20.2.7  Abatement and Suspension of Interest

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20.2.7.1  (03-09-2010)
Interest Abatement and Suspension Overview

  1. IRM 20.2.7 explains the application of interest rules on accounts where interest was:

    • Excessive, barred by statute, erroneously or illegally assessed [ IRC 6404(a)];

    • Attributed to certain unreasonable errors or unreasonable delays by the IRS [ IRC 6404(e)(1)];

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

    • Due on an additional liability that was not identified by the IRS in a timely manner [ IRC 6404(g)];

    • Disregarded for a period of time due to a taxpayer's participation in a combat zone [ IRC 7508];

    • Disregarded for a taxpayer qualifying for Military Deferment [Title 50 Appendix section 570 USC]; and

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

      Caution:

      Reasonable cause is never the basis for abating interest.

  2. Generally, interest on a tax liability accrues from the return due date until it is paid in full, but there are exceptions in the law as mentioned above that authorize the abatement (or the suspension) of interest, as well as exclude certain periods of time when computing interest. In case these exceptions are overlooked, the taxpayer may file a request for interest abatement using Form 843, Claim for Refund and Request for Abatement. While Form 843 is the preferred form for the filing of an interest abatement claim, the IRS will consider written signed correspondence requests containing the required elements (e.g., name, taxpayer identification number, interest period in question, signature, and the reason(s) for the abatement, etc.) of an interest abatement claim.

  3. A taxpayer requesting the abatement of interest charges must complete and file an interest abatement claim with the campus where they last filed a tax return. The campus will route the claim according to instructions set forth in IRM 21.5.3,Account Resolution, General Claims Procedures.

  4. A taxpayer might bring up interest abatement issues during the collection process or in an examination. Secure a complete Form 843 from the taxpayer making sure the reason for the interest abatement is clear and the time period is specified when interest should not accrue. Work the claim according to your area's established guidelines. Do not send the claim to the campus.

  5. For IRC 6404(e)(1) claims where the alleged delay or error occurred in Appeals, the Interest Abatement Coordinators in Compliance (Advisory or Exam Technical Services) should work these claims. If the taxpayer disagrees with the Compliance decision, issue the claim disallowance letter giving the taxpayer their appeal rights. When received, forward the taxpayer's written protest to Appeals for a hearing. See IRM 8.7.7, Technical and Procedural Guidelines, Appeals Claim and Overassessment Cases.

  6. Transaction Code (TC) 971, Action Code (AC) 660 was created to identify the filing of interest abatement claims. TC 971 AC 660 is input by the campus when a claim is received and before it is routed to the appropriate area to work. If TC 971 AC 660 is not on the transcript at the time you receive the claim, submit a request to have the TC 971, AC 660 input by the unit that normally processes your adjustments.

20.2.7.2  (03-09-2010)
Interest Abatement Coordinator (IAC)

  1. The Interest Abatement Coordinator (IAC) is someone whose duty (as assigned by area or function) is to review the facts and circumstances of an interest abatement claim, and render a decision based on those facts. An Interest Abatement Coordinator's duties vary throughout the IRS and may include some of the following activities:

    1. Maintain inventory controls (manual or electronic);

    2. Review claims and make preliminary determinations;

    3. Request necessary documentation, which may include securing the case file;

    4. Work claims relating to IRC 6404(e)(1);

    5. Identify the dates (from and to dates) where interest should be abated or suspended;

    6. Secure approval of proposed decision following operating division's established guidelines;

    7. Communicate the decision to the taxpayer using appropriate correspondence;

    8. Confirm the correctness and completion of the adjustments; and

    9. Provide status updates upon request.

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

    A claim for abatement of interest on an employment tax liability, or a claim that pertains to tax year 1978 or prior are automatically disallowed by law.

  3. Taxpayers disagreeing with the interest charges must contact the person whose name and telephone number is printed on the last notice (or correspondence) received from the IRS, not the IAC. A list of Interest Abatement Coordinators (for internal use only) is on the Servicewide Interest Program website.

    Reminder:

    Do not refer taxpayers or their representatives to the IACs on the website list.

20.2.7.3  (03-09-2010)
Not Legally Due, IRC 6404(a)

  1. IRC 6404(a) authorizes the Secretary to abate the unpaid portion of any tax or any liability such as interest that is:

    • Excessive in amount, or

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

    • Erroneously or illegally assessed.

    Note, however, the rule in IRC 6404(b) that taxpayers cannot file a request to abate assessments of income, estate or gift taxes.

  2. IRS employees are obligated to correct interest errors discovered on a taxpayer's account. The account does not have to be full paid before correcting the identified interest error. For example, during a restricted interest computation review, it was discovered that incorrect payment amounts were used in the interest computation and the taxpayer was billed for more interest. Prepare the necessary adjustment document to request the correction, making sure to obtain the appropriate management level approval(s) before the adjustment is input onto Master File.

20.2.7.4  (03-09-2010)
Errors or Delays in Performance of a Ministerial or Managerial Act, IRC 6404(e)(1)

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

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

      Example:

      An audit selection letter is sent to the taxpayer's old address and then forwarded to the new address. In response to the appointment letter, the taxpayer notifies the IRS of the new address and requests a transfer of the audit to an office closer to the new address. The manager approves the transfer request. The IRS, in its discretion, may abate interest attributable to any unreasonable delay in transferring the case.

    2. A "managerial act" is an administrative act that occurs during the processing of a taxpayer's case involving the temporary or permanent loss of records or the exercise of judgment or discretion relating to management of personnel.

      Example:

      (Continuing with example above) After the manager approves the transfer of the case, the clerk misplaces the case file. The "misplacing of the file" is a managerial act. The IRS, in its discretion, may abate interest attributable to any unreasonable delay caused by the misplacement of the file.

    Caution:

    A decision concerning the proper application of Federal tax law is not a managerial act, nor is it a ministerial act (Treas. Reg. 301.6404-2).

  2. Under IRC 6404(e)(1), the IRS has the authority to abate the amount of interest that accrued during the period in which the unreasonable error or delay in performing a ministerial or managerial act occurred. It applies only when an unreasonable error or delay occurred after the date the IRS contacts the taxpayer in writing with respect to an audit deficiency or payment. Interest accruing from the return due date up to when the IRS first contacts the taxpayer is not abated under this provision because the taxpayer is aware of the tax liability reported on the filed return as well as the consequences which are penalties and interest if the liability is not paid by the return due date.

    Example:

    A 2006 balance due income tax return is timely filed. An audit resulted in an additional liability (tax and penalty), and there was an unreasonable error (or delay) during the audit. Only the interest on the audit liability (additional tax and penalty) is considered for abatement due to the unreasonable error (or delay) and not interest on the underpaid original liability.

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

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

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

  5. All IRS employees are responsible for identifying significant errors or delays associated with the ministerial and managerial acts that occur during work in progress, and reporting these unreasonable errors/delays to their manager.

20.2.7.4.1  (03-09-2010)
Ministerial Act or Managerial Act - Delegation of Authority

  1. Delegation Order 228 Rev. 3, located in IRM 1.2.51.3 , lists individuals authorized to abate interest due to a ministerial or managerial act. Managers have the authority to disallow interest abatement claims under $2,500, while Interest Abatement Coordinators may disallow interest abatement claims that are automatically disallowed by statute.

  2. For tax years prior to July 30, 1996, interest abatement under IRC 6404(e)(1) was allowed only if it was due to a ministerial act. So if a case was "misplaced" (administrative/managerial act) during an examination, the taxpayer did not receive any interest relief under IRC 6404(e)(1). After July 30, 1996, IRC 6404(e)(1) was amended to include managerial acts and redefined the error or delay to be "unreasonable."

20.2.7.4.2  (03-09-2010)
IRC 6404(e)(1) Criteria

  1. Criteria for qualifying a claim for unreasonable error or delay under IRC 6404(e)(1) are as follows:

    1. The statutory period of limitations on filing a claim per IRC 6511 is open;

    2. The claim is for tax years beginning after December 31, 1978;

    3. The claim relates to interest on taxes described in IRC 6212(a) i.e., income, estate, gift, certain excise taxes (employment taxes are specifically excluded);

    4. An unreasonable error or delay occurred in relation to the performance of a ministerial or managerial act;

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

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

  2. An interest abatement claim under IRC 6404(e)(1) not meeting all of the above criteria is automatically disallowed by law.

20.2.7.4.3  (03-09-2010)
IRC 6404(e)(1) Claim Input Procedures

  1. When adjusting interest due to a ministerial or managerial act and the module still has a balance due, it is recommended that two separate interest adjustments be done; one to post the accruals, and one to abate the interest due to IRC 6404(e)(1). The following "If and Then" table provides instructions for the input of an IRC 6404(e)(1) interest abatement claim on IDRS:

    If the claim is Then
    Disallowed in Full Input TC 290 for zero, Reason Code 080 and send claim disallowance letter.
    Partially Disallowed Input TC 290 for zero, TC 341 for amount of interest abatement, Reason Code 081 and send partial claim disallowance letter.
    Fully Allowed Input TC 290 for zero, TC 341 for amount of interest abatement, Reason Code 082 and send allowance letter.

  2. If the claim is allowed (in part or fully), abate the portion of interest accruing from the date the unreasonable error (or unreasonable delay) occurred up to the date the unreasonable error (or delay) is identified. The employee who reviews the interest abatement claim and makes the decision to allow the claim must furnish the start and end dates of the ministerial or managerial act(s) to the interest computation function. For more information on claim disallowance procedures, see IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns.

    Caution:

    IRC 6404(e)(1) only abates interest due on an "additional" liability, not on the original tax liability.

20.2.7.5  (03-09-2010)
Erroneous Refunds IRC 6404(e)(2)

  1. Generally, interest is assessed on an erroneous refund recoverable by suit from the refund date to the repayment date ( IRC 6532(b), IRC 6602, and IRC 7405). IRC 6404(e)(2) requires the abatement of interest charged from the refund date to the date of demand, if that refund is $50,000 or less and the taxpayer (or a related party) did not in any way cause the erroneous refund.

  2. For refunds greater than $50,000, the abatement of interest under IRC 6404(e)(2) is not required, but may be allowed on a case by case basis. The IRS has the discretionary authority to abate interest on erroneous refunds that exceed $50,000. IRS employees should consider the following facts and circumstances when determining whether or not to abate interest due to an erroneous refund:

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

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

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

    • Is the taxpayer sophisticated in tax or business matters?

  3. IRC 6404(e)(2)does not allow the abatement of interest accruing from the date of demand to the payment date, but interest may be suspended under a different provision; IRC 6601(e)(3). [See IRM 20.2.5.4, Notice and Demand and Debit Interest]. A payment received within 21 calendar (or 10 business) days from the erroneous refund demand date must post with a Transaction Code (TC) 720 in order for Master File to correctly suspend interest from the date of demand to the repayment date.

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  5. Please refer to the following IRM documents for more information on erroneous refund processes and procedures: IRM 3.17.80, Accounting and Data Control, Working and Monitoring Category D, Erroneous Refund Cases in Accounting Operations, and IRM 21.4.5, Erroneous Refunds.

20.2.7.5.1  (03-09-2010)
IRC 6404(e)(2) Delegation of Authority

  1. Delegation Order 231 (Rev. 4), in IRM 1.2.47.10 , Delegation Order 231 (Rev.4), identifies individuals authorized to approve the abatement of interest under IRC 6404(e)(2).

20.2.7.6  (03-09-2010)
IRC 6404(g) Interest Suspension

  1. IRC 6404(g) suspends interest if the IRS fails to timely provide the taxpayer adequate notice of liability (and basis for the liability) as a result of an examination. The IRS has 36 months (or 18 months in certain cases) from the return due date or return filed date (with regard to extensions) whichever is later, to notify the taxpayer of the additional liability without suspending interest. The IRC 6404(g) interest suspension applies only to timely filed individual income tax returns for taxable years ending after July 22, 1998.

  2. The IRC 6404(g) interest suspension applies to an increase in liability for any taxes reportable on a Form 1040, U.S. Individual Income Tax Return, and therefore would apply to an individual's liability as a result of an adjustment to a flow-through entity, or TEFRA adjustment.

  3. Section 8242 of the Small Business and Work Opportunity Tax Act of 2007 (SWOTA), extended the notification period for IRC 6404(g) to 36 months for notices issued after November 25, 2007. Chief Counsel issued interim guidance IRS Notice 2007-93, to clarify what is meant by "notices issued after November 25, 2007" . See IRM 20.2.7.6.3. for examples on how to determine a 36-month (or 18-month) notification period.

  4. Rev. Rul. 2005-4, 2005-4 IRB 366, extended IRC 6404(g) interest suspension rules to amended returns (or signed correspondence) received on/before December 21, 2005. The 18-month period applicable for amended returns is the return due date or return filed date of the original tax return. If a taxable amended return is received after 18 months from the original return due date (or filed date), interest on the amended return liability is suspended 18 months after the original return due date up through 21 days after receipt of the amended return.

  5. Section 303(b) of the Gulf Opportunity Zone Act (GOZA) of 2005, changed the notification period start date for amended returns received after December 21, 2005. For amended returns received after December 21, 2005, the 18-month notification period begins on the date the IRS receives the amended return. Therefore, amended returns received after this date no longer qualify for IRC 6404(g) interest suspension because receipt of the amended return "starts" the 18-month notification period, and the amended return itself is the 6404(g) " notice " .

    Example:

    A taxpayer timely filed Form 1040 for 200312. The IRS received a taxable amended return on April 17, 2006. The 18-month period starts on April 17, 2006, which is the same date "notice" ( Form 1040X, Amended U.S. Individual Income Tax Return ) was provided. The IRC 6404(g) interest suspension does not apply.

20.2.7.6.1  (03-09-2010)
Undisclosed Reportable and Listed Transactions

  1. Section 903 of the American Jobs Creation Act (AJCA) of 2004, eliminated the IRC 6404(g) interest suspension for interest accruing after October 3, 2004 on listed transactions and undisclosed reportable transactions. The following year, section 303(a) of the Gulf Opportunity Zone Act (GOZA) included an off-Code provision which retroactively repealed interest suspension for the same group of taxpayers including interest accruing on or before October 3, 2004, unless the taxpayer qualified for one of the exceptions:

    • If as of January 23, 2006, the taxpayer participated in the IRS Settlement Initiative Announcement 2005-80 (Global Settlement Initiative), or signed a settlement agreement ( Form 906, Closing Agreement on Final Determination covering Specific Matters) for the specific transaction;

    • The Secretary of the Treasury or the Secretary's delegate may grant interest suspension if the taxpayer acted reasonably and in good faith; or

    • If as of December 14, 2005, the assessment statute expiration date (ASED) for the tax year has expired, or the taxpayer had already signed a closing agreement ( Form 906) regarding the transaction.

  2. The following two "If and Then" tables will help determine whether IRC 6404(g) is applicable. Table 1 explains the IRC 6404(g) interest suspension rules for taxpayers with listed transactions. Table 2 explains the IRC 6404(g) interest suspension rules for taxpayers who participated in reportable transactions or neither transactions.

    Table 1 - Listed Transactions

    If and Then
    A taxpayer participated in a listed transaction qualified for one of the exceptions noted in IRM 20.2.7.6.1(1). Allow an interest suspension up to 10-03-2004. See IRM 20.2.7.6.1.2 or See IRM 20.2.7.6.1.3. for those authorized to grant the 'good faith exception'.
    A taxpayer participated in a listed transaction did not qualify for any exception noted in IRM 20.2.7.6.1(1). Do not allow the interest suspension.

    Table 2 - Reportable or Neither Transactions

    If and Then
    A taxpayer participated in a reportable transaction the tax year is 2002 or prior Allow the IRC 6404(g) interest suspension.
    A taxpayer participated in an undisclosed reportable transaction the tax year is 2003 and subsequent Do not allow the IRC 6404(g) interest suspension except if taxpayer could receive an interest suspension through 10-03-2004 if he or she qualified for one of the exceptions noted in IRM 20.2.7.6.1(1).
    A taxpayer participated in neither transaction for any tax year Allow the IRC 6404(g) interest suspension.

20.2.7.6.1.1  (03-09-2010)
Good Faith Exception

  1. The retroactive repeal of the interest suspension affected " listed transaction taxpayers" that did not participate in the Global Settlement Initiative and did not sign a Form 906 by January 23, 2006. "Listed transaction taxpayers" , who through no fault of their own were unable to sign Form 906 by the cutoff date of January 23, 2006, may be eligible for the good faith exception; limited IRC 6404(g) interest suspension up through October 3, 2004.

  2. A taxpayer's conduct during the examination including withdrawal from settlement negotiations and involvement in the transaction will be considered when determining eligibility for the good faith exception. Forward any post-assessment interest claims citing the good faith exception to Technical Services Exam Group Managers. See Treas. Reg. 301.6404-4T for examples of taxpayers acting reasonably and in good faith.

20.2.7.6.1.2  (03-09-2010)
Post-Assessment Good Faith Claims

  1. Delegation Order 20-2, located in IRM 1.2.51.2 , Approve Suspension of Interest on Certain Listed and Reportable Transactions Where Taxpayer Acted Reasonably and in Good Faith , dated July 29, 2008, lists individuals with the authority to grant the good faith exception on post-assessment (interest assessed) cases. Interest Abatement Coordinators (IACs) in Technical Services Exam (Small Business/Self Employed) may grant the good faith exception for assessed interest of less than $100,000 (per tax year). For assessed interest of $100,000 or more, Technical Services Exam Manager (SB/SE) and the Director of Field Operations in Large & Mid-Size Business (LMSB) have the authority to grant the good faith exception.

20.2.7.6.1.3  (03-09-2010)
Pre-assessment Interest - Good Faith Exception

  1. During an open examination (or on pre-assessed interest), the Exam Area Director (SB/SE) and Director of Field Operations (LMSB) have the authority to grant interest suspension under IRC 6404(g) on certain listed transactions where the taxpayer has acted reasonably and in good faith. Documentation (e.g., memo, E-mail, or 6404(g) lead sheet) of the Director's concurrence to the good faith provision must be included in workpapers. Director’s approval is required only if the good faith exception is allowed.

20.2.7.6.2  (03-09-2010)
Exclusion from IRC 6404(g) Interest Suspension

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

    1. Suspension of any penalty imposed by IRC 6651.

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

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

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

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

    6. Any criminal penalty.

  2. Gross misstatement is defined as:

    1. Substantial omission of income as described in IRC 6501(e)(1) or IRC 6229(c)(2);

    2. Gross valuation misstatement within the meaning of IRC 6662(h); or

    3. Misstatement to which penalty under IRC 6702(a) applies.

20.2.7.6.3  (03-09-2010)
Notification Period (36 or 18 Months)

  1. The IRS has 36 months (or 18 months in certain cases) to notify the taxpayer of an additional liability and basis for the liability, during which time interest continues to accrue. The 36 months (or 18 months) starts on the later of:

    • The due date of the return, if filed on or before the return due date (without regard to extensions), or

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

  2. When determining which notification period to use (36 months or 18 months), add 18 months to the return due date or return filed date of the account you are working with, and then follow either the (a) or (b) instruction below:

    1. If the end of the 18 months falls on or before November 25, 2007, the IRS has 18 months to notify the taxpayer of the additional liability without suspending interest.

    2. If the end of the 18 months falls after November 25, 2007, the IRS has 36 months to notify the taxpayer of the additional liability without suspending interest.

  3. The following "If and Then" table explains how to identify the beginning day of the 36 months (or 18 months) period.

    If Then
    The tax return is received on or before the return due date (04-15 for calendar year filer). Use the return due date (04-15).
    The tax return is postmarked on the next business day because 04-15 (or 10-15) is a weekend or legal Holiday. Use the postmarked date (example 04-16, 04-17, or 10-16).
    There is an extension to file (10-15) and the tax return is received before the extended due date. Use the return received date (example 06-22, 08-07) on the transcript (Command Codes TXMODA or IMFOLT).
    The postmark date (04-21) is after the return due date and there is no extension to file. The return is delinquent and does not qualify for the IRC 6404(g) interest suspension.
  4. Once you have determined which notification period (36 or 18 months) applies to the tax module ( See IRM 20.2.7.6 ), the next action is to identify the end date of the notification period. Chief Counsel calculates the "months " in the 36 (or 18) months notification period as "36 (or 18) months minus 1 day" .

    • If the 18 months minus 1 day falls on a Saturday, Sunday, or legal Holiday, the next business day is the "end date" of the 18-month period, or

    • If the 36 months minus 1 day falls on a Saturday, Sunday, or legal Holiday, the next business day becomes the "end date" of the 36-month period.

    Example:

    A 200012 original tax return is filed on or before the return due date. The 18-month period "starts " on the return due date, April 15, 2001 and "ends" on Tuesday, October 15, 2002. For this scenario, the close of the 18-month period is October 14, 2002, a legal Holiday; therefore, the next business day is the 18-month period end date. The 18 months ended before November 25, 2007, and if the IRS did not provide notice by October 15, 2002, interest is suspended the day after the end of the 18 months.

    Example:

    A 200212 original tax return (with an extension) is received by the IRS on June 19, 2003. The 18-month period "starts" on June 19, 2003, and "ends" on Monday, December 20, 2004 . For this scenario, the close of the 18-month period is Saturday, December 18, 2004; therefore the next business day is the 18-month period end date. The 18 months ended before November 25, 2007, and if the IRS did not provide notice by December 20, 2004, interest is suspended after the end of the 18 months.

    Example:

    A 200512 original tax return is filed by the return due date. The 18 months is from April 17, 2006, through October 16, 2007. For this scenario, the 18 months ended before November 25, 2007, and if the IRS did not provide notice by October 16, 2007, we will suspend interest the day after the end of the 18 months.

    Example:

    A 200512 original tax return (with an extension) is filed by October 16, 2006, and 18 months from this date is April 15, 2008. Since April 15, 2008 is after November 25, 2007, the IRS has 36 months from the return filed date to notify the taxpayer of the additional liability.

    Example:

    A 200612 return is filed by April 17, 2007. The 18-month period is still open as of November 25, 2007; therefore, the IRS will have 36 months from April 17, 2007 to notify the taxpayer of an additional liability without suspending interest.

    Reminder:

    Interest accrues during the 36 months (or 18 months) notification period for IRC 6404(g) purposes.

20.2.7.6.4  (03-09-2010)
Interest Suspension Period

  1. The "Interest Suspension Period" is the length of time the IRS must suspend interest for untimely notification to the taxpayer. Interest, penalties, additions to tax, and additional amounts as shown on the Examination Changes report (or amended returns received prior to 12-21-2005) are suspended starting the day after the 36-month (or 18-month) period end date.

  2. The IRC 6404(g) interest suspension ends 21 calendar days after the "6404(g) notice" date, or the received date of the amended return/correspondence (received prior to 12-21-2005). Interest resumes the 22nd day after the 6404(g) notice date. Here are examples of interest suspension periods:

    Example:

    A 199812 tax return is filed on April 15, 1999. An Examination Changes report, Form 4549, Income Tax Examination Changes, with Form 886-A , Explanation of Items, was issued to the taxpayer on September 6, 2001. Interest suspension starts on October 17, 2000, and ends September 27, 2001. Interest resumes September 28, 2001.

    Example:

    A 200012 tax return is filed on April 15, 2001. Form 1040X, Amended U.S. Individual Income Tax Return, with an additional liability is received on March 1, 2004. Interest suspension starts on October 16, 2002, and ends March 22, 2004. Interest resumes March 23, 2004.

    Example:

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

20.2.7.6.5  (03-09-2010)
IRC 6404(g) Notice

  1. A notice for IRC 6404(g) purposes must be in writing and contain adequate information as it relates to the proposed examination liability in the event the taxpayer wants to challenge the adjustment. The notice requirement applies separately to each item or adjustment. An adequate IRC 6404(g) notice provided within the prescribed time period (18 or 36 months) prevents the suspension of interest only on those items or adjustments described in that notice.

  2. In general, the following list describes the documents that are considered adequate notice for purposes of IRC 6404(g):

    1. Math error notices.

    2. Underreporter Program Notices.

    3. Notice of Final Partnership Administrative Adjustment (FPAA) containing specific information about the basis for the adjustments to partnership items.

    4. Form 4549, Income Tax Examination Changes Report with Form 886-A, Explanation of Adjustments ( IRM 4.10.8, Report Writing, Examination of Returns).

    5. 60-Day Letter or FPAA with Form 4605-A, Examination Changes-Partnerships, Fiduciaries, S Corporations, and Interest Charge Domestic International Sales Corporations (Unagreed and Excepted Agreed and Form 886-S, Partners' Share of Income, Deductions, and Credits. ( IRM 4.31.2, Pass-Through Entity Handbook, TEFRA Examinations - Field Office Procedures ).

    6. CP 2000.

    7. Amended returns or signed taxpayer correspondence (received before 12-21-2005).

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

    • Using the standard paragraphs in IRM 4.10.10, Examination of Returns, Standard Paragraphs and Explanation of Adjustments , or customized paragraphs created by examiners to explain the adjustment;

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

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

20.2.7.6.5.1  (03-09-2010)
Multiple IRC 6404(g) Notices

  1. An examiner may issue more than one report for a tax return during the course of an examination. If a subsequent report does not contain new items or adjustments, there is only one IRC 6404(g) notice date.

    Example:

    A 199812 tax return is filed on April 15, 1999. The examiner issued Form 4549 on December 1, 2000, with a liability of $4,000 due to disallowed deduction for charitable contributions. The taxpayer provides proof for part of the deductions. The examiner revised and issued a report with a liability of $2,500 on February 6, 2001. For this example, since the revised report does not contain new items/adjustments, the IRC 6404(g) notice date is December 1, 2000, and interest resumes December 23, 2000.

  2. If a subsequent report contains new items or adjustments, there are separate IRC 6404(g) notice dates, so interest must be manually computed.

    Example:

    A 199812 tax return is filed on April 15, 1999. AUR generated a CP 2000 notice on December 1, 2000, due to omission of interest income resulting in a tax liability of $4,000. The audit was later transferred to the field and an Examination Changes report; Form 4549, was issued on May 31, 2001, with a tax liability of $6,000, resulting from the omission of interest income and disallowance of charitable contributions. For this example, the IRC 6404(g) notice dates are December 1, 2000, for the $4,000 and May 31, 2001, for the $2,000. Interest resumes on the $4,000 liability from December 23, 2000, and on the $2,000 liability, from June 22, 2001.

  3. An amended return received prior to 12-21-2005 and an examination report issued for the same tax year but with different issues, qualify as separate notices for IRC 6404(g) purposes. Both notices ( Form 1040X and examination report) were issued after the "18-month period" , so the liability and basis on both notices are subject to the IRC 6404(g) interest suspension. Interest on the liability and basis shown on each notice resumes on different dates.

    Example:

    A 199912 tax return is filed on April 15, 2000. The IRS received a Form 1040X on May 3, 2002, with a liability of $998, due to unreported income. An examination report was issued on January 10, 2003, with a liability of $6,908 and Accuracy penalty of $1,382 due to disallowed Schedule A and C deductions. For the Form 1040X liability of $998, interest resumes on May 25, 2002, and for the examination report liability of $8,290, interest resumes on February 1, 2003.

20.2.7.6.5.2  (03-09-2010)
Recording IRC 6404(g) Notice Date

  1. Examiners must notate "IRC 6404(g) does not apply" or "IRC 6404(g) does apply and the date notice was provided" on Form 3198, Special Handling Notice for Examination Case Processing (or equivalent) and the Examination Changes reports or

    • On Form 4549 in the "other information" section of the report (see IRM 4.10.8, Report Writing, Examination of Returns) or

    • On Form 4605-A in the "Remarks" section of the report (see IRM 4.31.6, Pass-Through Entity Handbook, Non-TEFRA Examinations-CTF Procedures), and

    • On Form 3198, write the notice date(s) and check the applicable boxes.

  2. The following "If and Then" table provides instructions on which date the examiner will record as the IRC 6404(g) notice date.

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

    Caution:

    *All amended returns received after December 21, 2005, no longer qualify for the IRC 6404(g) interest suspension.

20.2.7.6.5.3  (03-09-2010)
Input of IRC 6404(g) Notice Date on Master File

  1. The IRC 6404(g) notice date (or the date the taxpayer was notified of the additional liability) is recorded onto IDRS by the input of Transaction Code (TC) 971 and Action Code (AC) 064 onto Master File. Input TC 971 AC 064 only if notification was not made within the 36-month period (or 18-month period). Do not input TC 971 AC 064 if notice was provided within the 36 months (or 18 months) as this might affect systemic interest computations on subsequent adjustments.

  2. The IRC 6404(g) notice date is entered in the "TRANS-DT" field of Command Code FRM77 and the liability amount eligible for 6404(g) interest suspension (e.g., tax, penalties, addition to tax) must be entered in the "FREEZE-RELEASE-AMT " field. If a TC 971 AC 064 was inadvertently input, use TC 972 with AC 064 to reverse it. IDRS and Master File cannot correctly perform a systemic interest suspension when there is more than one TC 29X or TC 30X already on the module, even if the TC 290 or TC 300 is for a zero (.00) amount.

  3. IDRS and Master File (MF) use the transaction date of the TC 971 AC 064 to:

    1. Confirm the untimely issuance of the notice to start the systemic interest suspension routine; and

    2. Determine the interest suspension end date, which is 21 days from the transaction date of the TC 971 AC 064.

  4. Rev. Rul. 2005-4 was released in January 2005 and extended the IRC 6404(g) interest suspension to taxable amended returns. Therefore, the decision was made to adjust the interest on already processed taxable amended returns instead of requiring taxpayers to file a claim. For taxable amended returns already processed (posted) when Rev. Rul. 2005-4 was released, the following procedure was used to calculate interest on modules that did not already have a prior TC 290 (blocked 500-519, 550-589, 600-619, 650-679), or a TC 30X:

    • The received date of the amended return was entered in the " AMD-CLMS-DT" field of CC ADJ54.

    • The received date of the amended return was also entered as the IRC 6404(g) notice date with TC 971, AC 064.

    • The Master File program then calculated interest factoring in the applicable suspension period based upon the Amended Claims Date and TC 971 AC 064 showing the same date.

20.2.7.6.6  (03-09-2010)
IRC 6404(g) Interest Computation

  1. Interest is systemically computed when there is only one IRC 6404(g) notice date and the module is not restricted. The example below will illustrate the systemic IRC 6404(g) interest suspension routine.

    Example:

    A 199812 tax return is filed on April 15, 1999. The IRS sent an Examination Changes report on December 1, 2000, showing a liability of $4,000.00 due to disallowed charitable contributions.

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

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

    • Interest resumes on $4,536.21 from 12-23-2000 to one of the interest stop dates (waiver plus 30 days, 23C Date or payment date, whichever is earlier). Refer to IRM 20.2.5, Interest on Underpayments, for debit interest stop dates.

  2. Master File and IDRS cannot correctly compute underpayment interest with an IRC 6404(g) interest suspension when there is more than one TC 29X or TC 30X adjustment on the module, even if it is for a zero amount. A TC 290 or TC 300 for a zero amount with an accompanying penalty adjustment and/or change in refundable credits is considered an adjustment. Interest must be manually computed and restricted in these instances. If not, the adjustment will unpost with Unpostable Code 155, Reason Code 1 (reactivated 07-01-2009).

    Example:

    A 199812 tax return is filed on April 15, 1999. AUR generated a CP 2000 on December 1, 2000, due to omission of interest income resulting in a tax liability of $4,000.00. The case is transferred to the field office. Once in the field, an examination report, which included the omission of interest income plus disallowed contributions, was issued on May 31, 2001, with a tax liability of $6,000.00. The taxpayer paid in full on July 27, 2001.

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

    Interest computed on the liability from the firstIRC 6404(g) notice (CP 2000) is as follows:

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

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

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

    Interest computed on the liability from the secondIRC 6404(g) notice (examination report) is as follows:

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

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

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

    The total tax liability is $6,000.00 with interest (TC 340 or non-restricting TC 340) of $1,050.89.

  3. A 6404(g) Recovery Project (identified with TC 971, AC 199) was conducted to allow the IRC 6404(g) interest suspension on amended return (Revenue Ruling 2005-4) adjustments (not AUR or Exam) that posted to Master File on or before January 7, 2005. Due to the volume of cases identified in the ‘extract’, an interest program was developed to systemically compute the correct amount of interest due. Systemic computation of interest on the 6404(g) Recovery Project followed the above computations with one exception:

  4. The Interest Suspension Period ended 21 calendar days after the 23C Date of the amended return adjustment (23C Date of TC 290). For example: Taxpayer Z with a TC 290 with a posting date of 12–30–2004 (23C Date), would have an interest suspension end date of 01–20–2005. The difference between the posted interest and the systemically computed interest was abated or assessed via Command Code ADJ54 by employees in the Andover and Memphis campuses. Although these interest adjustments posted with Document Code 54, they are treated as a systemic action. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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  6. Interest suspension on listed transactions and undisclosed reportable transactions ended on 10-03-2004 under section 903 of the American Jobs Creation Act of 2004, so the accrual of interest on these cases resumed on 10-04-2004. Examiners must correctly flag the portion of the liability attributed to undisclosed reportable/listed transactions on Form 3198 before sending the cases to Centralized Case Processing to close.

20.2.7.7  (03-09-2010)
Combat Zone - IRC 7508

  1. IRC 7508 prescribes a period of time to be disregarded when determining the liability for individuals who serve in a Combat Zone (CZ). Interest accrual and penalties are also disregarded during the period of time the taxpayer is in:

    1. An area designated as a combat zone;

    2. A contingency operation designated by the Department of Defense;

    3. A qualified hazardous duty area as defined by Congress; or

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

  2. A CZ account is identified by the following:

    1. The COMBAT-ZONE field with an indicator of 1 or 2 on the account entity (CC ENMOD/IMFOLE). A "1" indicates the taxpayer is currently serving in a combat zone, and a "2" means the taxpayer is no longer serving in a combat zone.

    2. TC 500 with any of these closing codes (Closing Codes 52/53, 54/55, 56/57) on the entity (CC ENMOD).

    3. If applicable, the literal COMBAT ZONE would show on the transcript (CC TXMODA); or

    4. A Master File (MF) Freeze Code -C on the transcript (CC TXMODA and CC IMFOLT).

    The transaction date of the TC 500 with a Closing Code of 52, 54, or 56 identifies the date the taxpayer enters a CZ, and the transaction date of the TC 500 with a Closing Code of 53, 55, or 57 identifies the date the taxpayer exits a CZ. A current list of combat zone areas can be found on the IRS web page www.irs.gov . In the "Individuals" folder, double click on the tab labeled "Military" .

20.2.7.7.1  (03-09-2010)
Time Disregarded by Reason of Combat Zone Service

  1. The period of time disregarded because of service in a combat zone (CZ) starts when an individual enters the CZ and ends 180 days after release from the CZ. The time period spent in a hospital due to injuries sustained while in a CZ is also disregarded when computing an interest liability. In addition, if a taxpayer enters or exits the CZ during a period of time where certain acts are to be performed, the CZ suspension period is extended for additional days in order to perform these acts. Certain acts may include, but are not limited to the filing of a tax return, filing of a claim for refund, or petitioning Tax Court.

  2. The following "If and Then" table provides guidance when determining which days to disregard (or exclude) when computing interest on a CZ taxpayer.

    If Then
    The CZ entry date is after the return due date of the unpaid tax year. Disregard the period from the CZ entry date up thru the CZ exit date PLUS 180 days and then resume the interest and penalties computations.
    Example: 2005 tax year
    TC 500 04-29-2006 cc 56
    TC 500 12-01-2006 cc 57
    Disregard the period from 04-29-2006 thru 05-30-2007 (180 days after the CZ exit date 12-01-2006).
    Taxpayer enters the CZ any time during the filing period (January 1 - April 15) of the tax year with the liability. The the number of days remaining in the filing period when the taxpayer enters the CZ is added to the period of time disregarded when computing interest. Disregard the period from the RDD up through the CZ exit date plus 180 days PLUS the number of *days remaining, then resume the interest and penalties computations.
    Example: tax year 2005 with liability
    TC 500 04-01-2006 cc 56
    TC 500 06-30-2006 cc 57
    Disregard the period from 04-15-2006 up thru 01-11-2007.

    Note:

    When the taxpayer entered the CZ, there were 15 days remaining in the filing period. The remaining 15 days plus 180 days is added to the CZ exit date.

    A taxpayer exits the CZ any time during the filing season period (calendar year filer January 1 thru April 15) of the tax year with liability. Disregard the period from the return due date up through the CZ exit date plus 180 days PLUS an additional 105 (or 106) days and then resume the interest and penalties computations.
    Example: 2005 tax return with liability
    TC 500 11-10–2005 cc 56
    TC 500 02-28-2006 cc 57
    Disregard the period from 04-15-2006 up thru 12-10-2006. A 180 days plus 105 (106 for leap year) for a total of 285 (286 for leap year) is added to the CZ exit date.

    Reminder:

    If a taxpayer exits a CZ any time during the filing season period (calendar year filer January 1 thru April 15) of the tax year with a liability, and he/she re-enters the CZ any time during the suspension period, each filing season day is credited only once. Thus, the calculation should be from the due date of the return (April 15) plus 180 days plus the number of days of the filing season that the taxpayer was in the CZ.

20.2.7.7.2  (03-09-2010)
Combat Zone Interest Suspension

  1. The Master File and IDRS programs can correctly compute and suspend interest (and penalties) on combat zone (CZ) accounts if there is one CZ period, or in the case of multiple CZ periods, if the second CZ entry date is more than 6 months from the previous CZ exit date. For example:

    Multiple CZ periods with more than 6 months between tours:
    TC 500 04-29-2006 CC 52, TC 500 12-10-2006 CC 53
    TC 500 10-08-2007 CC 56, TC 500 06-08-2008 CC 57

  2. Where there are multiple in and out CZ periods and the previous CZ exit date is within 6 months of the next CZ entry date, Master File and IDRS cannot correctly compute interest. Therefore, interest must be manually computed and restricted. For information on the use of TC 34X, refer to IRM 20.2.8, Restricted Interest. In this instance, where the in/out CZ tours are within 6 months, the CZ period is considered as one continuous period starting from the first CZ entry date up through the last CZ exit date.

    Multiple CZ periods within 6 months of each tour:
    TC 500 04-29-2006 CC 52, TC 500 12-10-2006 CC 53
    TC 500 05-31-2007 CC 56, TC 500 06-08-2008 CC 57
    Suspend interest in this example from 04-29-2006 up thru 06-08-2008 plus 180 days.

20.2.7.7.3  (03-09-2010)
Combat Zone Overpayment

  1. Pursuant to IRC 7508(b)(2), all 45-day interest-free processing under IRC 6611(e), including the 45-day interest-free periods for: Original return overpayments [ IRC 6611(e)(1)]; Amended return overpayments [ IRC 6611(e)(2)]; and IRS-initiated adjustments [ IRC 6611(e)(3)], shall not be applied to overpayments that originate on combat zone (CZ) tax modules, provided the original tax return is timely filed (determined by taking into account IRC 7508 provisions).

    Example:

    A 2004 and 2005 tax return have refunds with TC 500 12-01-2005 cc 56, and TC 500 02-28-2006 cc 57. Since the 2004 tax return was due before the taxpayer entered the CZ, credit interest on the refund would be subject to both the late filing return rule and the 45-day interest-free processing rule. The 2005 tax return was timely filed as per IRC 7508, so credit interest will be paid out accordingly.

  2. Do not enter an Amended Claims Date on a timely filed return with a CZ indicator. An amended claims date would trigger the 45-day back-off rule, causing less credit interest to be paid out on the refund. For all other overpayment interest rules, see IRM 20.2.4, Overpayment Interest.

  3. Do not enter a Priority Code 3 for an IRS-initiated adjustment on Command Code ADJ47 or ADJ54 when the CZ Indicator is present.

20.2.7.7.4  (03-09-2010)
Prisoners of War (POW) and Persons Missing in Action (MIA)

  1. IRC 7508(c) entitles the spouse of a service person, to the same postponement acts; an extension of time for filing and paying taxes. This rule does not apply to any spouse for any taxable year beginning more than two years after the date designated as the termination date of combat.

  2. IRC 7508(d) provides that the period of service in a Combat Zone (CZ) includes the period during which a person is missing in action. For more information on CZ, see IRM 3.0.273.29, Special Circumstances; IRM 5.1.7, Government Agencies, Federal Employees/Retirees, Military Personnel and Department of Defense Employees; IRM 5.19.1, Liability Collection, Balance Due; and Publication 3, Armed Forces' Tax Guide.

20.2.7.8  (03-09-2010)
Military Deferment

  1. Under the Servicemembers Civil Relief Act (Title 50 Appendix, Section 570, United States Code Service), a taxpayer in the Armed Forces (not in a Combat Zone) having a liability that was due before or during military service and whose ability to pay has been materially affected upon joining the military service, may request to defer payment of a liability; otherwise known as military deferment. If granted, there will be no interest accrued during the deferral period, which starts from the day the taxpayer reports for active duty up through 180 days after release from military service (initial period). Collection (Compliance Services Collection Operations) will determine a taxpayer's eligibility for military deferment and input the identifying codes on the affected tax module; TC 500 with a Closing Code 50 or 51 (if military deferment was approved before 12-31-2003).

    Note:

    Military deferment does not apply to an employee's share of Social Security and Medicare taxes.

  2. Members of the Armed Forces who do not qualify for military deferment may be eligible for an interest break. The interest break applies to an outstanding tax liability " incurred prior" to entering the military service (Title 50 Appendix, Section 527, United States Code Annotated). The rate of interest charged on tax liabilities incurred before entering the military service would be the applicable rate up to a maximum interest rate of 6%. The interest rate break is only during the period of initial military service. Manually compute and assess interest during periods where the applicable interest rate exceeds the maximum 6%.

  3. Military deferment cases are maintained by Centralized Case Processing Operations, Field Operations Resource Team (FORT) in Philadelphia. At the end of the deferral period, FORT will compute and assess interest accordingly. For more information on Military Deferment cases, refer to IRM IRM 5.1.7.12, Military Deferments; IRM 5.19.1.4.9, Military Deferment; and Publication 3, Armed Forces' Tax Guide.

20.2.7.9  (03-09-2010)
Presidentially Declared Disaster- IRC 7508A

  1. For disasters declared after 12-31-1997 and before 09-11-2001, where the IRS granted an extension of time to file ( IRC 6081) and an extension of time to pay ( IRC 6161) for a taxpayer located in a Presidentially declared disaster area, IRC 6404(h) authorizes the abatement of interest and penalties during the declared disaster period plus the time covered under the extension to file and the extension to pay.

  2. For disasters declared on or after 09-11-2001 , IRC 7508A authorizes the IRS to disregard (exclude) a period of up to one year when determining the interest liability for a taxpayer affected by a Presidentially declared disaster. After each Presidentially declared disaster, the IRS issues guidance detailing the type of relief given, the period of time relief is granted, and details of those individuals eligible for the disaster relief. Most individuals "affected" by a declared disaster are systemically identified with a Transaction Code (TC) 971 and an Action Code (AC) 086, 087, or 688. A few may have to self-identify before the TC 971 AC 086, 087, or 688 can be entered onto their account.

    Caution:

    When adjusting a module where the disaster indicator was manually input, verify the disaster number (FEMA number) and the effective dates of the particular disaster before adjusting the interest.

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20.2.7.9.1  (03-09-2010)
IRC 7508A Interest Computation

  1. For a taxpayer meeting IRC 7508A criteria, interest is suspended/abated during the declared disaster period wherein the IRS has granted an extension of time to file and pay. The disaster period interest suspension is only granted for tax returns having an original return due date or extended due date that falls within the disaster period. Provided below are examples to help determine a taxpayer's qualification for an IRC 7508A interest suspension.

    Example:

    A Form 1040 is filed for tax year 2006, with an extension of time to file to 10–15–2007, when severe storms and flooding occurred on 08-18-2007 in the county where the taxpayer resides. The President declared the area a disaster and granted relief from filing and paying, to start from 08-18-2007 to 11-15-2007. For this example, interest is suspended during the disaster period, which is 08–18–2007 through 11–15–2007.

    Example:

    Same taxpayer as mentioned above, except the tax year is 2005 with an unpaid liability. Interest is not suspended on this liability because the return due date (04-15-2006) for this tax year is not within the window of the declared disaster period.

  2. For taxpayers who self-identify to receive disaster relief solely by calling the IRS toll-free disaster relief number, Submission Processing will code the return so that no penalties or interest accrue during the postponement period. An affected taxpayer who receives a bill for interest and/or penalties that accrued during the postponement period, should contact the IRS to request that interest and/or penalties be abated for the postponement period that corresponds with the federally declared disaster that affected the taxpayer. Interest and penalties continue to accrue during the postponement period with respect to any pre-existing liabilities. Therefore, interest and penalties that would have been due for the period before and/or after the disaster relief period should not be abated.

  3. For more information on Declared Disaster cases, refer to IRM 25.16.1, Disaster Assistance and Emergency Relief Program.

20.2.7.9.2  (03-09-2010)
Amended Returns for Hurricane Related Casualty Losses with Subsequent Grant Reimbursement

  1. Section 3082(a) of Public Law 110-289 (HR 3221) enacted on July 30, 2008, provides a waiver of penalties and interest for taxpayers affected by Hurricanes Katrina, Rita, or Wilma, who previously claimed a casualty loss deduction with respect to a principal residence on their original return and then received a hurricane relief grant as reimbursement for the same deduction. Taxpayers electing to file an amended return reducing the casualty loss previously deducted, will have one year from the later of the due date for filing the return for the year in which the grant was received, or July 30, 2009, (which is one year after the date section 3082(a) was enacted), to file an amended return. There will be no penalties or accrual of interest on the tax increase shown on the amended return as long as the entire underpayment is paid in full within one year after filing the amended return. For purposes of determining the waiver of penalties and interest, an amended return filed before July 30, 2009, will be treated as filed on July 30, 2009.

  2. A section 3082(a) tax increase will post with a TC 290 with a Reason Code (RC) 176, or TC 298 with a RC 177 and secondary transaction codes TC 270 for zero and TC 340 for zero. For accounts with a pre-existing balance due at the time of posting the taxable amended return, manually compute and post applicable penalties and interest amounts relative to the pre-existing liability.

  3. These amended return claims will be centralized and worked by an Accounts Management team in the Austin Campus. See IRM 21.6.6.4.43 , Section 3082(a) of the Housing and Economic Recovery Act of 2008-Disaster Primary Housing Grant Relief.

20.2.7.10  (03-09-2010)
Closing — Interest Abatement Requests and Claims

  1. A request for the abatement of unpaid income, estate, or gift taxes citing IRC 6404(a) is prohibited by IRC 6404(b). The taxpayer must make full payment and file an amended return to claim a refund.

  2. When a request for the abatement of unpaid interest is received, review the taxpayer's request for completeness before forwarding the claim to another employee/function for processing. Full payment is not required on an interest abatement claim.

  3. The claim should close as follows:

    If the claim is Then
    Disallowed in Full Send a disallowance letter with the reason for the decision made.
    Input TC 290 .00, RC 074, BLK 98/99.
    Partially disallowed Send a partial disallowance letter with the reason for the decision made.
    Input TC 341 for the interest abatement amount, RC 074.
    Fully Allowed Send letter and
    Input TC 341 for interest abatement amount, RC 074.

  4. Post interest accruals to the module before the input of an interest abatement. When a written protest is received because of a disallowed claim, forward the claim and case file to Appeals for reconsideration.

  5. For IRC 6404(g) interest suspension, use Letter 3477, Letter to Address any IRC 6404(g) Interest Suspension Provisions [or Letter 3477C, Closing Letter for IRC 6404(g)] when communicating with the taxpayer regarding the IRS decision. IRC 6404(g) does not have Appeals or Tax Court rights.

20.2.7.11  (03-09-2010)
Interest Calculation

  1. Whenever manually adjusting interest on a module, the total interest remaining on the module (which includes the proposed/pending adjustment) must be correct. When the abatement request is allowed in part (or in full), interest must be computed manually. Refer to IRM 20.2.6, Methods of Computing Interest , for available interest computation tools supported by the IRS.

    1. Compute and input TC 34X as appropriate.

    2. Use the applicable blocking series (see Document 6209, IRS Processing Codes and Information).

    3. Secure the signature of the official authorized to grant abatement on the adjustment document.

    4. Attach documentation of the interest computation to the case or adjustment document.

    5. Make meaningful notes on AMS (Accounts Management Service).

      Caution:

      The use of TC 34X in Step (1) above will restrict interest and prevent Master File from systemically generating interest updates. You must ensure the net amount of interest remaining on the module is accurate.

20.2.7.12  (03-09-2010)
Appeal Rights

  1. Taxpayers meeting the requirements in IRC 7430(c)(4)(A)(ii) have the right to appeal the denial of an interest abatement claim (regardless of account status). Taxpayers who wish to appeal the disallowance of their interest abatement claim must send their protest (a brief statement detailing the reason(s) the interest abatement claim should be reconsidered) to the office that issued the notice of final determination. That office will forward the taxpayer's protest to Appeals. For more information on the Appeals process, see IRM 8.7.7, Technical and Procedural Guidelines, Appeals Claim and Overassessment Cases.

  2. IRC 6404(g) is not an interest abatement, but an interest suspension provision, and not eligible for judicial review or appeal rights.

20.2.7.13  (03-09-2010)
Disputes as to Interest Amount

  1. The Servicewide Interest Program (SIP), located in the Small Business/Self-Employed Division, has responsibility for all interest; accrued, abated, assessed, offset, refunded or suspended systemically and manually. Report systemic interest discrepancies to the User Support Unit for your respective Campus. Disputes within the IRS over manual interest calculations should be settled according to the area or function's established guidelines. For discrepancies concerning the accuracy of the computed interest amount, contact the area that performed the interest computation for resolution. For interest discrepancies due to interpretation or application of interest law(s) which cannot be resolved locally, forward a description of the problem and supporting documentation to the analyst with program responsibilities as listed on the Servicewide Interest website.


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