IPU 14U0043 dated 01-08-2014 revised to explain the order in which monies are applied when received from a sale or auction. The interest table was removed.
IRM 20.2.5.15(1) Revised to add a caution statement regarding TC 560 and extensions. Updated dates in the example to more current years.
IRM 20.2.5.16(1) Clarified text regarding agreements received on Form 906, Closing Agreement on Final Determination Covering Specific Matters, and agreements entitled to IRC 6601(c) interest suspension.
IRM 20.2.5.16(4) IPU 14U0043 dated 01-08-2014 added paragraph (4) to state that amended returns do not receive an IRC 6601(c) interest suspension.
Exhibit 20.2.5-2 Revised exhibit. Changed "Master File" status to "notice" status. Defined module balance to include accruals when considering the number of days needed for payments to be considered timely. Added "Collection Due Process" (CDP) and Federal Payment Levy Program to this notice payment due date chart.
Exhibit 20.2.5-3 Corrected exhibit heading from Rev. Proc. to Rev. Rul. Updated the years in the Rev. Rul. 99-40 example to 200812 and 200912.

Effect on Other Documents

This material supersedes IRM 20.2.5 dated March 12, 2010 and incorporates changes from IPU 14U0043 dated 01-08-2014 (which reissued IPU 101748 dated 12-22-2010).

Audience

This IRM is intended for servicewide use by all employees who handle tax adjustments involving the computation of interest.

Effective Date

(02-04-2015)

Maria S. Hwang
Director, Servicewide Operations
Small Business/Self Employed

20.2.5.1  (02-04-2015)
Underpayment Interest Overview

  1. Debit interest, at the underpayment rate established under IRC 6621, is charged on an outstanding liability from the due date of the unpaid liability to the date fully paid.

    1. Underpayment interest rates are determined quarterly.

    2. Special rules apply for large corporate underpayments (LCU) and tax motivated transactions (TMT). See IRM 20.2.5.8 and IRM 20.2.5.9.

    3. Per IRC 7502, timely mailed or electronically transmitted returns are considered timely received. Payments made by the prescribed due date (generally, the un-extended return due date) are considered timely.

      Note:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Note:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Note:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      See IRM 20.2.5.4 regarding notice and demand dates for payments.

20.2.5.2  (02-04-2015)
Statutory Period for Assessment and Collection of Interest

  1. Interest may be assessed and collected at any time during which the tax to which it relates may be collected. See IRC 6601(g).

  2. Generally, taxes assessed after November 5, 1990, must be collected within 10 years after the assessment of the tax [Collection Statute Expiration Date (CSED), IRC 6502(a)(1)]. See IRM 25.6.1.12, Collection Statute Expiration Date (CSED), for additional information on CSED.

  3. Prior to November 6, 1990, the statutory period for collection was six years.

  4. The statutory period of limitations for filing a claim for credit or refund of overpaid debit interest is generally the later of: two years from the date of the payment or three years from the date the return was filed. If no return has been filed, then the statutory period is two years from the date of payment. See chart in IRM 25.6.1.10.2.7, Claims for Credit or Refund, for exact time frames to file a claim and receive a refund. Credits (e.g., TC 700/706/730/736) applied via offset have a statute of two years from the cycle date the credit was applied. The cycle date can be found on the transcript after the amount. Misapplied payments transferred from another module are considered effective on the date of payment and not when transferred. See IRM 25.6.1, Statute of Limitations Processes and Procedures, for additional information on the Refund Statute Expiration Date (RSED).

    Exception:

    If a consent (Form 872, Consent to Extend the Time to Assess Tax) to extend the Assessment Statute Expiration Date (ASED) is secured, the period for filing a claim for refund of overpaid interest is also extended six months from the new ASED. See IRC 6511(c). Verify that the TC 560 on the module is due to having received Form 872 and not due to some other statute extension reason, e.g., bankruptcy.

  5. When debit interest is erroneously abated and refunded, (e.g., from an interest abatement claim), debit interest may be reassessed within ten years from the original tax assessment to which the interest relates (assuming the tax was assessed after November 5, 1990). If the erroneous refund is an IRS error, see IRM 20.2.7.6, Erroneous Refunds-IRC Section 6404(e)(2) for the rules regarding debit interest for erroneous refunds due to IRS error.

    Note:

    For an erroneous refund of credit interest (an excessive payment of interest on an overpayment), erroneous refund procedures must be followed. See IRM 20.2.4.11.2, Recovery of Excessive Interest Paid, IRM 21.4.5, Erroneous Refunds, IRM 3.17.80, Working and Monitoring Category D, Erroneous Refund Cases in Accounting Operations , and IRM 25.6.1.10.2.3, Remedies for Recovering an Erroneous Refund.

    Note:

    Generally, IRS has two years from the refund date to file a suit to recover the refund. However, if there is fraud or a "misrepresentation of material fact" , IRS has five years from the refund date to recover the refund. Coordinate with local Counsel before any action is taken to pursue recovery under the five-year statute.

  6. If debit interest is erroneously abated and the released credit or payment is offset instead of refunded, then it can be corrected, provided the collection statute is still open. See IRM 20.2.11.11.1, Under-assessed Debit Interest. Likewise, if erroneous overpaid credit interest has been offset, then it can also be corrected, if the collection statute is open. See IRM 20.2.11.11.4, Overpaid Credit Interest.

20.2.5.3  (02-04-2015)
Interest on Penalties and Additions to Tax

  1. With the exceptions of penalties described in paragraphs (2) and (4) below, penalties (including penalties referred to as "additions to tax" ) are due on the date of notice and demand [IRC 6601(e)(2)(A)], which is the assessment date or "23C" date. Therefore, interest on these penalties is computed from the assessment date.

  2. Interest on the following penalties starts from the return due date (RDD) of the related return, the extended return due date, or July 18, 1984, whichever is later. Use the appropriate date as the interest start date on Command Code (CC) COMPA or Automated Computation Tool (ACT), also known as Decision Modeling Inc.(DMI) computations. This is effective for interest accruing after July 18, 1984, with respect to certain penalties assessed on or after July 18, 1984 [IRC 6601(e)(2)(B)]. If assessed before July 18, 1984, use the 23C date of the assessment as the interest start date.

    1. For returns due after December 31, 1989, the following penalties accrue interest from the return due date or the extended return due date (whichever is later):

        • IRC 6651(a)(1), Failure to File Penalty (TC 16X).

      Exception:

      IRC 6698 and IRC 6699 are Failure to File Penalties for Form 1065, U.S. Return of Partnership Income, and Form 1120S , U.S. Income Tax Return for an S Corporation respectively, but interest does not start until the 23C date, even though the penalty posts with a TC 16X.

        • IRC 6653, Failure to Pay Stamp Tax (Penalty Reference Number (PRN) 574).

      Note:

      Effective January 1, 1990, IRC 6653 was revised to be exclusively for the failure to pay stamp taxes penalty.

        • IRC 6662, Accuracy Related Penalty (TC 240, PRN 680)
        • IRC 6662A, Accuracy Related Penalty with Respect to Reportable Transactions (TC 240, PRN 681)
        • IRC 6663, Fraud Penalty (TC 320)
        • IRC 6651(f), Fraudulent Failure to File Penalty (PRN 686).

      Note:

      If an extension to file is later reversed, as shown by TC 462 (Correction of a TC 460 Transaction Processed in Error), compute interest on the penalty from the original return due date.

    2. For returns with due dates prior to January 1, 1990, the following penalties accrue interest from the return due date, the extended return due date or July 18, 1984, whichever is later.

        • IRC 6651(a)(1), Failure to File Penalty (TC 16X)
        • IRC 6659, Gross Valuation Overstatement Penalty (TC 240, Reference Number 680)
        • IRC 6660, Valuation Understatement Penalty for purposes of estate or gift taxes (TC 240, Reference Number 682)
        • IRC 6661, Substantial Understatement Penalty (TC 240, Reference Number 681)

      Note:

      IRC 6659, IRC 6660, and IRC 6661, were repealed in 1989.

    3. For returns due after December 31, 1988 and before January 1, 1990, the following penalties accrue interest from the return due date or extended due date:

        •IRC 6653(a), Negligence Penalty (TC 350)
        • IRC 6653(b), Fraud Penalty (TC 320)
  3. The following penalties are a hybrid, with a two-part penalty computation. The first part of the penalty is the "base" penalty amount determined to be due as a result of negligence or fraud. The second part of the penalty is based on 50% of the interest computed on the tax due to negligence or fraud. Interest on the tax is computed from the return due date to the payment date, assessment date (23C) or waiver plus 30 days date, whichever is earlier. The 50% interest component is then added to the base penalty amount (TC 350 or TC 320) to arrive at the total penalty amount that is assessed. Interest on the penalty amount, accrues from the 23C date until the date paid, if not paid within the notice and demand time frame for payment.

    1. IRC 6653(a), Negligence Penalty (TC 350)

    2. IRC 6653(b), Fraud Penalty (TC 320)

    3. These penalties apply to returns due after December 31, 1981, and before January 1, 1989. When computing or abating interest, the information below must be considered.

      •For tax returns due after December 31, 1981, interest for purposes of the additional 50% interest component [provided by IRC 6653(a)(2), Negligence Penalty], begins to accrue on the return due date (determined without regard to an extension) through the payment date, 23C date or waiver plus 30 days, whichever is earlier. Between December 31, 1981, through September 3, 1982, there was no provision for the additional 50% interest component attributable to fraud.
      •For tax returns due after September 3, 1982 through December 31, 1988, interest for purposes of the additional 50% interest component (provided by IRC 6653(b)(2), Fraud Penalty), begins to accrue on the return due date (determined without regard to an extension) through the payment date, 23C date or waiver plus 30 days, whichever is earlier.
      •The 50% interest component must be adjusted if any portion of the negligent or fraudulent tax is abated.
      •Once assessed, interest on the penalty amount is computed from the 23C date of the tax and penalty assessment. Effective December 31, 1986, IRC 6653(a)(2) was renumbered to IRC 6653(a)(1)(B) and IRC 6653(b)(2) was renumbered to IRC 6653(b)(1)(B).
      •For returns due after December 31, 1988, the additional 50% interest component was repealed.
  4. If the return due date is prior to January 1, 1990, TC 240 penalties assessed on the civil penalty module (MFT 13 and 55) with Reference Numbers 510–518, 601–603, 606 and 611 are due and payable on April 1 of the year following the calendar year for which the return or statement was made. Interest is charged from April 1 to the date the penalty is paid. See IRC 6676(d)(1)(B) and IRC 6724(c)(3)(B).

    Note:

    IRC 6676 was repealed and IRC 6724 was amended to start interest on the assessment date for returns and statements with due dates after December 31, 1989.

  5. Interest is computer generated on penalty assessments according to the above rules. Do NOT manually compute and restrict interest on the above penalties unless interest must otherwise be restricted.

    Note:

    With the exception of the failure to pay (FTP) penalty, when a penalty has been asserted due to the recapture of a carryback allowance, interest on the penalty accrues from the due date of the loss year return, the extended due date of the loss year return, or July 18, 1984, whichever is later. With these penalty adjustments, interest must be manually computed and restricted by input of TC 340.

  6. See Exhibit 20.2.5-1, Interest on Penalties, which shows how the interest rules described above are applied. In the exhibit, since the late filing penalty (TC 166) is one of the penalties upon which interest is computed as of the return due date or extended due date, the TC 166 posts with the 23C date. The TC 166 is placed in the CC DINCOMP screen just under the TC 150 and for this example, is assigned the date of January 31, 2000, as the interest start date.

    1. For the FTP penalty (TC 276), interest begins on the 23C date of the posting cycle. The CC DINCOMP display shows how the FTP penalty was inserted into the computation according to the May 14, 2001, assessment date.

    2. See Exhibit 20.2.1-3, Return Due Date Chart.

20.2.5.4  (02-04-2015)
Notice and Demand and Debit Interest

  1. Once notice and demand is issued, the taxpayer has a limited time period to pay the amount shown as due before additional interest on that amount is charged, see IRC 6601(e)(3).

    1. For notice and demand issued before January 1, 1997, if the amount shown on the notice is paid within 10 calendar days, additional debit interest is not computed.

    2. For notice and demand issued after December 31, 1996:

    If the amount shown on the notice And Then
    is less than $100,000 is paid within 21 calendar days, additional interest is not computed.
    equals or exceeds $100,000 is paid within 10 business days, additional interest is not computed.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. Compute debit interest only when a liability is both due and unpaid.

  3. Taxpayers are required to pay the tax due on or before the due date of the return. See Document 6209, IRS Processing Codes and Information, Section 2, for the due dates for filing various returns.

  4. The issuance of notice and demand are identified on Master File or IDRS by Notice Status Codes 19, 20, 21, 54, 56, and 58. See Exhibit 20.2.5-2, Payment Effective Date Decision Chart.

  5. A Collection due process notice allows 30 days to pay. This condition is identified by Transaction Code (TC) 971, Action Code (AC) 069. Additionally, the Federal Payment Levy Program (FPLP), identified by TC 971 AC 169 allows 30 days to pay. The FPLP attaches federal disbursements due an individual or business, such as, retirement, vendor/contractor payments, and social security.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. Offsets from another module of the same or a different taxpayer are to be treated as payments when determining if the notice grace period applies. This applies to offsets of overpayments, as well as offsets of overpayment interest. See IRM 20.2.5.13, Debit Interest on Liabilities Paid by Offset.

20.2.5.5  (02-04-2015)
Application of IRC 7503 for Interest Computations

  1. A liability must be paid on or before the due date to avoid debit interest charges.

    Exception:

    IRC 7503 provides that if the last day prescribed for the performance of any act falls on a Saturday, Sunday or legal holiday, the performance of the act on the next succeeding workday is deemed timely. As it relates to the filing of a return, if the return due date is a Saturday, Sunday, or legal holiday, then the return can be filed on the following workday and will be considered timely filed. If full payment of the liability is made by the following workday, no interest is charged on the liability. However, if not full paid by the first workday, then interest will be charged on the liability from the actual return due date and not from the date authorized by IRC 7503. Likewise, if only a partial payment is made, interest on the remaining liability will accrue from the actual return due date.

    Caution:

    IRC 7503 does NOT prescribe a new due date. Returns not sent in by the date authorized for filing per IRC 7503 are considered late filed. Interest on any unpaid amounts will be computed from the actual return due date. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. Any authorized extension of time to file via Form 4668Employment Tax Examination Changes Report, must be postmarked by the IRC 7503 due date.

  3. The following table outlines how payments are considered when the due date falls on a Saturday, Sunday, or legal holiday:

    If Then
    Payment of the entire tax liability is received by the following FIRST WORKDAY NO interest is charged.
    Partial payment is received by the following FIRST WORKDAY Charge interest on the remaining unpaid tax liability:
    FROM: actual return due date
    TO: date of full payment.
    No payment is received by the following FIRST WORKDAY Charge interest on the entire tax liability:
    FROM: actual return due date
    TO: date of full payment.
  4. See IRM 20.2.1.7, Tax Return Due Dates, for the list of legal holidays.

20.2.5.6  (02-04-2015)
Suspension of Interest on Deficiencies

  1. Per IRC 6601(c), a taxpayer is entitled to an interest-free period if the IRS does not assess the tax within 30 days from the time an agreed report or a waiver is either received by the IRS or officially executed. See IRM Exhibit 8.20.7-1, Form 5403, Appeals Closing Record (Instructions), item 08, for a chart of the various agreement forms and what date to use. The various forms signed by the taxpayer contain a waiver of the restrictions on assessment and collection of deficiencies. The most common waiver form is Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment. Thus, agreements are often referred to as "870 waivers" . Other forms are: Form 870-AD, Offer to Waive Restrictions on Assessment and Collection of Tax Deficiency and to Accept Overassessment, Form 890, Waiver of Restriction on Assessment and Collection of Deficiency and Acceptance of Overassessment-Estate, Gift, and Generation-Skipping Transfer Tax, and Form 4089, Notice of Deficiency-Waiver. See IRM 20.2.6.8.1, Calculating the Underpayment Interest Suspension Amount, and IRM 20.2.8.7, IRC 6601(c) Waiver—Interest Suspension Periods, for instructions for computing interest on tax modules with waiver suspension periods.

    Exception:

    Signing Form 870, Form 870-AD, Form 890, Form 4549, Income Tax Examination Changes, or filing a return after a Substitute for Return (SFR) has posted, does not entitle a taxpayer to an interest-free period under IRC 6601(c). See IRM 4.4.9.7, Delinquent Return Received After SFR TC 150 Posted at Master File, for details on closing adjustments through AIMS. If not on AIMS, use Command Code (CC) REQ54 and assess without input of a date in the tentative carryback field (TCB DT) to avoid the erroneous suspension of debit interest. The tentative carryback date posts as the "Correspondence Received Date" (CR-INT-DT) and doubles as an agreement date, thus giving the taxpayer an erroneous suspension period.

  2. See IRM 20.2.7, Abatement and Suspension of Debit Interest, for other types of underpayment interest suspension conditions.

20.2.5.7  (03-12-2010)
Revenue Ruling 99-40 (Modifies and Supersedes Revenue-Ruling 88–98) Use of Money

  1. In Avon Products Inc. v. United States: 588 F.2d 342 (2d Cir. 1978), the court interpreted IRC 6601(a) to mean that interest on an underpayment can only be charged when the tax is both due and unpaid. This impacts interest computations when a subsequent underpayment is determined after the following conditions occur:

    1. A refund without credit interest is issued; or

    2. An overpayment is applied to a succeeding tax period as a credit elect.

20.2.5.7.1  (02-04-2015)
Revenue Ruling 99-40 and Refunds

  1. If a refund was issued without interest, compute interest on a subsequent underpayment using a current TXMOD or Master File transcript as follows:

    1. Compute a running module balance (which includes the subsequent underpayment), from the return due date to the date the overpayment was refunded. This date is usually the assessment date (23C date) on the transcript. For manual refunds (TC 840), it is the date the check is mailed or wire transferred, not the date the taxpayer received the check. Look at the julian date of the document locator number (DLN) to verify the date. The julian date will be the sixth, seventh, and eighth digits. If the adjustment was closed through Exam, 400 may need to be subtracted from the total of these digits to obtain the correct julian date, e.g., if 645 is shown, subtract 400 to get 245.

    2. Suspend debit interest on the amount of the refund or the module balance, whichever is less, from the interest start date to the date of the refund.

      Note:

      When a module is downloaded to ACT/DMI, the program automatically includes the suspension period on original return refunds. However, there are situations that may require manipulation of the program (e.g., avoidance of erroneous within module netting). See IRM 20.2.5.7.4, Revenue Ruling 99–40 and Carrybacks.

    3. Resume debit interest from the refund date on the full module balance including the amount suspended for the refund.

    Note:

    Refunds or offsets given WITH credit interest are covered in IRM 20.2.14, Netting of Overpayment and Underpayment Interest.

  2. Before refunding or crediting an overpayment, be sure that the applicable statute of limitations is open. If a credit or refund cannot be allowed in full or in part, see IRM 25.6.1, Statute of Limitations Processes and Procedures.

20.2.5.7.2  (02-04-2015)
Revenue Ruling 99-40 and Credit Elects (May/Sequa)

  1. When a taxpayer elects to apply an overpayment to the succeeding year's estimated taxes (credit elect), the credit elect is applied to unpaid estimated tax payments in order to avoid the failure to pay estimated income tax penalty under IRC 6654 or IRC 6655 for that year.

    Note:

    Transaction Codes (TC) 830/836 identify the credit elect amount on the overpaid module and TC 710/716 identify the credit elect amount posted on the tax module for the immediately succeeding taxable year

    .

  2. If a subsequent underpayment is assessed on a tax module containing a credit elect posted to a succeeding tax period, the taxpayer may request that interest be computed according to Rev. Rul. 99-40. Employees may receive such requests informally, on Form 843, Claim for Refund and Request for Abatement, or by annotation on Form 3198, Special Handling Notice for Examination Case Processing. These claims/requests impact both Individual Master File (IMF) and Business Master File (BMF) returns for which estimated tax payments are required to be made. There is no requirement that such requests be filed by the taxpayer on Form 843. If Rev. Rul. 99-40 applies, interest should be computed according to that provision. Thus, a determination should be made to apply Rev. Rul. 99-40 as it relates to credit elects and the application to installments of estimated taxes in the next succeeding year. Thus, if a tax module being processed by an IRS employee contains a TC 830 or TC 836, a determination should be made whether Rev. Rul. 99-40 is to be applied. If Rev. Rul. 99-40 does apply, interest should be computed according to the provision. This is especially important on BMF and high dollar income returns for IMF.

    Caution:

    If the taxpayer used the annualized installment method, (Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, or Form 2220, Underpayment of Estimated Tax by Corporations), the subsequent year must be secured before an adjustment can be made. On BMF modules, computer condition code (CCC) 8 is an indicator that the annualized installment method was used.

    Note:

    A subsequent underpayment does not include the assessment of tax shown on an original delinquent return filed and assessed after a substitute for return (SFR) has been processed. Rev. Rul. 99-40 does not apply since such adjustments are not considered "subsequent" assessments.

    1. If the claim also requests an adjustment to tax, existing claim procedures will be followed.

    2. If the taxpayer already has an open/active account on AIMS or IDRS, the claim will be routed for association.

    3. Claims/requests involving restricted interest are only sent to Appeals when the claim/request has been disallowed and the taxpayer requests the case be sent for Appeals consideration.

  3. Once it is determined that there is an underpayment of tax in a year for which the taxpayer made a credit elect, determine whether the credit elect was needed to avoid the failure to pay estimated tax penalty for the immediately succeeding tax period. The following information is needed to make this determination:

    1. The date the tax became overpaid.

    2. What, if any, payments of estimated tax were made for the succeeding tax period.

    3. Any refundable credits (e.g., fuel tax credit or withholding credit), shown on the succeeding tax year.

    4. Estimated tax liability for each installment period based on the taxpayer's required installments of estimated tax for purposes of IRC 6654 or IRC 6655.

      Note:

      The Rev. Rul. 99-40 benefit is allowed even if there is a penalty for failure to make timely estimated tax payments on the succeeding tax period.

      Example:

      There is a $10,000 estimated tax payment due for the first installment and the taxpayer paid $2,000 and had a credit elect for $5,000. The estimated tax penalty would be based on a shortfall for the first installment of $3,000, but the taxpayer would still receive, under Rev. Rul. 99-40, benefit of $5,000 as an interest-free period for the calculation of debit interest.

  4. The information described in the above paragraphs can be found on the TXMOD or Master File transcript of the taxpayer's module for the underpayment tax period and the succeeding tax period, and the taxpayer's return for the succeeding period, including Form 2220, Underpayment of Estimated Tax by Corporations; Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, or Form 2210-F, Underpayment of Estimated Tax by Farmers and Fisherman.

  5. Using the information described in paragraph (3) and (4) above, determine the amount of each of the taxpayer's required installments of estimated tax for the succeeding year. Refundable credits are subtracted from the tax owed prior to computing the required installments. See IRC 6654(d), IRC 6655(d) or IRC 6655(e). There are tax computation specialist (TCS) spreadsheets for Form 2210 and Form 2220 available on the Appeals TCS SharePoint website for this purpose. See https://organization.ds.irsnet.gov/sites/APPEALS-PQCS/TS/SitePages/Home.aspx for the TCS spreadsheets.

    If then
    The required installments are equal to or less than the amount of timely estimated tax payments, the credit elect amount is not needed and the taxpayer is not liable for underpayment interest (up to the amount of the credit elect) on the credit elect amount to the due date of the installment.
    The required installments exceed the amount of all timely estimated tax payments, the credit elect (or a portion thereof) is needed and underpayment interest begins from the due date of the installment on the lesser of the underpayment, the installment amount, or portion of the installment that exceeds the estimated tax payments.
    The tax on the return is equal to or less than the amount of timely estimated tax payments, the credit elect amount is not needed and the taxpayer is not liable for interest on the amount of underpayment equal to the credit elect for the time period that is prior to the return due date for the succeeding tax period (maximum of one year debit interest-free period).
    The taxpayer receives a refund of some or all of the estimated tax payments prior to the unextended return due date, the underpayment interest suspension will stop on the date of the refund up to the amount of the refund that exceeds the estimated payments needed to avoid the estimated tax penalty.
  6. Compute interest on the subsequent underpayment as follows:

    1. Using current TXMOD or Master File information, compute a running module balance.

    2. Suspend debit interest on the lesser of the credit elect or underpayment amount from the return due date to the date of the estimated tax payment.

    3. Resume interest on the module balance plus the underpayment that is less than or equal to the estimated tax payment.

    4. Make sure that erroneous "within module netting" does not occur. Although IRS procedures are to apply Rev. Rul. 99-40before within module (annual) netting, the ACT/DMI software may do the opposite. In certain circumstances, ACT/DMI must be manipulated to avoid the application of annual netting when the use of money principle under Rev. Rul. 99-40 would apply instead. This problem surfaces when a refund or offset is allowed credit interest, but an interest-free period for an overpayment (a refund, offset or credit elect) runs during this same time period.

      Example:

      John Smith files Form 1040 for the 200612 tax year reflecting an overpayment of $65,000. The taxpayer requests that $45,000 of the overpayment be applied as a credit elect to the 200712 tax period. The remaining overpayment of $20,000 is refunded with interest. Credit interest on the refund is allowed from the April 15, 2007 return due date to the refund schedule date of July 22, 2007. Later, the taxpayer files an amended return reporting tax of $30,000, and requests application of Rev. Rul. 99-40. The amended return was processed and the credit elect was applied to the fourth quarter estimated tax installment due January 15, 2008. Thus, debit interest on the $30,000 tax will begin from January 15, 2008. To prevent the ACT/DMI program from applying annual netting during the period of time interest was allowed on the original $20,000 refund, the tax assessment (up to the amount of the $45,000 credit elect), is assigned an effective date of January 15, 2008. This prevents the program from computing interest (annual netting) during the interest-free period allowed by Rev. Rul. 99-40.

      Caution:

      This method is only required if the subsequent underpayment is equal to or less than the credit elect, e.g., if the underpayment is $52,000, the ACT/DMI manipulation is not necessary.

    5. See Exhibit 20.2.5-3 for a Rev. Rul. 99-40 example.

20.2.5.7.3  (03-12-2010)
Credit Elects and Employment Tax

  1. Rev. Rul. 99-40, as it relates to unpaid installments of estimated tax, does not apply to employment tax returns (e.g., Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return) or to Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, because filers of such returns are not required to make estimated tax payments. Federal tax deposits are not considered estimated tax payments.

20.2.5.7.4  (02-04-2015)
Revenue Ruling 99-40 and Carrybacks

  1. When a subsequent assessment (general adjustment), including penalties, is made and a carryback has previously been allowed and refunded for the same year without interest, debit interest on the subsequent assessment for that year (up to the amount of the carryback) is not computed for the period between the carryback availability date and the carryback refund date.

  2. Compute underpayment interest on the subsequent assessment as follows:

    1. Using a current TXMOD or Master File transcript, compute a running module balance on the subsequent assessment from the due date of the tax to the date the carryback is available.

      Note:

      For interest accruing for periods prior to October 4, 1982, the date the carryback is available is the first day after the end of the loss year or the date the tax was paid, whichever is later.

    2. Suspend interest on the lesser of the module balance or the carryback amount on the carryback availability date.

    3. Resume debit interest on the suspended amount from the carryback refund date to the applicable ending date; waiver date plus 30 days (if applicable), payment date or 23C date, whichever is earlier.

    4. When importing data from TXMOD using ACT/DMI, the software will automatically populate an overpayment interest suspension period for carryback overpayments issued without credit interest. Use the loss year return due date as the effective date of the carryback recapture. When using the import feature, always ensure the original dates on TXMOD are correct.

    5. Make sure that erroneous annual netting does not occur. Erroneous annual netting occurs when debit interest is computed at the overpayment rate during a period of time where no debit interest is due. ACT/DMI will attempt to net interest.

      Example:

      A claim is filed for a refund and is not processed in 45 days, so the taxpayer receives credit interest. Later, the taxpayer has a carryback that is refunded without interest. There is a subsequent audit and part of the carryback previously allowed is recaptured. Since the carryback was originally issued without interest, there is a debit interest-free period, so annual netting cannot occur.

  3. See IRM 20.2.9, Interest on Carryback of Net Operating Loss, for rules concerning carrybacks.

  4. Effective for adjustments posting in cycle 198909 and later, debit interest is systemically computed in refund situations under the above rules if the module is not restricted. Do not unnecessarily restrict a tax module.

20.2.5.8  (02-04-2015)
Large Corporate Underpayment (LCU) Introduction

  1. The Omnibus Budget Reconciliation Act of 1990, Public Law (PL) 101-508, added IRC 6621(c) which increased the interest rate for amounts deemed to be "large corporate underpayments" (LCU). Interest on large corporate underpayments is charged at a rate that is two percentage points higher than the normal underpayment interest rate. The LCU interest rate cannot be charged prior to the January 1, 1991 legislative effective date. Large corporate underpayment interest may also be referred to as "2% interest" , "corporate interest" , or "hot interest" .

  2. The Taxpayer Relief Act (TRA) of 1997 amended IRC 6621(c) enacting Public Law 105-34. TRA 1997 retained prior statutory requirements and supplemented the rules for determining the existence of a large corporate underpayment and when the 2% additional underpayment rate applies.

  3. Depending on when a letter or notice was issued, the method for computing LCU interest can involve the rules effective January 1991 (pre-98), January 1998 (post-97), or be a combination of both, where the rules effective January 1991 and January 1998 must both be considered.

  4. LCU interest is also described in Treasury Regulation 301.6621-3.

20.2.5.8.1  (02-04-2015)
Requirement for Application of LCU Rate

  1. All of the following conditions must be present in order for the LCU rate to apply:

    1. The taxpayer must be a "C" corporation.

    2. A threshold underpayment of tax must exist. IRM 20.2.5.8.1.2.

    3. A 30-day letter, Statutory Notice of Deficiency (90-day letter), or notice and demand for payment (under non-deficiency procedures) must have been issued, and the liability not fully paid within 30 days from the letter or notice date. In this context, "notice" refers to a bill for payment of tax, penalties, and interest.

    4. There must be a start date or "applicable date" determined for a single module subject to the LCU rate.

20.2.5.8.1.1  (02-04-2015)
Definition of "C" Corporation

  1. A "C" Corporation is any BMF taxable entity with a Form 1120, U.S. Corporation Income Tax Return, filing requirement (except Form 1120S, U.S. Income Tax Return for an S Corporation). Usually, the literal "C-CORP>1" is shown at the top of a TXMOD print if the taxpayer is a C-corporation.

  2. A C-corporation indicator will also be set for any BMF taxable entity without a Form 1120 filing requirement, but having an exempt organization section present with a corporate indicator.

  3. BMF taxable entities that have a C-corporation filing requirement include corporate, employment tax, and excise tax returns.

20.2.5.8.1.2  (02-04-2015)
Threshold Underpayment for LCU

  1. A large corporate underpayment is any underpayment of tax by a C-corporation for any taxable period where the amount of the threshold underpayment for that taxable period "exceeds" $100,000.

  2. The rules for determining a threshold underpayment are different depending on when a letter or notice was issued.

  3. For letters or notices issued prior to January 1, 1998 (pre-98), the threshold underpayment is the "aggregate" of unpaid tax (excluding interest, penalties, additional amounts, or additions to tax) as of the last date prescribed for payment (typically, the unextended return due date, or if a carryback recapture, the due date of the loss year return).

  4. For letters or notices issued after 12/31/1997 (post-97), the threshold underpayment is based on the "amount" shown on a single letter or notice for more than $100,000. Separate notices may not be combined to meet the threshold underpayment. Any letter or notice in which the amount shown is not greater than $100,000 shall be disregarded for purposes of the LCU rate.

  5. For post-97 rules, while a threshold underpayment is determined based on a letter or notice exceeding $100,000 in tax and not paid within 30 days, the LCU rate will not apply if the amount ultimately assessed is less than $100,000. See IRM 20.2.5.8.2(4).

  6. In determining whether there is a threshold underpayment, different types of tax (such as income tax and FICA tax) and amounts that relate to different taxable periods are not added together.

  7. The determination of a threshold underpayment does not include interest, penalties, additions to tax, and additional amounts.

  8. While a threshold underpayment consists only of tax, the amount on which the LCU rate is charged includes tax, penalties, interest, additional amounts, and additions to tax.

  9. Once a threshold underpayment exists, an "applicable date" determines the "starting date" for when the LCU rate begins.

  10. In determining a threshold underpayment, the IRS is not following Med James, Inc. v. Commissioner, 121 T.C. 147,151 (2003). A net operating loss carryback cannot be used to reduce tax that has a liability date (i.e., prescribed date for payment) that is earlier than the availability date of the carryback credit. A net operating loss carryback is treated like a payment, and is not available to reduce tax until the due date of the loss year return (determined without regard to any extension of time for filing the loss year return). However, in the case of a carryback recapture and carryback allowance with the same effective dates, the carryback allowance is used to reduce the carryback recapture (only if the carryback has not already been refunded). If the Med James, Inc. v. Commissioner, 121 T.C. 147,151 (2003) position was previously considered and allowed, do not change that result.

20.2.5.8.1.3  (02-04-2015)
Consideration of Payments for LCU

  1. Do NOT apply or consider the LCU interest rate if the entire liability is paid within 30 days of the 30-day letter date, 90-day letter date, or notice and demand date. In a situation where a taxpayer partially agrees to a tax liability and pays the amount shown in the audit report, to avoid being charged the LCU rate, the amount shown in the 30-day or 90-day letter must be fully paid within 30 days from the earlier of the issuance of the 30-day letter, 90-day letter, or assessment of the agreed report. If the liability amount cannot be determined, obtain a copy of the 30-day or 90-day letter. The unagreed liability amounts will be shown on CC BMFOLA as "EXAM UNAGREED AMT" .

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. Cash bonds and deposits made under IRC 6603 are not considered for purposes of determining whether the underpayment (amount shown in the letter or notice) is paid within 30 days.

    Example:

    Taxpayer, XYZ Inc., is issued a 30-day letter on June 15, 2010 for $125,000. In response to the letter, an IRC 6603 deposit of $125,000 is submitted on July 1, 2010. Because a "6603 deposit" is not a payment of tax for LCU purposes, the amount shown in the 30-day letter was not paid on time and the taxpayer would be subject to the LCU rate. The "6603 deposit" is, however, used to stop the accrual of interest for the underpayment amount equal to the deposit, as of the remittance date.

  3. The posting of a TC 700 or TC 706 credit is considered when determining if "payment" is made within 30 days. When a TC 700 or TC 706 credit is offset into a module subject to the LCU rate, use the cycle date to determine if payment was made within 30 days of the letter or notice date. Payments and credits that have already been refunded or offset should not be considered when determining if the amount shown in a letter or notice is paid within 30 days.

  4. Once an applicable date is set, the LCU interest rate continues to apply on any unpaid balances until full paid.

    Example:

    Smith, Inc. owed $250,000 on the original return. The notice and demand was mailed on 5/3/2010, the date the return was processed. The taxpayer full paid the notice amount on 6/15/2010. The LCU applicable date is 6/2/2010 (30 days after the notice and demand date). Later, the corporation is audited and assessed an additional $65,000. Even though this amount is less than $100,000, the entire $65,000 would also be subject to the LCU interest rate.

20.2.5.8.2  (02-04-2015)
Start Date for LCU Interest Rate

  1. The "start" date for charging the LCU rate is referred to as the "applicable" date or "trigger" date.

  2. An applicable date is seldom voided but the letter or notice that set the applicable date may be disregarded if:

    • The amount shown in the letter or notice is paid within 30 days of the letter or notice date.

      Reminder:

      Cash bonds and IRC 6603 deposits are not considered for purposes of determining whether the underpayment shown in the letter or notice is paid within 30 days.

    • As a result of an administrative error, the letter or notice is issued to the wrong taxpayer or for the wrong taxable period.

    • The tax assessment or proposed assessment for which the letter or notice was sent is subsequently abated in full.

    • The notice of deficiency is rescinded under IRC 6212(d).

  3. The additional two-percent interest charge on large corporate underpayments begins to run after the "applicable date" . For the period January 1, 1991 to December 31, 1997 (pre-98), the applicable date is the 30th day after the date on which the IRS sends to the taxpayer either:

    1. An initial letter of proposed deficiency that allows the taxpayer the opportunity for administrative review in Appeals (30-day letter).

    2. A statutory notice of deficiency (90-day letter).

    3. A notice or letter of assessment or proposed assessment. "Notice" refers to a bill for payment of tax, penalties, interest, additions to tax, and additional amounts.

    Note:

    Partnership 60-day letters and notices described in IRC 6623(a)(1) and IRC 6623(a)(2) do not trigger an "applicable" date.

  4. Under pre-98 LCU rules, the applicable date would be based on the "earlier" of the above issued letter or notice date that was not paid within 30 days. An applicable date could be set based on any amount shown in the unpaid letter or notice. Additionally, the amount shown in the letter or notice does not control whether a threshold underpayment exists. Therefore, under pre-98 rules, while an applicable date can be triggered based on any amount shown in the letter or notice, the LCU rate cannot be charged until there also exists a "threshold" underpayment.

    Example:

    T, a C-corporation, filed its 1993 income tax return reporting an overpayment. However, as the result of a computational error on the return, no refund is issued and the taxpayer was, instead, sent a math error notice for $300.00 of unpaid tax on March 25, 1994. The notice was paid on May 16, 1994, 52 days after the notice date. Although the amount shown in the notice of March 25, 1994 was fully paid on May 16, 1994, it cannot be disregarded for purposes of setting an applicable date because it was not paid within 30 days. Thus, an applicable date of April 24, 1994 is set based on the math error notice that was not paid within 30 days. While an applicable date is set, the LCU rate is not charged at this time because a threshold underpayment does not exist. On January 9, 1996, the taxpayer is issued a 30-day letter for additional tax of $135,000, which the taxpayer pays on February 18, 1996. Because the "aggregate" of unpaid tax as of the unextended return due date is now $135,300, the criteria for charging the LCU rate has been met; an applicable date and threshold underpayment exceeding $100,000 exists. Interest at the prevailing underpayment rate is charged from the return due date to April 24, 1994. Interest is charged at the LCU rate on the total underpayment of $135,300 (plus accrued interest at the prevailing rate) from the April 24, 1994 applicable date (30 days after the March 25, 1994 $300.00 notice date) to the interest ending date.

  5. Even when the underpayment is paid in full, the applicable date remains, and interest at the LCU rate is charged from the applicable date for any subsequent unpaid balances.

  6. In determining whether the LCU rate is charged, consideration must also be given to the liability amount ultimately assessed. An applicable date may be set and threshold underpayment determined but the amount "ultimately" assessed impacts whether the LCU rate is charged.

    Example:

    The taxpayer is issued a 30-day letter for $120,000 on June 9, 2007. The taxpayer fails to pay the $120,000 within 30 days of the 30-day letter date. Therefore, July 9, 2007 becomes the applicable date. The taxpayer goes to Appeals and is only assessed $80,000 on August 5, 2009 and full pays that amount on August 15, 2009. The $80,000 is not subject to the LCU rate since the ultimate assessment is under $100,000. Therefore, interest on the $80,000 assessment is computed from the return due date at the normal underpayment rate (through July 9, 2007) until August 15, 2009. On January 20, 2011, there is a TEFRA flow-through adjustment of $300,000. This underpayment amount is subject to the additional LCU rate from the July 9, 2007 applicable date.

    Note:

    In the above example, the TEFRA flow-through underpayment was subject to the LCU rate. If, however, there had not been a prior 30-day letter, 90-day letter, or notice and demand for payment over $100,000, an applicable date would not have been triggered. The issuance of partnership 60-day letters and notices described in IRC 6623(a)(1) and IRC 6623(a)(2) do not trigger an "applicable" date. See Treas. Reg. 301.6621–3(c)(4).

  7. The Taxpayer Relief Act of 1997 (TRA ’97) modified IRC 6621(c) that for periods after December 31, 1997 (post-97), the applicable date is the 30th day after issuance of a letter or notice of an amount (or proposed amount) greater than $100,000 (not including interest, penalties, or additions to tax) that is not paid within 30 days. Letters and notices with amounts not greater than $100,000 are disregarded and cannot trigger an applicable date. Letters and notices for small amounts may not be combined to meet the over $100,000 letter or notice requirement.

    Example:

    On Taxpayer Z's 1997 return, a math error notice is sent dated 5/15/1998 for $110,000. Taxpayer Z paid $60,000 within 30 days of the notice and the $50,000 balance was not paid within 30 days of the notice date. Later, a 30-day letter for $21,000 was sent and not paid within 30 days. The $21,000 assessment was made on 11/7/1998 and was paid within 30 days. The applicable date is 6/14/1998, 30 days after the math error notice date. Since only part of the amount stated in that notice was paid within 30 days, the notice is not disregarded. The LCU rate applies to any amounts due for that tax period ($50,000 and $21,000 plus interest) after the 6/14/1998 applicable date.

  8. A revenue agent's report (RAR) is not a notice of demand as defined in IRC 6601(c). Therefore, it does not set an applicable date.

  9. When a copy of the 30-day letter, 90-day letter, or notice and demand is not available for determining an applicable date, use the date AIMS went into Status 13 or 24 or as annotated in the case file. A Master File Status Code 30 on CC TXMODA located in the history item section will show the date and amount for a 30-day or 90-day letter sent to the taxpayer. The history section information is populated based on completing item 03 and item 04 on the AIMS closing document Form 5344, Examination Closing Record or Form 5403, Appeals Closing Record). This status code is for information purposes only, since it does not affect the "applicable" date on the module.

  10. If the taxpayer agreed to an underpayment before a 30-day letter was issued, then the notice and demand date is used to determine an applicable date. The notice and demand date can be found on TXMOD in the Master File Status section as Status Code 19 or 21. After 2011, a TC 971 action code (AC) 257 indicates a Statutory Notice of Deficiency (90-day letter) was issued by the BMF Automated Underreporter Unit (AUR).

  11. If the LCU interest start date cannot be determined, contact the examining officer to request research to find the date the taxpayer was mailed the first notification of liability meeting the LCU criteria.

  12. If it is determined that the taxpayer never received the proper notification of liability or agreed to the assessment prior to issuance of a 30-day letter, post the assessment without calculating LCU interest and monitor until 30 days after notice and demand is sent. A computer generated interest computation will automatically charge at the LCU rate if the taxpayer has not paid. Make sure there is no prior "applicable" date on the module.

  13. When a taxpayer's account is impacted by both pre-98 and post-97 LCU rules refer to IRM 20.2.5.8.5.

20.2.5.8.3  (02-04-2015)
Master File and the LCU Interest Rate

  1. Always verify the "applicable" date on TXMOD or BMFOL for LCU interest through careful analysis of the case. If incorrect, then correct this date using Document Code 54, CC AMCLS, or on Form 2859, Request for Quick or Prompt Assessment.

    Note:

    An applicable date input on Form 2859 will override any date previously posted on the module.

  2. Remove an erroneous applicable date on IDRS by entering all 9's into the "2% Interest Date" field. A manual correction or removal of an applicable date will require input of a TC 340 or 341. Whenever possible, use a non-restricting TC 340.

    Note:

    When an applicable date is deleted, an indicator of "1" will appear as a value entry in the new "2% INT DT MAN DEL" field. If the applicable date has not changed, or a new date is later input, the indicator value is displayed as "0" . On BMFOLT shown below the TC 340 entry, the "2% Trigger Date" field will show "12319999" when an applicable date is deleted. Page one of BMFOLT in this situation will show all "zeros" in the "2% Interest Date" field.

  3. Generally, modules requiring the LCU interest rate must have interest manually computed and restricted, especially if there is more than one "applicable" date.

  4. In limited instances, if Master File has the correct applicable date, it can systemically compute the LCU interest rate provided there are no other issues that require the module to be restricted. However, a manual interest computation is required when assessing additional tax on AIMS using CC AMCLS. Always monitor the case, even if not restricting, using TXMOD or BMFOL one to two cycles later to verify the correct posting of interest. If the account is unpaid after 30 days, make sure the LCU indicator is set. If not, then a manual computation of interest must be done.

  5. Assessments input with an interest computation date (INT-CMPTN-DT) (e.g., with carryback or interest-free employment tax adjustments) must have the LCU rate manually computed if it applies. Starting in 2015, Master File will recognize assessments with an INT-CMPTN-DT (not full paid within 30 days) and consider the LCU rate, if applicable.

20.2.5.8.4  (03-12-2010)
Computation of the LCU Interest Rate

  1. Once it is determined that the LCU interest rate is to be charged:

    1. Using a current TXMOD or Master File transcript, compute a running module balance from the return due date to the applicable date (notice date plus thirty days).

    2. Compute debit interest on the balance due as of the applicable date at the LCU rate, starting from the applicable date to the payment date, waiver + 30 date (if applicable), or 23C date, whichever is earlier.

      Note:

      When using ACT/DMI, the LCU applicable date must be entered in the "Edit Existing Module" screen

      .

20.2.5.8.5  (02-04-2015)
Special Application of LCU Interest for Periods Before and After December 31, 1997

  1. Prior to January 1, 1998, an unpaid letter or notice for any amount could trigger application of the LCU interest rate if the other criteria were met. After December 31, 1997, the letter or notice must show an amount exceeding $100,000. Special consideration must be given when a tax module is impacted by both pre-98 and post-97 LCU interest rules. Interest must be manually computed and restricted when a module is impacted by pre and post LCU rules.

  2. If an applicable date was triggered prior to January 1, 1998 and the letter or notice initiating the LCU rate was for an amount under $100,000, the LCU rate stops on 12/31/1997. The LCU rate will not begin again until 30 days after a letter or notice is issued for an amount exceeding $100,000, provided that letter or notice is not paid within 30 days.

  3. If an applicable date was triggered prior to January 1, 1998 based on a letter or notice for an amount exceeding $100,000, the LCU rate continues to be charged from that original applicable date until all amounts are paid.

    Example:

    Y, a C corporation, had a 30-day letter issued for the 1994 income tax return on May 12, 1996 for tax of $70,000. Another 30-day letter was issued December 8, 1996 for tax of $20,000. A third 30-day letter was issued February 5, 1999 for tax of $105,000. None of the amounts were paid. Because the aggregate of unpaid tax as of the unextended due date of the return is $195,000, the criteria of a large corporate underpayment has been met. The applicable date is June 11, 1996, 30 days from the first letter of May 12, 1996 that was not paid within 30 days. The applicable date is valid for the other assessments as well. Therefore, LCU interest begins on the total underpayment (unpaid tax of $70,000, $20,000 and $105,000 plus accrued interest) on June 11, 1996. Interest at the higher LCU rate ends on December 31, 1997 because the pre-98 applicable date was set by a letter/notice for an amount under $100,000. The LCU rate will however begin again on March 7, 1999, 30 days after the unpaid letter issued on February 5, 1999 for over $100,000. If the May 12, 1996 letter setting the pre-98 applicable date was for an amount exceeding $100,000, then the LCU rate would not stop on December 31, 1997.

20.2.5.9  (02-04-2015)
Tax Motivated Transaction (TMT) Interest

  1. IRC 6621(c), formerly pertaining to interest on tax motivated transactions (TMT), was repealed for returns with due dates (without regard to extensions) after December 31, 1989. Since January 1, 1991, IRC 6621(c) refers to Large Corporate Underpayment (LCU) interest (IRM 20.2.5.8). Prior to its repeal, IRC 6621(c) imposed an interest rate of 120% of the underpayment rate determined under IRC 6621 (for interest accruing after December 31, 1984), on substantial underpayments attributable to tax motivated transactions.

  2. Many TMT cases are still active or are still in collection status, with TMT rates continuing to apply to these balances.

  3. A taxpayer may be liable for both TMT and LCU interest (IRM 20.2.5.8 and IRM 20.2.5.9.1.

20.2.5.9.1  (02-04-2015)
Processing TMT Interest

  1. For returns with due dates before January 1, 1990 (without regard to extensions), IRC 6621(c) required that tax assessments resulting from tax motivated transactions be subject to an interest rate that was 120% of the rate determined by IRC 6621(a). Generally, 120% interest is computed on the TMT underpayment from the later of the return due date (RDD) or December 31, 1984.

    If the return due date or interest start date of the assessment is: then
    prior to January 1, 1985, 1. compute interest at the applicable underpayment rate, on the tax motivated principal amount to December 31, 1984.

    2. compute 120% interest on the tax motivated principal PLUS the total compounded interest from step 1, from December 31, 1984 to the applicable interest ending date.
    after December 31, 1984, compute 120% interest on the tax motivated principal amount from the return due date to the applicable interest ending date.
  2. See IRM 20.2.5.9.5.2 for an example of a TMT interest calculation.

  3. If a taxpayer is liable for both TMT and LCU interest, compute debit interest at the 120% rate on the TMT tax starting on January 1, 1985, and effective January 1, 1991, compute interest at 120% of the LCU interest rate (beginning from the LCU applicable date).

20.2.5.9.2  (03-12-2010)
Special Processing Conditions for TMT Interest

  1. There are special conditions that apply to the processing of TMT interest assessments:

    • Assessments are generally made only by Examination, Criminal Investigation, and Appeals.

    • The 120% interest rate ONLY applies to a TMT assessment over $1,000.

      Note:

      Once assessed, interest continues to accrue at the 120% rate even though the unpaid TMT tax liability drops below $1,000.

    • The 120% interest rate MUST be manually computed and input with TC 340 due to Master File limitations.

      Caution:

      DO NOT input a non-restricting TC 340 on a tax module that includes TMT interest.

20.2.5.9.2.1  (02-04-2015)
Reference Numbers for TMT Interest

  1. Reference Numbers (Ref. No.) must be manually input whenever there is an assessment or abatement of either the TMT tax amount or TMT interest amount (positive or negative). The reference numbers are used to identify the portion of the total tax assessment and associated interest accruals related to TMT on the Master File account.

  2. The reference numbers are displayed on all transcripts as Ref. No. 221 (TMT tax) and 222 (TMT interest).

  3. Input Ref. No. 221 with TC 29X/30X for a significant tax amount to identify the portion of the total tax assessment related to TMT.

    • Ref. No. 221 should reflect the TMT tax for the specific tax adjustment it accompanies.

    • The total amount of TMT tax can be determined by totalling all of the Ref. No. 221 amounts on the module.

    • Interest on the Ref. No. 221 amount is computed at 120% of the applicable underpayment interest rate.

    • Ref. No. 221 posts to Master File and displays the literal "TX–MOTV–TRANS" .

    Note:

    As procedures have varied in the use of these reference numbers, it may be necessary to request previous adjustment documents from the Files function to review and analyze the correct amount of TMT interest.

  4. Input Ref. No. 222 with TC 340 to identify the portion of the total interest assessment related to TMT.

    • The TC 340 amount will include the 120% TMT interest amount.

    • Interest accruals on the Ref. No. 222 amount must be manually computed.

    • Additional Ref. No. 222 amounts must be input to identify additional accruals of tax motivated interest until fully paid.

    • Include in the Ref. No. 222 amount the TMT interest associated with that adjustment up to the current adjustment date.

    • The Ref. No. 222 amount does not have to match the TC 340 amount being input.

    • The total TMT interest on the module will be the sum of all Ref. No. 222 amounts.

  5. If Ref. No. 221 and 222 were previously omitted or incorrect, update the module by entering the reference number and appropriate amounts. Input these reference numbers with TC 290 or TC 300 for .00 and Hold Code 2. Include an explanation with the source document.

20.2.5.9.3  (02-04-2015)
Negligence and or Fraud Penalty in Conjunction with TMT Interest

  1. The 120% rate is used to compute interest on a tax motivated underpayment of tax. If the TMT tax is determined to be due to negligence or fraud (for applicable tax years), the 50% interest portion of the negligence or fraud penalty is computed using the 120% rate. See IRC 6653(a)(1)(B) and IRC 6653(b)(1)(B) prior to the 1989 tax law amendment.

    1. Use the TMT interest rate to compute the 50% interest portion of the negligence or fraud penalty associated with the TMT underpayment. See IRM 20.2.5.3 for further details on how to compute the 50% interest portion of the negligence or fraud penalty.

    2. After the penalties are assessed, normal interest rates apply to the interest accruals on the penalty amounts.

      Note:

      Interest on the tax motivated underpayment continues to accrue at 120%.

20.2.5.9.4  (02-04-2015)
Waiver Date Processing regarding TMT Interest and Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)

  1. TMT interest is computed on all TMT tax assessments as of December 31, 1984. However, not all TMT tax assessments are subject to deficiency procedures per IRC 6212. The TMT tax may be assessed in some cases without a Notice of Deficiency (90-day letter).

  2. Per PL 97–248, of the "Tax Equity and Fiscal Responsibility Act of 1982" (TEFRA), TMT assessments made under the provisions of IRC 6222 are not subject to deficiency procedures. A waiver is not obtained for these tax assessments (known as "TEFRA" assessments).

    Note:

    A waiver (referred to as an 870 agreement) may be obtained separately from the TEFRA tax assessment. The waiver suspension period applies to the penalties (IRM 20.2.8.7, IRC 6601(c) Waiver-Interest Suspension Periods).

    Note:

    For tax years beginning after August 5, 1997, the waiver suspension period is applicable to TEFRA assessments.

  3. The total assessment may include TMT items that may or may not be TEFRA related, and may or may not have penalties. TEFRA related items can be identified in the administrative file or, after assessment, by the DLN associated with the Document Code 47 adjustment. The following blocking series, located in the ninth, tenth, and eleventh digits of the DLN, identify TEFRA assessments prior to January 1, 2007:

    • 080–099

    • 180–199

    • 200–299

    • 680–699

    • 750–769

    • 780–789

    • 980–999

    Note:

    See Document 6209, Section 12 or IRM 4.4.1, AIMS/Processing, Introduction, for the types of returns these blocking numbers are referencing.

  4. Use the following chart to determine if the waiver period may be applicable (this chart can also be used for non-TMT cases for tax years ending on or before August 5, 1997):

    If assessment is: Then a waiver suspension may apply:
    TEFRA tax only NO
    Non-TEFRA tax only YES
    Penalties only YES
    TEFRA tax and
    Non-TEFRA tax
    NO
    YES
    TEFRA tax and
    penalty
    NO
    YES
    Non-TEFRA tax and
    penalties
    YES
    YES
    TEFRA tax,
    Non-TEFRA tax and
    penalty
    NO
    YES
    YES

20.2.5.9.5  (02-04-2015)
Partial Payment Allocation for Tax Motivated Transactions

  1. Partial payments must first be applied against any underpayments that are NOT due to tax motivated transactions. See Treasury Regulation 301.6621–2T. Apply undesignated payments in the following order:

    1. non-TMT tax;

    2. TMT tax;

    3. any penalties or fees;

    4. non-TMT interest; then,

    5. TMT interest.

    Note:

    Because TMT tax is often assessed years later due to Tax Court decisions, or there may have been prior audit assessments paid prior to the TMT assessment, it may be necessary to recompute the module if there are open periods of collection on the prior assessments. When recomputing a module, payments previously used to pay TMT, interest and or penalties are reallocated in the order listed above (non-TMT tax, TMT tax, etc.). For interest computation purposes only, amounts previously used to pay assessed interest or penalties may, at a later date, be used to pay an additional tax assessment. This has the effect of reducing the amount of interest charged on subsequent adjustment(s) in most instances. However, when a non-TMT assessment follows a TMT assessment, the interest charges will generally increase after reallocation.

    Exception:

    Payments are not reallocated from interest to tax for interest assessed prior to January 1, 1983, or if the CSED has expired on the prior assessment(s). Also, payments are not reallocated for purposes of determining an underpayment interest suspension period (e.g., a waiver period per IRC 6601(c), also called 870 waiver).

    Caution:

    When using ACT/DMI, the program cannot allocate payments in order shown above. Separate interest computations may be required if the TMT tax was full paid and there are subsequent unpaid penalties.

20.2.5.9.5.1  (02-04-2015)
Computing Interest on non-TMT Tax Underpayment and Penalty

  1. Interest is computed at the prevailing underpayment rate on the non-TMT tax and penalty assessment from the return due date (or extended due date for certain penalties) until 30 days after the waiver date. See IRM 20.2.5.3 for interest on penalties.

  2. Interest is suspended from 31 days after the waiver date until the 23C date of the TC 300 assessment.

  3. Interest continues to accrue on the principal plus interest accruals from the 23C date of the TC 300 assessment until paid.

    Example:

    A timely filed 198212 return is audited. The taxpayer agrees to the audit adjustment of $9,086 in tax and $1,452 for a substantial understatement penalty on December 13, 1989. The tax of $9,086 includes motivated tax of $7,260 and non-motivated tax of $1,826. The assessment is not made until May 28, 1990. He pays $21, 277.84 on July 2, 1990. In the figures below, interest is computed using CC COMPA and CC COMPAP. Separate interest computations must be done for the non-TMT tax and penalties from the TMT tax. Then the interest is combined.

    Figure 20.2.5-1

    Computing Underpayment Interest on non-TMT Tax using CC COMPA

    1. Using CC COMPA, compute interest at the prevailing underpayment rate on the non-TMT tax from the return due date to July 18, 1984, when interest on penalties became law.
    COMPA
    04151983 07181984 1,826.00
    Total Interest $293.07
    2. Compute interest at the prevailing underpayment rate on the non-TMT tax plus accrued interest and on the substantial understatement penalty from July 18, 1984 to 30 days after the waiver date (January 12, 1990).
    COMPA
    07181984 01121990 3,571.07.00 (1,826.00, plus 1,452.00, plus 293.07)
    Total Interest $2,812.32
    3. Compute interest on the principal plus the accrued interest (step 1 and 2) from May 28, 1990 (23C date) to the date of payment. Note: IRC 6601(c) waiver period is applicable. Interest is suspended from the 30th day after the waiver date to the 23C date of the assessment.
    COMPA
    05281990 07021990 6,383.37 (3,278.00 plus 3,105.37)
    Total Interest $67.67
    4. The payment of $21,277.84 is allocated per 20.2.6.8, Payment Allocation and Reallocation. Tax, penalty and interest are partially paid as of July 2, 1990. Add together the "total interest" amounts from step 1 through step 3 to arrive at the total interest associated with the non-TMT tax underpayment and the penalty.
    $3,105.37 plus $67.67 equals $3,173.04

20.2.5.9.5.2  (02-04-2015)
TMT Interest Calculation

  1. The following figure illustrates the example in IRM 20.2.5.9.5.1 for the TMT interest computation using CC COMPA and CC COMPAP.

    Figure 20.2.5-2

    Computing TMT Interest using CC COMPA and CC COMPAP

    1. Use CC COMPA to compute interest at the normal underpayment rate on the TMT assessment from the RDD to December 31, 1984 (the effective date for TMT interest).
    COMPA
    04151983 12311984 7,260.00
    Total Interest $1,596.17
    2. Use CC COMPAP to compute TMT interest on the total principle plus accrued interest as of December 31, 1984 to 30 days after the waiver date.
    COMPAP
    12311984 01121990 8,856.17
    Total Interest $7,891.05
    3. Compute interest from the 23C date of the assessment to the payment date on the TMT underpayment principle plus the accruals of TMT Interest as of 30 days past the waiver date.
    COMPAP
    05281990 07021990 16,747.22
    Total Interest $213.29
    4. The payment of $21,277.84 is allocated per IRM 20.2.6.8, Payment Allocation and Reallocation. Non-TMT tax, penalty and interest (including the normal interest computed on the tax motivated assessment as of December 31, 1984) are partially paid as of July 2, 1990. Add together the "total interest" amounts from step 2 and step 3 to arrive at the total TMT interest associated with motivated tax as of July 2, 1990.
    $7,891.05 plus $213.29 equals $8,104.34.
  2. If using ACT/DMI to compute interest, assign the amounts that are subject to TMT including any prior refunds (if applicable) by changing the transaction type under the "Adv" tab to "Motivated " . This may also be accomplished by changing the transaction subject to TMT interest to "Code 1001" . Review reports to ensure the proper results are achieved.

20.2.5.9.5.3  (02-04-2015)
Computing Accruals of TMT

  1. Using the same example, determine the remaining balance as of the payment date. Subtract from the payment, the tax, penalty, and interest liabilities. The total underpayment as of July 2, 1990, is $2,133.71.

    ($21,277.84) Payment
    1,826.00 non-TMT tax
    7,260.00 TMT tax
    1,452.00 Substantial understatement penalty
    3,173.04 Normal interest non-TMT tax & penalty
    1,596.17 Normal interest/TMT tax
    8,104.34 TMT interest
    $2,133.71 Module Balance as of July 2, 1990
  2. Because all of the non-TMT liabilities have been paid, the remaining balance is unpaid TMT interest. Using CC COMPAP, compute TMT interest on the remaining balance from July 2, 1990, to the pay-off date requested by the taxpayer. If using ACT/DMI, recompute the entire module making sure to assign the TMT interest rate to those items subject to TMT (see IRM 20.2.5.9.5.2, above).

    Reminder:

    Interest on the substantial understatement penalty starts on the return due date, extended due date or July 18, 1984, whichever is later. When using ACT/DMI, all previously issued refunds (up to the amount of the TMT tax) must be annotated as TMT to ensure the ACT/DMI program accurately computes the TMT interest amount.

20.2.5.10  (03-12-2010)
Corporate Installment Payments - Form 7004 (1982 and Prior)

  1. Prior to January 1, 1983, the taxpayer was considered to have elected to pay tax in installments if Form 7004, Application for Automatic Extension of Time to File Corporation Income Tax Return, was timely filed and at least one-half of the tax shown on Form 7004 was paid.

  2. When the tax was allowed to be paid in installments, the due date of the tax was the same as the date of the installment and interest was not charged if the tax was timely paid.

    1. If the additional tax paid with the return was at least one-half the estimated tax on Form 7004, no interest is due on the installment.

    2. If the actual tax is less than the estimated tax shown on Form 7004 and a subsequent assessment is made, the taxpayer may be able to claim the unused installment privilege on all or part of the additional tax.

  3. The privilege of paying corporate income tax in installments was repealed for tax years beginning after December 31, 1982.

20.2.5.10.1  (03-12-2010)
Form 7004 (1982 and Prior) Installment Computations

  1. If an installment was not timely paid, interest is charged from the installment due date until the tax is paid.

  2. Interest is charged on amounts due that are not included on the return or Form 7004, from the due date of the return until the date of payment.

  3. If the installment privilege was taken and a deficiency is assessed, the deficiency amount is prorated to the installments. Interest is charged from the due date of the first installment to the date of payment [IRC 6152(c)]. See Figure 20.2.5-3, Installment Privilege for Corporations 1982 and Prior, for computing the allowable installment privilege on deficiencies.

  4. If the tax module indicates that the taxpayer defaulted but a timely installment payment is found and applied, Master File will re-analyze the module. If the payment satisfies an earlier installment and the module is still in default for later installments, Master File will compute penalties and interest for the later installment.

    Figure 20.2.5-3

    Installment Privilege for Corporations 1982 and Prior

     
    1. Enter TC 620 Memo amount from transcript.
    ___________
    2. Enter prepaid credits prior to filing of Form 7004.

    ___________
    3. Line 1 minus line 2.

    Note:

    If less than zero, no privilege is extended.





    ___________
    4. Due with Form 7004 (1/2 of line 3).
    ___________
    5. Paid with Form 7004 (TC 620 with credit amount from transcript should equal line 4; may not be less than line 4).



    ___________
    6. Second Installment (line 3 minus line 5. If line 5 is greater, no privilege remains).


    ___________
    7. Tax per transcript, including original tax and subsequent assessments. Do not include carryback amounts.



    ___________
    8. Tax remaining. (line 1 minus line 7. If line 7 is greater, no privilege remains).



    ___________
    9. Installment privilege available for this assessment (lesser of line 6 and ine 8).


    ___________

20.2.5.11  (02-04-2015)
Special Rules for Determining Due Date of Payments

  1. Consider the following special rules for the due date of payments for Form 2290, Heavy Highway Vehicle Use Tax Return, jeopardy assessments, accumulated earnings tax, and penalties.

    1. See IRM 21.7.8.4.2, Form 2290, Heavy Highway Vehicle Use Tax Return, for instructions for Form 2290. Beginning July 1, 2005, the installment privilege was eliminated. The installment payment line on Form 2290 was deleted. Tax must be paid in full with the filing of Form 2290. Otherwise, penalties and interest will accrue on the unpaid balance (IRM 21.7.8.4.2.5.1, Balance Due Payment).

    2. In the case of a jeopardy assessment, notice and demand for payment is issued immediately [IRC 6861(a)]. The due date for payment of the assessment is the date of the notice and demand.

      Caution:

      Taxpayers normally have 21 calendar days from the notice date, or 10 business days if the amount due is over $100,000, to pay the amount shown on a notice.

    3. The due date of accumulated earnings tax (IRC 531) is the due date of the income tax return, determined without regard to extensions. For returns due before January 1, 1986, the accumulated earnings tax was due on notice and demand.

    4. Debit interest is computed on penalties from the due dates set forth in IRM 20.2.5.3.

  2. Disregard any extension of time for filing the return or any installment agreement entered under IRC 6159 when determining the due date for payment of the above liabilities.

  3. Procedures for interest on Form 8752, Required Payment or Refund Under IRC 7519, can be found in IRM 20.2.11, Miscellaneous Interest Provisions.

  4. Procedures for interest on the trust fund penalty can be found in IRM 20.2.12, Employment Taxes.

  5. IRC 1363(d)(2) applies when a C corporation elects to become an S corporation. It provides that the payment of tax related to the last-in first-out (LIFO) recapture is due in 4 equal installments. The first installment shall be paid by the due date of the return for the last year as a C corporation and the 3 succeeding installments shall be paid by the due date for the S corporation return for the 3 succeeding taxable years. There is no interest charge for the period of extension. There is no interest charge provided payments are made by the installment due date.

20.2.5.12  (03-12-2010)
Unidentified Remittance Account Payments

  1. When a payment is refunded from the unidentified remittance account, no interest is allowed.

  2. When a payment from the unidentified account is correctly identified and applied to a tax module, it is treated the same as any other payment on the module. Normal debit and credit interest rules apply.

  3. To ensure correct interest computations, always apply a payment from the unidentified remittance account using the payment received date.

    Note:

    If an amount from the unidentified payments account is returned to the taxpayer because the taxpayer establishes that it was sent to the IRS in error, no interest is allowed.

20.2.5.13  (02-04-2015)
Debit Interest on Liabilities Paid by Offset

  1. IRC 6402(a) permits the IRS to credit a taxpayer’s overpayment to his or her outstanding liability. In order to be "outstanding" , a liability must be unpaid.

    Caution:

    When performing an offset, the offset amount cannot create a credit balance in the liability module. Only offset the amount needed to fully pay the balance due.

  2. If an overpayment is applied to an outstanding tax liability, compute debit interest from the due date of the liability to the availability date of the overpayment. Debit interest stops as of the credit availability date on any portion of a liability satisfied by credit of an overpayment.

  3. Compute debit interest on a liability satisfied by an offset of a credit with an availability date that is later than the liability due date as follows:

    1. Using a current TXMOD or Master File transcript, compute a running module balance on the liability from the due date of the tax to the date the credit is available.

    2. Apply the offset as a payment on the credit availability date. The offset credit is to be treated the same as a payment in regards to notice grace periods. See IRM 20.2.5.4, above. The earliest available credit is always offset first, regardless of the year (prior or later) it is offset to.

    3. Continue debit interest to the applicable interest computation ending date: waiver date plus 30 days (if applicable), payment date, or 23C date, whichever is appropriate.

  4. Whenever possible, offset overpayments in a manner that will not create overlapping debit and credit interest periods. This is done to avoid creating a net rate interest netting situation.

  5. No debit interest is charged on a liability (up to the amount of the credit) that is fully satisfied by an offset credit dated earlier than the liability due date.

20.2.5.13.1  (02-04-2015)
Debit Interest on Liabilities Paid by Offset from a Different Taxpayer

  1. A liability of one taxpayer may be paid by the overpayment of another taxpayer at the overpaid taxpayer’s request. Research may be needed to determine if it is the same or a different taxpayer.

  2. Compute debit interest on the liability satisfied by the offset of the credit as follows:

    1. Using a current TXMOD or Master File transcript, compute a running module balance on the liability from the due date of the tax to the date the offset is applied.

    2. Apply the offset as a payment using the current 23C date.

    3. Continue debit interest to the applicable ending date. This will be the earlier of: the waiver date plus 30 days (if applicable), payment date or 23C date.

    Example:

    John and Jane Smith file a joint return for 201012 showing an overpayment. Rather than getting the refund sent to them, they request that it be applied to their son, Fred Smith, who still owes on his 200912 return. Even though the overpayment is available on April 15, 2011, the effective date will be the date the payment gets transferred, which is usually the current 23C date. If the 23C date is November 7, 2011, then the overpayment will be offset using November 7, 2011 as the availability date of the credit.

    • Debit interest is computed on Fred Smith’s liability from April 15, 2010, to November 7, 2011 (the current 23C date), when John and Jane Smith’s overpayment (with interest) is applied.

    • Credit interest is computed on John and Jane Smith's overpayment from April 15, 2011, to November 7, 2011, when the overpayment will be transferred to Fred Smith's liability.

    • The overpayment will be offset with TC 820 and TC 700, while the interest will be applied using TC 850 and TC 730.

    • If Fred Smith’s liability is not totally satisfied, debit interest will continue to accrue on the balance until it is fully paid.

20.2.5.14  (02-04-2015)
Insolvent Taxpayers, Seized Property, and Collection Costs

  1. See IRM 20.2.11.6, Bankruptcy Code Cases, for information on computing interest for taxpayers in bankruptcy or receivership.

    1. If unable to determine computation dates for interest, contact the Insolvency Field Office or Centralized Insolvency Operation where the bankruptcy was filed. For the Insolvency (Bankruptcy) National Field/Centralized Site Directory, see: http://serp.enterprise.irs.gov/databases/who-where.dr/inslvncy-bnkrptcy/national_insolvency_field.htm.

  2. When levy proceeds are returned, the delinquent tax is not forgiven. The taxpayer is still obligated to pay the amount owed, and the IRS is obligated to collect it. However, the taxpayer will not be charged the failure to pay penalty and interest during the period that the IRS held the money. The example below should only be followed if the account is already restricted (-I freeze), or if for some other reason interest needs to be manually computed. Do not unnecessarily restrict a tax module. If the interest and penalties can be systemically computed, then this procedure is not necessary.

    Example:

    The taxpayer owed $10,000. On April 10, 2011, $2,500 was collected as levy proceeds. On May 4, 2013, the $2,500 was returned.

    1. Compute a running module balance on $10,000 through April 10, 2011.

    2. Suspend interest on $2,500 for the period April 11, 2011, through May 4, 2013.

    3. Resume interest on the running module balance plus the $2,500 on May 4, 2013. Input a TC 340 with the "COMP-INT-AMT" and "INT-TO-DT" fields completed. This will allow IDRS and Master File to systemically update interest after input of the non-restricting TC 340.

  3. If property of an individual other than the taxpayer is wrongfully levied upon and the property or proceeds from the sale of the property is applied to satisfy a liability of the taxpayer, and later is returned to that individual, underpayment interest should be charged on the taxpayer's liability during the period that the wrongful levy amount was applied. Interest does not need to be restricted, if the credit is reversed using the same date. Otherwise, interest must be manually computed when refunding or offsetting using a different date.

  4. Collection procedures stipulate that monies derived from a sale or auction (designated payment code (DPC) 06) are to be applied first against lien fees and collection costs (TC 694), then against tax due on the account for the sale of the seized property. The balance of monies, if any, is applied against the past due tax liability which formed the basis for the levy and sale. See IRC 6342.

20.2.5.15  (02-04-2015)
Claims for Refund of Overpaid Debit Interest

  1. The statutory period of limitations for filing a claim for refund of overpaid debit interest is two years from the date of the payment or three years from the time the return was filed, whichever is later. See IRM 25.6.1.10.2.7, Claims for Credit or Refund-General Time Period for Submitting a Claim. The amount of credit or refund may not exceed the portion of the tax paid within the period immediately preceding the filing of the claim equal to 3 years plus the period of any extension of time for filing the return. Prepaid credits are considered paid on the return due date for this purpose. See IRC 6511.

    Exception:

    If a consent (Form 872) to extend the Assessment Statute Expiration Date (ASED) is secured, the period for filing a claim for refund of overpaid debit interest is also extended six months from the new ASED. The amount of credit or refund may not exceed the portion of the tax paid after the execution of the agreement and before the filing of the claim, as well as the portion of the tax that would have been open under the two or three year statute periods, if a claim had been filed on the date the agreement was executed.

    Caution:

    TC 560 may not necessarily be an indicator of an 872 extension.

    Example:

    The normal ASED is April 15, 2013. A consent Form 872 was secured extending the ASED to December 31, 2013. The taxpayer has until June 30, 2014, to file a claim for overpaid debit interest.

  2. For rules concerning the statute of limitations, see IRM 25.6.1, Statute of Limitations Processes and Procedures.

20.2.5.16  (02-04-2015)
Types of Deficiencies that do not Receive an IRC 6601(c) Suspension of Interest

  1. Agreed cases closed by Exam via a Form 906, Closing Agreement on Final Determination Covering Specific Matters, and no Form 870 or Form 870-AD, usually do not receive an IRC 6601(c) suspension (an example is a settlement initiative case). An exception would be if Form 906 includes a statement that the taxpayer is entitled to an IRC 6601(c) suspension. The form by itself does not constitute an agreement. Even though such cases are not entitled to an underpayment interest suspension under IRC 6601(c) (also known as 870 Waiver Plus 30 Days), the taxpayer may be entitled to an underpayment interest suspension under IRC 6404(g). See IRM 20.2.7.7, IRC 6404(g) Interest Suspension.

  2. The initial return or agreement after a Substitute for Return (SFR) has posted. Subsequent agreements follow normal procedures. See IRM 20.2.5.6.

  3. For TEFRA adjustments with return due dates ending on or before August 5, 1997, see IRM 20.2.5.9.4.

  4. Amended returns filed by the taxpayer showing additional tax due.

Exhibit 20.2.5-1 
Interest on Penalties

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Exhibit 20.2.5-2 
Payment Effective Date Decision Chart

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Exhibit 20.2.5-3 
Revenue Ruling 99-40 Example

Taxpayer Book, Inc., 33-1111111, timely filed with an extension and paid Form 1120 for tax periods ending December 31, 2008, and December 31, 2009. Each period had overpaid estimated tax payments, which the taxpayer elected to have credited to their respective succeeding tax periods.

Subsequently, on June 23, 2010, the taxpayer submitted an amended tax return for 200812, which resulted in a tax assessment of $521,886. The amended return included a payment of $540,000.

After receiving a notice for additional interest of $7,594.70, the taxpayer requested that Rev. Rul. 99-40 be applied.

Using TXMOD information, Form 2220, and the chart shown on the following page, we determined that the taxpayer can apply Rev. Rul. 99-40 as follows:

Tax Assessment 521,886.00
Credit elect used on 9/15/2009 -246,913.50
Credit elect not used until 3/15/2010 -214,472.50
Balance of underpayment 60,500.00

Debit interest starts as follows

3/15/2009 60,500.00
9/15/2009 +246,913.50
3/15/2010 +214,472.50
  521,886.00

Debit interest starts on the underpayment in excess of the credit elect on the return due date.

The application of Rev. Rul. 99-40 may not extend the debit interest start date past the return due date of the succeeding tax period.

TXMOD of Assessed Tax Period
TXMODA 33-1111111 MFT 02 TX-PRD 200812 NM-CTRL>BOOK

T/C POSTED TRANS-AMOUNT CYC
150 09212009 1,234,456.00 20094008
660 04152008 308,614.00- 20081408
660 06152008 308,614.00- 20082108
716 04152008 770,000.00- 20084008
660 12152008 308,614.00- 20084908
460 03152009 0.00 Ext Dt 09152009
836 04152009 461,386.00 20091608
640 06232010 540,000.00- 20102508
290 08162010 521,886.00 20103808
196 08162010 25,708.70 20103808

TXMOD of Subsequent Tax Period
TXMODA 33-1111111 MFT 02 TX-PRD 200912 NM-CTRL>BOOK

T/C POSTED TRANS-AMOUNT CYC
150 08162010 987,654.00  
660 04152009 246,913.50 - 20091408
660 06151999 246,913.50- 20092108
460 03152010 .00 EXT DT 09/15/2010
716 04152009 461,386.00- 20094008
660 12152009 246,913.50- 20094908
836 04152010 214,472.50 20101608
NOTICE AMOUNT CYCLE S DO
12 .00 20101608    
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