20.2.4 Overpayment Interest20.2.4.1 Overpayment Interest Overview20.2.4.2 Definition of Overpayment20.2.4.3 Availability Dates for Overpayments20.2.4.3.1 Availability Dates for Overpayments-Payment and Credit Types20.2.4.3.2 Availability Dates for Overpayments-Released Credits20.2.4.4 Delinquent Returns20.2.4.5 Unprocessible Returns20.2.4.5.1 Updating the RPD on Unprocessible Returns20.2.4.6 Offsets20.2.4.6.1 Interest on Offsets20.2.4.6.2 Rules for Applying Offsets Under Section 640220.2.4.6.3 Different Taxpayers and Offsets20.2.4.6.4 Overpayments Offset Against Debit Interest20.2.4.6.5 Applying Overpayments as Credits to Liabilities for the Same Tax Period20.2.4.6.6 Master File and Systemic Offsets20.2.4.7 Refunds20.2.4.7.1 Refund Schedule Dates20.2.4.7.1.1 Systemic Refund Dates for IMF and BMF20.2.4.7.2 Undeliverable, Returned, and Intercepted Refund Checks20.2.4.7.2.1 Undeliverable Refund Checks20.2.4.7.2.2 Returned and Intercepted Refund Checks20.2.4.7.3 Non-Receipt of Refund Check20.2.4.7.4 Non-Negotiable Refund Checks20.2.4.7.5 45Day Rule20.2.4.7.5.1 45-Day Rule and Original Income Tax Returns20.2.4.7.5.2 45-Day Rule and All Original Tax Returns20.2.4.7.5.3 45-Day Rule and Amended Returns and Claims, OBRA 199320.2.4.7.5.4 45-Day Rule and Master File (Amended Returns and Claims)20.2.4.7.5.5 45-Day Rule and IRS Initiated Adjustments20.2.4.7.6 180-Day Rule20.2.4.7.7 Manual Refunds20.2.4.8 Special Rules20.2.4.8.1 Cash Bonds20.2.4.8.2 IRC 6603 Deposits20.2.4.8.2.1 Identification and Rate of Interest for 6603 Deposits20.2.4.8.2.2 Applying an Excess 6603 Deposit Against Another Liability20.2.4.8.2.3 Request for Return of an IRC 6603 Deposit20.2.4.8.2.4 Designating a Deposit Made Under Rev. Proc. 8458 (Cash Bond) as a Deposit Under IRC 660320.2.4.8.3 Credit for Increasing Research Activities-Suspension Periods20.2.4.8.4 Unidentified Remittances20.2.4.8.5 Credit Elect20.2.4.8.6 Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax20.2.4.9 Special Credit Interest Rules for Corporations20.2.4.9.1 GATT Credit Interest-Computations on Overpayments20.2.4.9.2 Determining the GATT Threshold20.2.4.9.3 GATT Rate20.2.4.10 Seized Property20.2.4.11 Erroneous Interest Computations20.2.4.11.1 Excessive Interest Paid20.2.4.11.2 Recovery of Excessive Interest Paid20.2.4.11.3 Recovery of Excessive Interest Applied in an Offset20.2.4.11.4 Insufficient Interest Paid20.2.4.12 Manually Computing Credit Interest Part 20. Penalty and InterestChapter 2. InterestSection 4. Overpayment Interest 20.2.4 Overpayment Interest Manual Transmittal March 05, 2015 Purpose (1) This transmits revised IRM 20.2.4, Interest, Overpayment Interest. Material Changes (1) Minor editorial changes have been made throughout this IRM. Web site addresses, legal references, IRM references, and tables were reviewed and updated as necessary. Significant changes to this IRM are reflected in the table below. Reference Description of Change IRM 20.2.4.2 IPU 14U0594 issued 04-01-2014 created a new section IRM 20.2.4.2(2) to separate the statutory overpayment definition formerly contained in IRM 20.2.4.2(1)(b) from overpayments based on the computation of tax liability contained in IRM 20.2.4.2(1) and its alpha list. Alpha list items (c) through (g) assumed positions (b) through (f). The renumbered IRM 20.2.4.2(1)(b), formerly IRM 20.2.4.2(1)(c), was updated to include a note statement that, for purposes of determining if an overpayment is created when a refundable credit exceeds the tax liability, a determination must be made as to whether the credit is refundable or nonrefundable. The renumbered IRM 20.2.4.2(1)(c), formerly IRM 20.2.4.2(1)(d), was updated to include information for determining when tax withheld at the source creates an overpayment if the tax withheld is allowed under IRC 33 (Tax Withheld at Source on Nonresident Aliens and Foreign Corporations). IRM 20.2.4.3 Revision providing an overview of overpayment availability dates. IRM 20.2.4.3.1 New section number titled: Availability Dates for Overpayments-Payment and Credit Types. Section describes the various types of payments/credits that can comprise an overpayment. IRM 20.2.4.3.2 New section number titled: Availability Dates for Overpayments-Released Credits. Content previously located in IRM 20.2.4.5.1. IRM 20.2.4.4 Content of Availability Dates for Unprocessible Returns revised and moved to IRM 20.2.4.5. IRM 20.2.4.4 is now titled Delinquent Returns and describes the provision of IRC 6611(b)(3). 20.2.4.4.1 Section number eliminated. Content of Updating the RPD on Unprocessible Returns moved to IRM 20.2.4.5.1. IRM 20.2.4.5 Content of Applying Overpayments as Credits to Liabilities for the Same Tax Period moved to IRM 20.2.4.6.5. IRM 20.2.4.5 is now titled Unprocessible Returns and describes the provision of IRC 6611(g). IRM 20.2.4.5.1 Content of Availability Date of Released Credit revised to update the example statements and moved to new section IRM 20.2.4.3.2. IRM 20.2.4.5.1 is now titled Updating the RPD on Unprocessible Returns. IRM 20.2.4.6 Expanded the instructions describing offsets. IRM 20.2.4.6.1 Revised instructions for determining when to pay interest on an offset. IRM 20.2.4.6.2 Content of Overpayments Offset Against Debit Interest moved to IRM 20.2.4.6.4. IRM 20.2.4.6.2 is now titled Rules for Applying Offsets. IRM 20.2.4.6.3 Content of Rules for Applying Offsets revised and moved to IRM 20.2.4.6.2. IRM 20.2.4.6.3 is now titled Different Taxpayers and Offsets. IRM 20.2.4.6.3(2) IPU 14U0026 issued 01-03-2014 (which reissued IPU 101759 dated 12-27-2010)-Clarified when a request to credit an overpayment against an installment of future tax must be made in writing. Content now appears in IRM 20.2.4.6.2. IRM 20.2.4.6.4 Content of Master File and Systemic Offsets revised and moved to IRM 20.2.4.6.6. IRM 20.2.4.6.4 is now titled Overpayments Offset Against Debit Interest. IRM 20.2.4.6.5 Content of Different Taxpayers and Offsets revised to update the example statement and moved to IRM 20.2.4.6.3. IRM 20.2.4.6.5 is now titled Applying Overpayments as Credits to Liabilities for the Same Tax Period. IRM 20.2.4.6.6 New section number: Master File and Systemic Offsets. Content previously located in IRM 20.2.4.6.4. Paragraph (2) added to show a list of exceptions for systemic processing of offsets. IRM 20.2.4.7 Revised instructions to describe, for credit interest purposes, availability dates of overpayments refunded. IRM 20.2.4.7.1.1 IGM SBSE-20-1211-109 issued 12-29-2011 and IGM SBSE-20-1211-2019, as well as IPU 14U0029 issued 01-03-2014 (which reissued IPU 11U2019 dated 12-30-2011) - Provided a major revision to include the CADE 2 processing routine. IRM 20.2.4.7.1.1(2) IPU 14U0030 issued 01-03-2014 (which reissued IPU 12U0403 dated 02-14-2012) - Exception statement added for manually computing credit interest under CADE 2 when Priority Refund Transcript criteria applies. IRM 20.2.4.7.1.1(3) Citation for direct deposit refunds changed to IRM 3.14.1.7.1.3. IRM 20.2.4.7.2.2(1) Citation for TC 841 DLN definers changed to IRM 21.4.2.4.7.1. IRM 20.2.4.7.2.2(3) Note statement added to provide IRM citation references for the definition of "overpayment availability date." Caution statement added to provide IRM citation references for computing interest when the original tax return is late or unprocessible. IRM 20.2.4.7.3(2) Clarified the interest accrual period when Form 3911, Taxpayer Statement Regarding Refund is not processed within 120 days of receipt. IRM 20.2.4.7.5(1) First note statement incorporated into the text of paragraph 1. Second note statements numbered as paragraph 2. Third note statement removed. IPU 14U0029 issued 01-03-2014 (which reissued IPU 11U2019 dated 12-30-2011), provided a tolerance amount for issuing a manual refund. IRM 20.2.4.7.5.2(3) Revised to include dates of manual refund checks, as well as IGM SBSE-20-1211-109 and IGM SBSE-20-1211-2019 issued 12-29-2011, and IPU 14U0029 issued 01-03-2014 (which reissued IPU 11U2019 dated 12-30-2011), describing the CADE 2 processing routine. IRM 20.2.4.7.5.2(4) IPU 14U0030 issued 01-03-2014 (which reissued IPU 12U0403 dated 02-14-2012), added an exception statement for manually computing credit interest under CADE 2 when Priority Refund Transcript criteria applies. IRM 20.2.4.7.5.3(2) and (3) Statement added to provide IRM citation references for the definition of "overpayment availability date." Caution statement added to provide IRM citation references for computing interest when the original tax return is late or unprocessible. Example statement in (2) updated. IRM 20.2.4.7.5.3 New paragraph (4) added to describe non-payment of credit interest on an amended return overpayment when such overpayment is issued within 45 days of the later of the (1) original return due date, (2) late original return received date, or (3) original return processible date. IRM 20.2.4.7.5.4(2) IPU 14U0028 issued 01-03-2014 (which reissued IPU 110660 dated 03-24-2011) - Included an exception statement for input of the Amended Claims Date (AMD-CLMS-DT). IGM SBSE-20-1211-2019 issued 12-30-2011, as well as IPU 14U0029 issued 01-03-2014 (which reissued IPU 11U2019 dated 12-30-2011) - Updated to clarify and add information of when to input the AMD-CLMS-DT. IRM 20.2.4.7.5.4(3) If/Then table updated to include the back-off period of IRC 6611(b)(2). Note statement added to provide IRM citation references for the definition of "overpayment availability date." Caution statement added to provide IRM citation references for computing interest when the original tax return is late or unprocessible. IRM 20.2.4.7.5.4(4) IPU 14U0029 issued 01-03-2014 (which reissued IPU 11U2019 dated 12-30-2011) - Altered the back-off routine to account for CADE 2 processing. IRM 20.2.4.7.5.5(3) Added citation to Form 4549, Income Tax Examination Changes. IRM 20.2.4.7.5.5(4) Example revised to illustrate offset rule using more recent dates . IRM 20.2.4.7.5.5(5) and (6) IPU 14U0029 issued 01-03-2014 (which reissued IPU 11U2019 dated 12-30-2011) - Revised the back-off routine to account for CADE 2 processing. IRM 20.2.4.7.6 IPU 14U0027 (which reissued IPU 110572 dated 03/15/2011) - Title and content moved to new section IRM 20.2.4.7.7. IRM 20.2.4.7.6 is now titled 180-Day Rule, which describes the 180-day interest-free period for overpayments resulting from Chapter 3 withholding. Added paragraph 4 to describe the identifiers used by the IRS computer to engage the 180-day routine. IRM 20.2.4.7.7 New section number was added: Manual Refunds. Content previously located in IRM 20.2.4.7.6. IRM 20.2.4.8(1) Added Form 4466, Corporation Application for a Quick Refund of Overpayment of Estimated Tax, as a bullet item. IRM 20.2.4.8.1(1) Added citation to Rev. Proc. 2005-18. IRM 20.2.4.8.1(2) Revised the dates used in the example statement. IRM 20.2.4.8.2(4) Added a note statement to explain that disputable tax can include penalty and or interest charges. IRM 20.2.4.8.2(5) New paragraph added to explain that an overpayment may not be converted to a 6603 deposit. IRM 20.2.4.8.2.1 Revision of IRC 6603 offset instructions, including IPU 14U0029 issued 01-03-2014 (which reissued IPU 11U2019 dated 12-30-2011), revising the back-off routine to account for CADE 2 processing. IRM 20.2.4.8.2.2 Title and content of Request for Return of an IRC 6603 Deposit moved to IRM 20.2.4.8.2.3. IRM 20.2.4.8.2.2 is now titled Applying an Excess 6603 Deposit Against Another Liability and provides the rules regarding the offset of 6603 deposits. IRM 20.2.4.8.2.3 Title and content of Designating a Deposit Made Under Rev. Proc. 84-58 (Cash Bond) as a Deposit Under IRC 6603 moved to new IRM 20.2.4.8.2.4. IRM 20.2.4.8.2.3 is now titled Request for Return of an IRC 6603 Deposit and contains procedures for returning deposits to taxpayers. IRM 20.2.4.8.2.4 New section: Designating a Deposit Made Under Rev. Proc. 84-58 (Cash Bond) as a Deposit Under IRC 6603. Title and content previously located in IRM 20.2.4.8.2.3. IRM 20.2.4.8.5(4) Policy Statement 2-88 updated to Policy Statement 3-14. IRM 20.2.4.8.5(5) New paragraph added to describe the application of an NOL carryback overpayment to unpaid estimated tax. Prior paragraph (5) renumbered as paragraph (6). IRM 20.2.4.8.6 New IRM number titled Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax, was added and provides procedures for corporate taxpayers requesting a refund of overpaid estimated tax. IRM 20.2.4.9(2) Removed Form 1120S, U.S. Income Tax Return for an S Corporation, from the bullet list. Corrected title for Form 990-C, Farmers’ Cooperative Association Income Tax Return. IRM 20.2.4.9.3(1) and (2) Note statement added to provide IRM citation references for the definition of "overpayment availability date." Caution statement added to provide IRM citation references for computing interest when the original tax return is late or unprocessible. IRM 20.2.4.10(1) Citation of IRC 6343(c)(1) added. IRM 20.2.4.10(2) Citation of IRC 6343(c)(2) added. IRM 20.2.4.10(3) Added statement that the provisions of IRC 6611(e) are not to be applied when computing credit interest on the return of wrongfully seized property or levied upon amounts. IRM 20.2.4.10(4) Clarified that interest is not to be paid when a levied amount is returned to the taxpayer who actually owed the liability. Citation to IRC 6343(d) added. IRM 20.2.4.10(5) New paragraph added to provide procedures for non-payment of interest on surplus proceeds from levy sales. IRM 20.2.4.11.1(1) Clarified when excessive interest allowed, which has not refunded or offset, may be adjusted without a period of limitation. IRM 20.2.4.11.2 Revised to provide instructions for recovering excessive interest paid and refunded. Title also changed from Excessive Interest Paid and Refunded and/or Offset to Refund of Excessive Interest Paid. IRM 20.2.4.11.3 Content of Insufficient Interest Paid moved to new IRM number IRM 20.2.4.11.4. IRM 20.2.4.11.3 is now titled Recovery of Excessive Interest Applied in an Offset. IRM 20.2.4.11.4 New IRM number added and titled Insufficient Interest Paid. Content previously located in IRM 20.2.4.11.3. Paragraph (1) of content updated to include instructions for when the IRS discovers an error of underpaid credit interest. Paragraph (2) of content clarified the procedures for filing a civil suit. IRM 20.2.4.12 New IRM number added and titled: Manually Computing Credit Interest. Section contains instructions for manually computing credit interest using IDRS Command Code (CC) COMPA. Effect on Other DocumentsThis material supersedes IRM 20.2.4 dated September 3, 2010 and incorporates changes from IPU 14U0026 dated 01-03-2014 (which reissued IPU 101759 dated 12-27-2010), IPU 14U0027 dated 01-03-2014 (which reissued IPU 110572 dated 03-15-2011), IPU 14U0028 dated 01-03-2014 (which reissued IPU 110660 dated 03-24-2011), IPU 14U0029 dated 01-03-2014 (which reissued IPU 11U2019 dated 12-30-2011), IGM SBSE-20-1211-109 dated 12-30-2011, IGM SBSE-20-1211-2019 dated 12-30-2011, IPU 14U0030 dated 01-03-2014 (which reissued IPU 12U0403 dated 02-14-2012), and IPU 14U0594 dated 04-01-2014. AudienceThis IRM is intended for servicewide use by all employees who handle tax adjustments involving the computation of interest. Effective Date(03-05-2015)Maria S. HwangDirector, Servicewide OperationsSmall Business/Self-Employed 20.2.4.1 (03-05-2015) Overpayment Interest Overview IRC 6611(a) provides that interest shall be allowed and paid on any overpayment of tax at the overpayment rate established under IRC 6621. The allowance of interest is authorized only on overpayments. There is no overpayment until the entire tax liability (including any interest, addition to the tax, or additional amount) is satisfied. Credit interest is generally allowed if an overpayment is: Offset against a liability, IRC 6611(b)(1). See IRM 20.2.4.6, Offsets, or Refunded to the taxpayer, IRC 6611(b)(2). See IRM 20.2.4.7, Refunds. 20.2.4.2 (03-05-2015) Definition of Overpayment An overpayment may include any amount that is: Erroneously assessed and collected. A refundable credit that exceeds the tax liability against which the credit is allowed. Note: A determination must be made as to whether the credit is refundable or nonrefundable. Tax withheld at the source that either:1. Exceeds the tax liability against which the withheld tax is allowed as a refundable credit or;2. Exceeds the tax liability against which the withheld tax is allowed under IRC 33 as a nonrefundable credit AND is deposited by the withholding agent. Note: Withholding allowed as a credit under IRC 33 (Tax Withheld at Source on Nonresident Aliens and Foreign Corporations) is treated as a nonrefundable credit pursuant to IRC 6401(b)(2), unless an election under subsection (g) or (h) of IRC 6013 is in effect for the taxable year. Paid in response to a proposed examination assessment that is later determined to be in excess of the liability for tax, penalty and interest due for the year in which submitted (see Rev. Proc. 84-58 and Rev. Proc. 2005-18). Example: A taxpayer fully pays a deficiency including tax, penalties, and interest. It is later determined by Appeals that part of the tax, all of the penalties, and part of the interest should be abated. In this situation, the abatements result in an overpayment. An excess payment of tax, penalty, addition to tax, or interest. An amount paid after a 90-day letter was mailed that is in excess of the finally determined deficiency. Note: If the taxpayer files a petition to Tax Court, the court must determine (as a part of its decision) that there is an overpayment and that such portion was paid after the notice of deficiency was mailed. The term "overpayment" includes that part of the amount of the payment of any internal revenue tax which is assessed or collected after the expiration of the applicable period of limitations. Note: If a payment is received on or before the assessment statute expiration date (ASED) but the IRS does not assess on or before the ASED, the IRS will compute any refund using the correct amount of tax and not just the amount assessed (Rev. Rul. 85–67). 20.2.4.3 (03-05-2015) Availability Dates for Overpayments An overpayment is generally available for offset and or refund on its availability date. The availability date of an overpayment is determined by the payment(s) and or credits(s) of which it is comprised. These payments and credits may be dated before the return due date (determined without regard to any extension of time for filing), or on or after the return due date. Since an overpayment can be made up of multiple payments and or credits, it may have more than one availability date. See IRM 20.2.4.3.1, Availability Dates for Overpayments-Payment and Credit Types. Also see IRM 20.2.4.3.2, Availability Dates for Overpayments-Released Credits. Although an overpayment is generally available for offset or refund on its availability date, interest on the overpayment may be computed from other than its availability date when the original tax return was filed late (IRC 6611(b)(3)) or in unprocessible form (IRC 6611(g)). See IRM 20.2.4.4, Delinquent Returns, and IRM 20.2.4.5, Unprocessible Returns. 20.2.4.3.1 (03-05-2015) Availability Dates for Overpayments-Payment and Credit Types Prepayment credits (payments made before the due date of the return) are deemed paid as of the due date of the return (determined without regard to any extension of time to file) whether the return is timely or late filed. Prepayment credits are available for offset and or refund as of the return due date (determined without regard to any extension of time to file such return). Exception: An overpayment of prepayment credits shown on a return filed prior to its unextended return due date may be offset and or refunded by the IRS before the unextended return due date. When such an offset is made, it will carry the 23C date of the posted TC 150 of the tax module from which the offset originated (Master File programming will not accept a future date). The offset is available to reduce the debit balance on the receiving module as of the same 23C date. If the offset occurs after the unextended return due date, it will carry the due date of the return (determined without regard to any extension of time to file). In addition, an offset and or refund of an overpayment derived from the filing of Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax, may carry a date prior to the unextended due date of the return. See IRM 20.2.4.8.6, Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax. Interest on overpayments based on prepayment credits is allowed from the later of the return due date (determined without regard to any extension of time to file such return), delinquent return received date or Return Processible Date (RPD), (provided the RPD is after the due date), including any extensions of time for filing. Interest on prepayment credits can accrue no earlier than the due date of the return (determined without regard to any extension of time to file such return), IRC 6611(d) and IRC 6513(b). If the return is then allow interest on a prepayment credit from the later of the timely filed (i.e., return received by the original or extended due date), return due date (determined without regard to any extension of time for filing), or return processible date (provided the RPD is after the due date), including any extensions of time for filing). late filed (i.e., return not received by the original or extended due date), late return received date, or return processible date. Payments made on or after the return due date (determined without regard to any extension of time to file) are available for offset and or refund as of the received date of the payment. Interest on payments made on or after the return due date is allowed from the received date of the payment, delinquent return received date or return processible date, whichever is later. If the return is and then timely filed (i.e., return received by the original or extended due date) the payment is made on or after the return due date, determined without regard to extensions, compute interest from the payment received date. late filed (i.e., return not received by the original or extended due date) the payment is made on or after the return due date, determined without regard to extensions, compute interest from the later of the payment received date, delinquent return received date or return processible date. An overpayment due to a carryback from a subsequent loss year is available for offset and or refund as of the due date of the loss year return (determined without regard to any extension of time to file). Interest on the overpayment is allowed from the later of the: Due date of the loss year return (determined without regard to extensions). Received date of a delinquent loss year return. Date the loss year return is filed in processible form. Date the overpayment arose. A Substitute For Return (SFR) [IRC 6020(b)] is a return prepared by the IRS. No credit interest is allowed until a delinquent return or signed waiver (e.g., Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment, Form 870-AD, Offer to Waive Restrictions on Assessment and Collection of Tax Deficiency and to Accept Overassessment, Form 890, Waiver of Restrictions on Assessment and Collection of Deficiency and Acceptance of Overassessment-Estate, Gift, and Generation-Skipping Transfer Tax or Form 4549, Income Tax Examination Changes), is received by the IRS. The overpayment availability date is the later of the: Payment received date. Delinquent return received date. Return processible date. Date the taxpayer signed an agreement to make the assessment. Note: If the taxpayer does not provide a return or signed waiver, input TC 770 .00 to prevent credit interest from being paid. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Example: ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ IRC 7503 provides that, in the case where the due date for paying falls on a Saturday, Sunday, or legal holiday, the payment is considered to have been made on the due date if it is mailed or electronically transmitted on the next succeeding day which is not a Saturday, Sunday, or legal holiday. ("legal holiday" means any legal holiday in the District of Columbia, or any statewide legal holiday in the office where the return is required to be filed.) However, because IRC 7503 does not change the date for performing an act, such a payment is deemed paid, for purposes of offset, refund and computing credit interest, as of the date of the payment, not the return due date. 20.2.4.3.2 (03-05-2015) Availability Dates for Overpayments-Released Credits In some situations, a credit used to satisfy a liability may later be "released." When this occurs, the availability date of the released credit is: The date the released credit was available, if no interest was allowed because there was no interest period. Example: An examination of a taxpayer’s Form 1040 for the 200912 tax year results in a tax increase, which is paid by an offset overpayment comprised entirely of prepayment credits from the taxpayer’s 201012 tax module. The offset is credited to the 2009 tax module with an availability date of April 15, 2011. No interest is allowed on the offset. Later, the taxpayer files Form 1040X, Amended U.S. Individual Income Tax Return, for year 2009 reporting a tax decrease equal to the assessment, which releases the credit offset from year 2010. The availability date of the released credit is April 15, 2011, the date in which it was originally applied to the 2009 tax module. The date to which interest was allowed on the released credit, if interest was allowed on the released credit when it was first applied. Example: The facts are the same as in the above example, except the liability exists on tax year 201112. The overpayment offset from year 201012 is applied to the 2011 tax module on the liability due date of April 15, 2012. Credit interest on the offset is allowed from the availability date of the overpayment (April 15, 2011) to the liability due date. When Form 1040X is filed for year 2011, and releases the amount credited from year 2010, the availability date of the credit is April 15, 2012, the date which interest was allowed. Caution: In the examples above, interest on the released credit may be computed from availability dates other than those cited when the original tax return - for the year to which the credit was applied - was filed late (IRC 6611(b)(3)) or in unprocessible form (IRC 6611(g)). See IRM 20.2.4.4, Delinquent Returns, and IRM 20.2.4.5, Unprocessible Returns. 20.2.4.4 (03-05-2015) Delinquent Returns IRC 6611(b)(3) provides that, when a return is filed after its due date (including extensions), interest will not be paid for any period prior to the date the late return is actually filed. If a return is postmarked (U.S. or designated Private Delivery Service) on or before the due date, the return is considered timely filed (IRC 7502(a)). Pursuant to Treas. Reg. 301.7502-1(d), a document filed with an authorized electronic return transmitter is deemed to be filed on the date of the electronic postmark given by the electronic return transmitter. See IRM 25.6.1.6.15, When a Document is Treated As Filed Under the IRC, for additional information. Pursuant to Rev. Rul. 2002-23, a document mailed from and officially postmarked in a foreign country will be accepted as timely filed if postmarked on or before the last day for filing. IRC 7503 provides that, in the case where the due date for filing or paying falls on a Saturday, Sunday, or legal holiday, the return is considered to have been filed on the due date if it is mailed on the next succeeding day which is not a Saturday, Sunday, or legal holiday. "Legal holiday" means any legal holiday in the District of Columbia, or any statewide legal holiday in the office where the return is required to be filed. IRC 7503 does not prescribe a new due date. A return not filed by the date authorized under IRC 7503 is considered late (provided no other extension of time for filing has been granted). ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Besides changing the date interest will begin to accrue on an overpayment, IRC 6611(b)(3) is also considered when determining if the 45-day interest-free period has been met for an original tax return. See IRM 20.2.4.7.5.2, 45-Day Rule and All Original Tax Returns. 20.2.4.5 (03-05-2015) Unprocessible Returns IRC 6611(g) prohibits the payment of interest until a return is in processible form, and a return is not treated as filed (for purposes of IRC 6611(b)(3)) until it is received in processible form. A return is in processible form if it: Is filed on a permitted form; Contains the taxpayer's name, address, and identifying number; Has the required signature(s); and Contains sufficient information (whether on the return or on required attachments) to permit the mathematical verification of the tax liability shown on the return. When an unprocessible, original tax return is received, Document Perfection (Code and Edit or Entity Function) or Input Correction corresponds with the taxpayer and or representative for the missing information. If the requested information is received after the return due date (RDD), the return is processed with a Return Processible Date (RPD) reflecting the date the information was received. This date is also known as the Correspondence Received Date (CRD). If no reply is received or the reply is incomplete, the return is "U" coded to restrict credit interest (IMF), or coded with 9s in the RPD field (IMF and BMF). Note: Unprocessible returns are identified on TXMOD by a display of all 9s in the CRD field. When a response to a request for missing information is received, the following interest provisions are to be applied. If the requested information results in then a processible return, credit interest is allowed FROM the return processible date. a non-processible return, credit interest is not allowed. A return made processible on or before its due date (or extended due date) is considered timely and is not subject to the late return rule of IRC 6611(b)(3), nor the provision of IRC 6611(g). Example: A taxpayer who has an extension of time to file his individual income tax return until 10/15, files the return on 09/10 reporting an overpayment of credit dated 05/25. However, information needed to make the return processible was not received until 10/01. Since the information was received prior to the extended due date, interest on the overpayment will begin to accrue from the availability date of the credit (05/25). If information needed to make the return processible had been received after the extended due date, interest on the overpayment would begin to accrue on the date the information was received. Besides changing the date an original tax return is considered to be received, and thus the date interest will begin to accrue on any overpayment on the tax module, IRC 6611(g) is also considered when determining if the 45-day interest-free period has been met for an original tax return, amended tax return or claim. See IRM 20.2.4.7.5, 45-Day Rule, and its related subsections, for additional information. 20.2.4.5.1 (03-05-2015) Updating the RPD on Unprocessible Returns When the taxpayer supplies the additional information that results in a processible return, update a previously established RPD with the date the additional information is received. Credit interest is allowed on the overpayment that comprised the original refund from the later of the payment received date, the delinquent return received date, or the date of the updated RPD. The RPD is updated through CC ADJ54. See IRM 2.4.16-4, Input Screen CC ADJ54, for input instructions. If a return was erroneously coded as unprocessible or the RPD was input incorrectly and a correction to the RPD is input later, manually recompute any interest to be paid on the original refund and input with TC 770. This action is required because Master File will not adjust the interest on refunds previously issued. Note: Once a return is processible, a subsequent request for additional information not needed to make the return processible does not affect the original RPD. Example: Code and Edit requests a signature to process an original 201112 tax return and it is received on April 30, 2012, which becomes the RPD for credit interest. The IRS then requests an attachment that is received on May 14, 2012. The attachment, however, was not needed to permit the mathematical verification of the tax liability shown on the return. Thus, the RPD for credit interest will remain April 30, 2012. 20.2.4.6 (03-05-2015) Offsets The IRS may apply an overpayment to offset an outstanding federal tax liability, IRC 6402(a). Note: The IRS must reduce an overpayment by several types of offsets specified in IRC 6402(c), IRC 6402(d), IRC 6402(e),, and IRC 6402(f), (for child support, non-tax federal debts, state income taxes, or certain improper employment tax payments). Once the IRS offsets the liability with an overpayment, interest no longer accrues on that portion of the overpayment. Note: Distinguish the election made by a taxpayer to apply an overpayment to the next year's estimated tax under IRC 6402(b); interest does not accrue on a credit elect. See IRM 20.2.4.8.5, Credit Elect. An overpayment and credit interest on the overpayment may be applied as an "offset" against any outstanding liability of tax, interest, additional amount, additions to the tax, or penalty on another tax period, as long as the offset occurs within the period of limitations on assessment for that other period, IRC 6402(a). Use the earliest available overpayments in the module to satisfy the "outstanding" liabilities in the order of first-in, first-out. Caution: In order to be "outstanding" , a balance must be unpaid. Also, an overpayment may not be applied to a satisfied module, even if a potential overpayment for offset has an earlier availability date than the credit that was used to satisfy the liability. Example: Due to a tax decrease on a taxpayer's 2010 Form 1120, there is credit of $20,000 available to be offset or refunded with an availability date of March 15, 2011. The taxpayer's Form 1120 for 2009 was examined and additional tax assessed for $10,000, which the taxpayer paid, with interest, on December 21, 2012. Although the 2010 overpayment is available prior to the December payment, the balance on 2009 is no longer "outstanding" and, provided there are no other outstanding liabilities, the entire $20,000 will be refunded from 2010. Once the "outstanding" liabilities are satisfied, refund any remaining overpayment (plus interest, if applicable) to the taxpayer. Reminder: The most recent unused payments or credits in the tax module are refunded in the order of last-in, first-out. An overpayment and credit interest on the overpayment may be applied as an "offset" against any outstanding liability of tax, interest, additional amount, additions to the tax, or penalty on another type of tax as long as the offset occurs within the period of limitations on assessment for that other type of tax (e.g., an income tax overpayment may be applied against a sole proprietor's employment tax liability), IRC 6402(a). 20.2.4.6.1 (03-05-2015) Interest on Offsets Generally, when an offset is made, interest is allowed from the availability date of the overpayment to the due date of the outstanding liability to which it is applied, (IRC 6611(b)(1)). The availability date of the overpayment is determined by the payment(s) and or credit(s) of which it is comprised. See IRM 20.2.4.3.1, Availability Dates for Overpayments-Payment and Credit Types. If the payment or credit is a then the availability date of the overpayment is the prepaid or timely credit (e.g., estimated tax payment, withholding, or a payment before the due date (determined without regard to any extension of time for filing)), due date of return (determined without regard to any extension of time for filing). subsequent payment or credit made or dated on or after the due date (determined without regard to any extension of time for filing), payment received date or credit date. Reminder: ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Example: A taxpayer has an overpayment of prepayment credits of $15,000 on its 201012 Form 1120 and an underpayment of $25,000 on its Form 1120 for 201112. The taxpayer has not paid the balance on the 2011 tax period and requests that its overpayment from the 2010 tax period be credited to year 2011. Interest is allowed on the $15,000 offset from March 15, 2011 (the availability date of the overpayment on the 2010 return) to March 15, 2012 (the due date of the liability on the 2011 return). Both the $15,000 and the credit interest on the offset are applied to the 2011 tax period with a date of March 15, 2012. Since an overpayment can be made up of multiple payments and or credits, it may have more than one availability date. Offset the earliest available payment or credit that comprises the overpayment, in first-in, first-out order. Interest may be computed from other than the availability date of the overpayment when the original tax return was filed late (IRC 6611(b)(3)), or in unprocessible form (IRC 6611(g)). (See IRM 20.2.4.4, Delinquent Returns, and IRM 20.2.4.5, Unprocessible Returns). In the event the return was filed late or unprocessible, interest on an overpayment offset is allowed from the later of the date of the overpayment, the delinquent return received date or the Return Processible Date (RPD). If the return is then allow interest from the later of timely filed (i.e., return received by the original or extended due date), the return due date (determined without regard to any extension of time for filing), the date of the overpayment (as determined in the preceding table), or the return processible date (if the RPD is after the extension date). late filed (i.e., return not received by the original or extended due date), the late return received date, the date of the overpayment (as determined in the preceding table), or the return processible date. Example: On June 22, 2011, a taxpayer late files Form 1040 for tax year 201012, due April 15, 2011. A subsequent adjustment to the 2010 tax year results in an overpayment comprised entirely of prepayment credits. The overpayment is offset to a balance due on the taxpayer's Form 1040 account for tax year 201112, with a liability date of April 15, 2012. Although the prepayment credit from the 2010 tax module is available for offset as of its un-extended return due date (April 15, 2011), credit interest on the offset will not begin to accrue until the date the 2010 return was filed (June 22, 2011). The offset is applied to the 2011 tax module on the liability due date of April 15, 2012. Credit interest on the offset is computed from June 22, 2011 to April 15, 2012. When computing allowable interest on an overpayment that is offset: If an overpayment is applied to then unpaid liabilities (including tax, penalties, additions to tax or additional amounts) due on or before the date of the overpayment, no interest is allowed on the overpayment. unpaid liabilities due after the date of the overpayment, interest is allowedFROM: the availability date of the overpaymentTO: the due date of the liability. unpaid liability for another taxpayer due after the date of the overpayment (see IRM 20.2.4.6.3, Different Taxpayer's and Offsets, interest is allowedFROM: the availability date of the overpaymentTO: the 23C date of the credit transfer for applying the credit to the liability. Exception: If interest is computed "FROM" a date other than the availability date of the overpayment because the original tax return was filed late or in unprocessible form, interest on the offset will be allowed so long as the liability due date is later than the interest start (FROM) date. Note: If an offset results from an IRS initiated adjustment, interest is computed to other than the "TO" dates outlined above. See IRM 20.2.4.7.5.5, 45-Day Rule and IRS Initiated Adjustments, for instructions. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Example: ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Although underpayment interest on an assessment of tax may not begin until a date later than the actual due date (typically due to use of money per Rev. Rul. 99-40), overpayment interest on the amount offset into the module will stop on the liability due date. This rule also applies to the recapture of a previously allowed carryback credit. When a carryback recapture is satisfied by an offset, any overpayment interest will be computed to the loss year return due date, not the date of the carryback refund. Example: A taxpayer has an overpayment of $25,000 on its Form 1120 for 200912, and an underpayment on its Form 1120 for 201112 that arose from a tax assessment of $40,000. At the time of the assessment on the 2011 taxable year, a request pursuant to Rev. Rul. 99-40, (as it relates to unpaid installments of estimated tax), was accepted by the IRS which resulted in deficiency interest charged on the assessment from the estimated tax installment due date of December 15, 2012, instead of the return due date of March 15, 2012. Although the date underpayment interest began on the assessment was changed, the tax liability due date did not. Thus, credit interest on the offset of $25,000 is computed from March 15, 2010 (the availability date of the 200912 overpayment) to March 15, 2012 (the due date of the 201112 liability). Both the $25,000 and the interest on the offset are credited to the 2011 tax period, with an availability date of March 15, 2012. Example: On April 1, 2011, the IRS received a Form 1139, Corporation Application for Tentative Refund, from a corporate taxpayer requesting a tentative refund for an NOL carryback from its 201012 tax period to its 200912 tax period. The application was processed and the resulting overpayment of $100,000 was refunded from the 2009 tax module without interest on April 26, 2011 (due to the 45-day interest-free period of IRC 6611(e)). Subsequently, the IRS examined the taxpayer's 2010 return, and disallowed the entire NOL carryback. As part of the same examination, the IRS determined a general tax decrease for tax year 2009 (unrelated to the NOL carryback) in the amount of $40,000, which will be offset against the $100,000 carryback recapture liability. Although underpayment interest on the carryback recapture will begin on the date of the carryback refund (April 26, 2011), credit interest on the general tax decrease of $40,000, (when offset against the $100,000 liability of the carryback recapture), may only accrue from 03/15/2010 (the due date of the 2009 taxable year return and availability date of the tax decrease) to 03/15/2011 (the liability date of the carryback recapture). 20.2.4.6.2 (03-05-2015) Rules for Applying Offsets Under Section 6402 When there are outstanding liabilities for several periods and the overpayment is insufficient to cover them all, generally the overpayment is applied to offset the liability with the shortest CSED, which is generally the oldest outstanding liability. Note: In general, a taxpayer may not designate how the IRS should apply an overpayment. But a taxpayer may make an election to apply an overpayment to the next year's estimated tax under IRC 6402(b). See IRM 20.2.4.8.5, Credit Elect. The IRS may apply an overpayment to a prior year's outstanding liabilities (and other offsets prescribed in IRC 6402(c), IRC 6402(d), IRC 6402(e), and IRC 6402(f)) before carrying out the credit election. When an election is made to apply an overpayment to the next year’s estimated tax, the IRS will credit the overpayment in the order necessary to avoid the addition to tax for underpayment of estimated tax. Accordingly, the designation of all or part of the overpayment to a specific estimated tax installment on the immediately succeeding tax year is not necessary and will not be accepted (Rev. Rul. 99-40).If, however, the taxpayer makes a written request to credit an overpayment to other than the immediately succeeding taxable year or period but does not specify a particular installment the overpayment is to be applied, it is credited to the first installment of the requested tax year or period. If the taxpayer requests the application of the overpayment to an installment in which the interest rates are unknown/not determined, calculate credit interest on the offset at the prevailing rate(s). Example: On April 4, 2011, a taxpayer files a Form 1120X to amend its timely filed and processible return for 200912 requesting a tax decrease of $5,000. The taxpayer asks that the overpayment be applied to its 201112 estimated tax account. Inform the taxpayer that the overpayment will be credited to the first estimated tax installment for 2011, due April 15, 2011. Since the original return for 2009 was timely filed and processible, interest on the overpayment is allowed from its availability date of March 15, 2010 to the installment due date of April 15, 2011. The overpayment is credited to year 2011 with a date of April 15, 2011. Since the transfer is not a credit elect, it is made using transaction codes TC 820 and TC 700. Do not use TC 830 and TC 710, which are specifically designated for credit elect. Reminder: If the taxpayer is requesting that all or part of the overpayment shown on the return (or amended return) is to be applied to the estimated tax for the next succeeding taxable year or period (i.e., credit elect), allow no interest on the portion of the overpayment so credited. When an overpayment originating from a net operating loss carryback adjustment is credited to an installment of future tax, interest on the offset is allowed FROM the start date (i.e., loss year return due date; received date of delinquent loss year return; date the loss year return is filed in processible form; or date the overpayment arose, whichever is later) TO the due date of the estimated tax installment against which the credit is taken. Example: A taxpayer timely files his Form 1040 for year 201012 reflecting a loss (loss year). He then files a Form 1040X carrying back the NOL to 2009 (gain year), which creates an overpayment for 2009. At the taxpayer's request, the IRS agrees to credit the overpayment to the first quarter estimated tax installment for 201212 (due 04/15/2012). Interest on the offset is allowed from the loss year return due date (04/15/2011) to the due date of the estimated tax installment (04/15/2012). The credit is applied to the 2012 tax module with a date of 04/15/2012. A refund should not be delayed to accommodate the possibility of a future offset. The IRS may, however, credit an overpayment against a liability when a determination of liability has been made and a notice of deficiency has been issued, even though the deficiency has not been assessed and the taxpayer may challenge the proposed deficiency in Tax Court (see Rev. Rul. 2007-51). The IRS may also credit a liability identified in a proof of claim filed in a bankruptcy case even though the liability has not been assessed or included in a notice of deficiency (see Rev. Rul. 2007-52). Example: A taxpayer files Form 1120X for 201012 reporting a tax decrease of $30,000. The amended return is accompanied with a request that the IRS credit the overpayment to a liability of $40,000 on the 200812 tax period for which a 90-day letter has been issued. Although the deficiency has not been assessed, the overpayment from tax year 2010 may be credited to 2008 because a liability for that year has been determined and is unpaid. Exception: An overpayment may not be credited against a liability that has been prepaid by an advanced payment. When a payment or credit is moved and or reversed, any offset(s) that generated from that payment or credit are typically reversed (i.e., TC 701, TC 702, TC 821, TC 822). Credit interest allowed as a result of the offset should also be reversed (i.e., TC 851, TC 731, TC 772). Master File will not systemically adjust the credit interest (see IRM 20.2.4.6.6(2), Master File and Systemic Offsets. 20.2.4.6.3 (03-05-2015) Different Taxpayers and Offsets An overpayment and the interest thereon may be credited to the liability of a different taxpayer with the overpaid taxpayer's consent. See IRM 4.4.3, AIMS Procedures and Processing Instructions-Credit Transfers and Reprocessing Returns. Allow interest on the overpayment from the date it arose to the 23C date of the transfer actually applying the credit to the other taxpayer's liability. (If the cases are being closed on the same day, compute credit interest to the current 23C date and apply the overpayment to the liability as of that same day. (Rev. Proc. 65-20). Example: Taxpayer A is requesting a $10,000 overpayment be transferred from its timely filed and processible 201112 Form 1120 to Taxpayer B's 201012 Form 1120. The IRS is processing the request on August 6, 2012. Compute credit interest on Taxpayer A's module from the availability date of the overpayment to August 27, 2012 (the 23C date of the credit transfer) and apply the $10,000 overpayment, as well as the related credit interest, on August 27, 2012. Debit interest continues to run on the tax module of Taxpayer B, on the $10,000 and allowable credit interest until August 27, 2012. 20.2.4.6.4 (03-05-2015) Overpayments Offset Against Debit Interest The due date for debit interest when paid by an offset overpayment is as follows: If the debit interest then the due date for debit interest is accrued ON OR BEFORE December 31, 1982 (i.e., "simple interest" ), the assessment date of the debit interest charge. accrued AFTER December 31, 1982, as the interest accrues. 20.2.4.6.5 (03-05-2015) Applying Overpayments as Credits to Liabilities for the Same Tax Period The IRS has, over the years, had different procedures concerning the accrual of overpayment interest on credits applied to liabilities for the same tax period. Prior to August 1, 1983, interest was not allowed on an overpayment applied to unpaid tax, interest, penalty, or additions to tax for the same tax period because an overpayment was not deemed to exist for the tax period until the entire liability was satisfied. See Rev. Proc. 60-17. Effective August 1, 1983, Rev. Proc. 83-58 provided that if an overpayment was applied as a credit to an unpaid liability for the same taxpayer, same tax period, and same type of tax, interest was allowed from the availability date to the due date of the liability to which the overpayment was applied. Rev. Rul. 98-37 announced the obsolescence of Rev. Proc. 83-58 based on changes made to the Internal Revenue Code and accompanying regulations in order to conform to the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) and the Deficit Reduction Act of 1984, section 158 (DEFRA). Therefore, when an overpayment of any credits made on or after August 25, 1992 is applied to unpaid interest, penalties, or additions to tax due for the same year and the same type of tax, interest is not allowed to accrue on the overpayment. 20.2.4.6.6 (03-05-2015) Master File and Systemic Offsets Master File can generally perform systemic offsets correctly within the same account (same taxpayer) and will also transfer credit interest. Master File Transaction Code Action TC 826 Transfer overpayment out of a module. TC 706 Transfer credit into a module. TC 896 Debit of an overpayment from an IMF module to a BMF module. TC 796 Credit of an overpayment from an IMF module to a BMF module. TC 856 Transfer credit interest out of a module. TC 736 Transfer credit interest into a module. TC 876 Debit of credit interest from an IMF module to a BMF module. TC 756 Credit of credit interest from an IMF module to a BMF module. Note: Effective Cycle 199501 and subsequent, TC 856 and TC 736 posts with the TC 776 transaction date (the date to which credit interest is computed). Exceptions to systemic processing of offsets: When an overpayment is available earlier than a liability and a manual offset is required, credit interest on the offset must be manually computed on the module that generated the overpayment. Master File will only generate the correct amount of overpayment interest if it originates the offset. When Master File is allowed to offset manually computed overpayment interest, it will use the 23C date of the TC 770 for both the TC 856 and TC 736, which can cause erroneous underpayment interest accruals on the module where the TC 736 posts. When a TC 770 must be offset, a manual transfer using TC 850 and TC 730 should always be used. Debit with TC 850 using the 23C date of the TC 770, and credit with TC 730 using the date interest on the TC 770 was computed to (i.e., "CR-INT-TO-DT" of TC 770). When credit interest is allowed on an offset overpayment, input TC 772 to remove or reduce that interest when the offset of overpayment principal and or credit interest is through manual action(s), either fully or partially reversed. Master File will not systemically adjust the credit interest. Example: Overpayment principal (offset with TC 826), and its accompanying interest (posted with TC 776 and offset with TC 856) are fully reversed with TC 821 and TC 851. When TC 821 and TC 851 post back to the module, Master File will not generate TC 777 to systemically remove the interest previously allowed by TC 776 and offset with TC 856; the interest must be manually removed with TC 772. 20.2.4.7 (03-05-2015) Refunds Within the applicable period of limitations, the IRS will refund any remaining overpayment after all outstanding balances are satisfied, along with applicable credit interest. Credit interest is generally allowed from the availability date of the overpayment to the refund schedule date (less the applicable back-off period). See IRM 20.2.4.7.1.1, Systemic Refund Dates for IMF and BMF. The availability date of the overpayment is determined by the payment(s) and or credit(s) of which it is comprised. See IRM 20.2.4.3.1, Availability Dates for Overpayments-Payment and Credit Types. If the payment or credit is a then the availability date of the overpayment is the prepaid or timely credit (e.g., estimated tax payment, withholding, or a payment before the due date (determined without regard to any extension of time for filing)), due date of return (determined without regard to any extension of time for filing). subsequent payment or credit made or dated on or after the due date (determined without regard to any extension of time for filing), payment received date or credit date. Reminder: ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Since an overpayment can be made up of multiple payments and or credits, it may have more than one availability date. Refund payments or credits comprising the overpayment in the order of last-in, first-out. Reminder: The earliest available payments or credits are offset in the order of first-in, first-out. Credit interest may be computed from other than the availability date of the overpayment when the original tax return was filed late (IRC 6611(b)(3)), or in unprocessible form (IRC 6611(g)). (See IRM 20.2.4.4, Delinquent Returns, and IRM 20.2.4.5, Unprocessible Returns). In the event the return was filed late or unprocessible, interest on the refund of an overpayment is allowed from the later of the date of the overpayment, the delinquent return received date or the Return Processible Date (RPD). If the return is then allow interest from the later of: timely filed (i.e., return received by the original or extended due date), the return due date (determined without regard to any extension of time for filing), the date of the overpayment (as determined in the preceding table), or the return processible date (if the RPD is after the extension date). late filed (i.e., return not received by the original or extended due date), the late return received date, the date of the overpayment (as determined in the preceding table), or the return processible date. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Example: ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ 20.2.4.7.1 (03-01-2002) Refund Schedule Dates All refunds issued by a campus must be certified by the campus director as valid. A schedule of the refunds issued is prepared each week. The Refund Schedule Date is the date that the campus director certifies that all refunds shown on the schedule are valid and are to be paid. Additional credit interest is not computed on an overpayment for any period after the date the refund schedule is signed. 20.2.4.7.1.1 (03-05-2015) Systemic Refund Dates for IMF and BMF IRC 6611(b)(2) provides that interest on overpayments refunded to taxpayers will run until a date "preceding the date of the refund check by not more than 30 days." The date of the refund check for computer-generated Individual Master File (IMF) and Business Master File (BMF) refunds is: CADE 2 (IMF): Date shown with the literal "RFND-PAY-DT" or "RFND-PYMT-DT" that accompanies TC 846. CADE 2 processing is effective January 2012. IMF: 23C date of the TC 846 minus 3 calendar days, for refunds processed prior to CADE 2 implementation (minus 10 calendar days for direct deposit). BMF: 23C date of the TC 846 plus 1 calendar day (minus 6 calendar days for direct deposit). Note: CADE Accounts: Beginning in mid-2004, a sub-set of IMF accounts began to be moved, processed by, and reside in CADE. Transactions posted by CADE (2004 through 2011) will have "Day Designations" of 01 through 05 in the "DD" (Day/Day) portion of the posting cycle (YYYYCCDD). See archived IRM 3.30.123.4.9, Customer Accounts Data Engine (CADE) Cycle, revision date January 1, 2011, for additional information related to CADE account processing, when applicable. Credit interest on systemic refunds is computed to: CADE 2 (IMF): "RFND-PAY-DT" or "RFND-PYMT-DT" minus 6 business days (minus 4 business days for direct deposit) effective January 2012. Note: If a systemic refund is being issued with a manual interest calculation (TC 770), compute interest to the 23C date of the adjustment minus 18 calendar days. Exception: If the adjustment meets the criteria to generate a Priority Refund Transcript (Refund, Refund-E, Refund-S, $ 1M) or a CP 12, CP 16, CP 21 or CP 24, and a manual interest computation (TC 770) is being posted, calculate interest to the adjustment 23C date minus 11 calendar days.For additional information see IRM 3.30.123.24, Processing Timeliness Criteria for CADE 2; IRM 3.14.1.6.14.3, Million $ Refund Transcripts; IRM 3.14.1.6.14.4, Refund S Transcripts; and IRM 3.14.1.6.14.5, Refund E Transcripts. IMF: 23C date minus 13 calendar days (minus 20 calendar days for direct deposit), for refunds processed prior to CADE 2 implementation (January 2012). See archived IRM 3.30.123.4.9, Customer Accounts Data Engine (CADE) Cycle, revision date January 1, 2011, for additional information related to CADE account processing information (effective 2004 through 2011), when applicable. Note: Prior to July 10, 1984, credit interest on IMF accounts was computed to the 23C date minus 12 days. BMF: 23C date minus 9 calendar days (minus 16 calendar days for direct deposit). Note: Prior to July 10, 1984, credit interest on BMF accounts was computed to the 23C date minus 7 calendar days. To determine if a TC 846 amount was direct deposited, look for a Direct Deposit (DD) indicator on TXMOD or IMFOLT (DD: "0" for paper check, "9" for direct deposit) near the right margin either on the same line as the TC 846 or the next line. See IRM 3.14.1.7.1.3, Direct Deposit Refunds, for additional identifiers for direct deposit refunds. The back-off period is applicable to systemic refunds, not manual refunds. 20.2.4.7.2 (09-03-2010) Undeliverable, Returned, and Intercepted Refund Checks This section provides instructions for determining when undeliverable, returned, intercepted, non-receipt and non-negotiable refund checks are to receive credit interest. 20.2.4.7.2.1 (09-03-2010) Undeliverable Refund Checks To determine if additional interest is allowed on an undeliverable refund check, you must determine whether the refund check was undeliverable through fault of the taxpayer or any government agency, such as the United States Postal Service (Rev. Rul. 76-74). If check is undeliverable then through the fault of a government agency, additional interest is allowed to the new refund schedule date (less the applicable back-off period). through no fault of a government agency, no additional interest is allowed for the period of the delay. Note: See Command Code CHK64 in IRM 2.4.21, IDRS Terminal Input, Command Codes CHK64 and CHK64R. Transaction code 740 and Freeze Code "S-" post on IDRS and Master File to denote an undeliverable refund check that has been redeposited. When the address is updated, the freeze is removed. Additional instructions are found in IRM 21.4.3.4.3, Undeliverable Refund Checks. 20.2.4.7.2.2 (03-05-2015) Returned and Intercepted Refund Checks There are times when it is necessary for the IRS to intercept (prevent the issuance of) a refund check, and others when a refund check is returned by the taxpayer. When a refund is canceled, a "P-" freeze will be reflected on the transcript for the module. The DLN of the TC 841 will indicate whether the refund was returned by the taxpayer or intercepted by the IRS. See IRM 21.4.2.4.7.1, Refund Credits/Debits TC 740/TC841/TC 843-Bureau of the Fiscal Service (BFS) (formerly Financial Management Services (FMS)) Reason/Cancellation Codes, for the DLN definers. When a refund check is returned to the IRS: If then taxpayer returns check without cashing it, make necessary adjustments to the module, if necessary, and issue correct refund. taxpayer returns check requesting that it be applied to a different module, post the check as a TC 700 on the date the returned refund check is received. The posted credit may only include the interest (if any) allowed on the returned refund. Do not allow additional interest. the IRS determines the amount of the refund to be correct, reissue the refund with no additional interest. the original refund was for the wrong amount, issue correct refund with interest to the new refund schedule date (less the applicable back-off period). When a refund check is intercepted by the IRS, and the resulting overpayment: is then applied to unpaid liabilities (including tax, penalties, additions to tax) due before the overpayment availability date, no interest is allowed on the overpayment. applied to unpaid liabilities due after the overpayment availability date, credit interest is allowedFROM the availability date of the overpaymentTO the due date of the liability. Note: See IRM 20.2.4.3, Availability Dates for Overpayments, and IRM 20.2.4.3.1, Availability Dates for Overpayments-Payment and Credit Types, for a definition of "overpayment availability date." Caution: Interest on an overpayment may be computed from other than its availability date when the original tax return was filed late (IRC 6611(b)(3)) or in unprocessible form (IRC 6611(g)). See IRM 20.2.4.4, Delinquent Returns, and IRM 20.2.4.5, Unprocessible Returns. When a refund check is returned by the taxpayer or intercepted by the IRS because it was issued for the wrong amount, the account must be analyzed and the appropriate adjustments made before allowing a second check to be issued. The account should be adjusted to reflect the correct transactions and amounts for the taxpayer. Erroneously applied credits must be reversed and reapplied to the correct account. Interest will be paid on the correct refund amount only if interest would normally be due. 20.2.4.7.3 (03-05-2015) Non-Receipt of Refund Check When a second refund (replacement) check is issued which contains no additional interest beyond that included in the original refund check, and it can be determined that non-receipt of the original refund check, or an abnormal delay in issuance of a second check, is the fault of an agency of the U.S. government, additional interest may be allowed. If non-receipt of the refund check was then through the fault of a government agency, additional interest is allowed to the new refund schedule date (less the applicable back-off period). through no fault of a government agency, no additional interest is allowed. If the taxpayer submits Form 3911, Taxpayer Statement Regarding Refund, and the reissued check is issued within 120 days from receipt of the Form 3911, no additional interest is allowed on the refund. If not, additional interest is allowed from the 121st day TO the refund schedule date, even if a government agency is not at fault. The additional interest is computed on the amount of the original check FROM the 121st day after receipt of Form 3911TO the new refund schedule date (less the applicable back-off period). 20.2.4.7.4 (09-03-2010) Non-Negotiable Refund Checks If, through fault of the IRS, a refund check is issued in non-negotiable form and a new check is issued, correct the entity and allow interest to the new refund schedule date, less the applicable back-off period. If a refund check is issued in non-negotiable form through no fault of the IRS, correct the entity and reissue the refund with no additional interest. 20.2.4.7.5 (03-05-2015) 45–Day Rule The 45-day rule provides for a processing period during which credit interest is limited in certain situations. See IRC 6611(e). Note: ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ An exception to the 45-day rule applies to individuals who have served in a combat zone. If a taxpayer's original return is timely filed (determined by taking into account the combat zone suspension period), the 45-day rule of IRC 6611(e)(1) through IRC 6611(e)(3) shall not apply (see IRC 7508(b)(2)). 20.2.4.7.5.1 (03-05-2015) 45-Day Rule and Original Income Tax Returns For original income tax returns with due dates prior to January 1, 1994, without regard to extensions, interest was not paid on an overpayment when it was refunded within 45 days of the later of the normal return due date, the return received date (determined without regard to any extension of time for filing), or the date the return was filed in processible form, IRC 6611(e). IRC 6611(e) applied to: Only income tax; and Only to overpayments reflected on an original return (either timely filed or delinquent). Exception: For tax periods ending 197412 through 197511, substitute 60 days for 45 days. 20.2.4.7.5.2 (03-05-2015) 45-Day Rule and All Original Tax Returns For returns with due dates on or after January 1, 1994, without regard to extensions, the 45-day rule was expanded to apply to all types of tax returns (i.e., employment, excise, estate and gift taxes), not just income tax returns, IRC 6611(e)(1), as amended by the Omnibus Budget Reconciliation Act (OBRA) of 1993 (P.L. 103–66). To determine whether the 45-day period has been met, consider these dates: The return due date (determined without regard to any extension of time for filing the return). The return received date (used when the return is filed after the return due date, determined without regard to any extension of time for filing the return). The date the return was received in processible form (Return Processible Date (RPD), or Correspondence Received Date (CRD) may be present). Add 45 days to the later of these dates. If the date of the refund check is not on or before that date, interest must be allowed on the refund. The date of the refund check for computer-generated refunds is: CADE 2 (IMF): Date shown with the literal "RFND-PAY-DT" or "RFND-PYMT-DT" that accompanies TC 846. CADE 2 processing is effective January 2012. IMF: 23C date of the TC 846 minus 3 calendar days, for refunds processed prior to CADE 2 implementation (minus 10 calendar days for direct deposit). BMF: 23C date of the TC 846 plus 1 calendar day (minus 6 calendar days for direct deposit). The date of the refund check for a manual refund is the date certified by the Accounting Function for allowing issuance of the refund. See IRM 20.2.4.7.7, Manual Refunds. If the refund was issued via Then the date of the refund check is generally Form 3753, Manual Refund Posting Voucher, identified by TC 840 with a true Julian date (e.g., 28245-237-XXXXX-1). the posting date of TC 840. Form 5792, Request for IDRS Generated Refund (IGR), identified by TC 840 with a Julian date inflated by 400 (e.g., 28245-637-XXXXX-1). the posting date of TC 840 plus one business day. Systemic calculation of credit interest on refunds is computed TO: CADE 2 (IMF): "RFND-PAY-DT" or "RFND-PYMT-DT" minus 6 business days (minus 4 business days for direct deposit) effective January 2012. Note: If a systemic refund is being issued with a manual interest calculation (TC 770), calculate interest to the 23C date of the adjustment minus 18 calendar days. Exception: If the adjustment meets the criteria to generate a Priority Refund Transcript (Refund, Refund-E, Refund-S, $ 1M) or a CP 12, CP 16, CP 21 or CP 24, and a manual interest computation (TC 770) is being posted, calculate interest to the adjustment 23C date minus 11 calendar days.For additional information see IRM 3.30.123.24, Processing Timeliness Criteria for CADE 2; IRM 3.14.1.6.14.3, Million $ Refund Transcripts; IRM 3.14.1.6.14.4, Refund S Transcripts; and IRM 3.14.1.6.14.5, Refund E Transcripts. IMF: 23C date minus 13 calendar days (minus 20 calendar days for direct deposit), for refunds processed prior to CADE 2 implementation (January 2012). Note: CADE Accounts: Beginning in mid-2004, a sub-set of IMF accounts began to be moved, processed by and reside in CADE. Transactions posted by CADE (2004 through 2011) will have "Day Designations" of 01 thru 05 in the "DD" (Day/Day) portion of the posting cycle (YYYYCCDD). See archived IRM 3.30.123.4.9, Customer Accounts Data Engine (CADE) Cycle, revision date January 1, 2011, for additional information related to CADE account processing, when applicable. BMF: 23C date minus 9 calendar days (minus 16 calendar days for direct deposit). Compute credit interest on manual refunds to the date certified by Accounting for allowing issuance of the refund. 20.2.4.7.5.3 (03-05-2015) 45-Day Rule and Amended Returns and Claims, OBRA 1993 The 45-day rule was further expanded to include amended returns and claims for credit or refund filed on or after January 1, 1995, regardless of the taxable year to which the credit or refund relates, IRC 6611(e)(2). No interest is allowed from the received date of the processible claim or amended return to the refund schedule date when an overpayment results from a claim or amended return and the refund is issued within 45 days of the later of the: Received date of the claim or amended return, or the Processible date of the claim or amended return. Credit interest, however, is allowed from the overpayment availability date (as defined in IRM 20.2.4.3, Availability Dates for Overpayments, and IRM 20.2.4.3.1, Availability Dates for Overpayments-Payment and Credit Types) to the received date of the processible claim or amended return, less the applicable back-off period of IRC 6611(b)(2). See IRM 20.2.4.7.1.1, Systemic Refund Dates for IMF and BMF. Example: A claim, Form 1040X, is received on August 14, 2012, resulting in an overpayment comprised of prepayment credits originally reported on a timely filed 201012 Form 1040. The systemic refund is issued on September 21, 2012, within 45 days of receipt of the claim. Interest is allowed from April 15, 2011, the overpayment availability date, to August 6, 2012 (claim received date of August 14, 2012, less the back-off period of 6 business days). Caution: Interest on an overpayment may be computed from other than its availability date when the original tax return was filed late (IRC 6611(b)(3)) or in unprocessible form (IRC 6611(g)). See IRM 20.2.4.4, Delinquent Returns, and IRM 20.2.4.5, Unprocessible Returns. When an overpayment results from a claim or amended return and the refund is not issued within 45 days of the later of the received or processible date of the claim or amended return, interest is allowed from the overpayment availability date (as defined in IRM 20.2.4.3, Availability Dates for Overpayments, and IRM 20.2.4.3.1, Availability Dates for Overpayments-Payment and Credit Types) to the refund schedule date (less the applicable back-off period). Caution: Interest on an overpayment may be computed from other than its availability date when the original tax return was filed late (IRC 6611(b)(3)) or in unprocessible form (IRC 6611(g)). See IRM 20.2.4.4, Delinquent Returns, and IRM 20.2.4.5, Unprocessible Returns. When a carryback claim or application is processed within 45 days of the later of: (1) the due date of the loss year return; (2) the received date of the delinquent loss year return; (3) the date the loss year return is filed in processible form; (4) the application or claim received date, or; (5) the application or claim processible date, no credit interest is allowed on the resulting overpayment that is refunded. If the 45-day period is not met, credit interest is generally paid from the due date of the loss year return to the refund schedule date. See IRM 20.2.9.2, Determining the Overpayment Interest Period, for exceptions. Note: The 45-day interest-free period for carryback claims and applications was effective as of October 4, 1982 (TEFRA 1982), and therefore, predates OBRA 1993. Exception: For carryback claims of Foreign Tax Credit (FTC) filed prior to January 1, 1995, credit interest is allowed from the loss year return due date to the refund schedule date less the applicable back-off period. Carryback claims of FTC filed on or after January 1, 1995, are subject to the 45-day rule under OBRA 1993. When an overpayment resulting from a claim or amended return is issued within 45 days of the later of the (1) original return due date, (2) late original return received date, or (3) original return processible date, no interest is allowed on the overpayment. Example: The taxpayer filed a late original return for tax year 200712 on a Form 1040 that was received by the IRS on September 1, 2008. On September 25, 2008, the IRS received a Form 1040X amended return for tax year 200712 reflecting an overpayment. The refund is issued on October 10, 2008. Because the refund was issued within 45 days of the late original return received date, no interest is allowed on the overpayment. 20.2.4.7.5.4 (03-05-2015) 45-Day Rule and Master File (Amended Returns and Claims) Master File uses the amended claims date field (AMD–CLMS–DT) to apply the 45-day Rule. Unless specifically excluded by separate IRM instructions (see examples in the bullets below), the "AMD-CLMS-DT" field is completed for all overpayment adjustments resulting from claims or amended returns, including the adjustments input by the Code and Edit Function (CC ADJ54–TC 29X and Blocking Series 200–299), regardless of whether or not the 45-day period is met. Note: Solely for the purpose of moving inventory (e.g., users of the IATxClaim tool; see IRM 3.11.6.9.7, Amended Claims Date), the "AMD-CLMS-DT" can be input on adjustments recording a tax increase or decrease. Do not input an "AMD-CLMS-DT" when processing: Requests to correct math errors. See IRM 21.5.3.2, What Are Claims for Credit, Refund, and Abatement?. An overpayment adjustment to a tax module involving both math error and non-math error changes will require the input of two separate adjustments. See IRM 21.5.4.4.3, Processing Responses to Math Error Notices. Injured spouse allocation refunds. See IRM 21.4.6.5.12.1, Input of TOP Offset Reversals TC 766 with OTN. When a claim or amended return results in an overpayment, enter the date the processible amended return or claim was received by the IRS in the AMD-CLMS-DT field. Follow existing procedures to determine the received date of an amended return or claim. The AMD-CLMS-DT field IS NOT used for CP 09 or 27 (EIC eligibility inquiry) overpayment adjustments. If claim or amended return is and the overpayment is then filed before January 1, 1995 refunded, interest is allowedFROM: the overpayment availability dateTO: the refund schedule date filed on or after January 1, 1995 refunded within 45 days of the later of the received date of the claim or amended return processible date, credit interest is allowedFROM: the overpayment availability dateTO: the received date of processible claim, less the applicable back-off period of IRC 6611(b)(2). (See IRM 20.2.4.7.1.1, Systemic Refund Dates for IMF and BMF). No interest is allowed from the received date of the processible claim to the refund schedule date. filed on or after January 1, 1995 NOT refunded within 45 days of the later of the received date or the claim or amended return processible date, credit interest is allowedFROM: the overpayment availability dateTO: the refund schedule date (less the applicable back-off period). Note: See IRM 20.2.4.3, Availability Dates for Overpayments, and IRM 20.2.4.3.1, Availability Dates for Overpayments-Payment and Credit Types, for a definition of "overpayment availability date." Caution: Interest on an overpayment may be computed from other than its availability date when the original tax return was filed late (IRC 6611(b)(3)) or in unprocessible form (IRC 6611(g)). See IRM 20.2.4.4, Delinquent Returns, and IRM 20.2.4.5, Unprocessible Returns. An AMD-CLMS-DT may be input on an amended return that is filed and received before the return due date. If the AMD-CLMS-DT is prior to the return due date, and the refund is issued within 45 days of RDD, credit interest is not allowed. If the refund is not issued within 45 days of RDD, credit interest is allowed from the interest start date to the refund schedule date, less the applicable back-off period. 20.2.4.7.5.5 (03-05-2015) 45-Day Rule and IRS Initiated Adjustments If an IRS-initiated adjustment results in a refund or credit of an overpayment, 45 days are subtracted from the number of days that interest would otherwise be allowed. This rule applies to any credit or refund paid on or after January 1, 1995, regardless of the taxable period to which the credit or refund relates, IRC 6611(e)(3). An IRS-initiated adjustment is an adjustment initiated by the IRS without the taxpayer's request. Note: Overpayment adjustments resulting from responses to CP 09 or 27 EIC eligibility inquiries are deemed IRS-initiated adjustments subject to the credit interest rules outlined below. If then an IRS action, such as an examination or appeal, is the result of a formal or informal taxpayer claim, the resulting overpayment is taxpayer-initiated. the taxpayer files a claim after an IRS action (such as an AUR or examination assessment) is closed, the resulting overpayment is taxpayer-initiated. information discovered during an IRS action results in an overpayment, the resulting overpayment is IRS-initiated. the taxpayer requests an abatement based on an issue unrelated to the IRS action, the resulting overpayment is taxpayer-initiated. IRS informs the taxpayer that an additional credit may be available and the taxpayer responds, the resulting overpayment is IRS-initiated. Example: IRS has proposed a deficiency on a taxpayer's Form 1120 for depreciation expense. When the taxpayer's receipts are examined, it is discovered that the taxpayer is actually entitled to additional depreciation expense. The resulting overpayment is IRS-initiated. Example: AUR generates a notice to the taxpayer regarding unreported interest income. The taxpayer responds that the income was unreported, but includes additional itemized deductions, which creates an overpayment. The resulting refund is taxpayer-initiated. When the IRS prepares an SFR for a taxpayer who later files a delinquent return, or signs a report of examination changes (e.g., Form 4549) that is deemed to be a return, any resulting adjustment is not "IRS-INITIATED." These adjustments are a result of the filing of an original delinquent return or the signing of an examination report, and any refund is subject to the 45-day rule for original returns. The 45-day rule for IRS-initiated adjustments IS APPLIED TO OFFSETS. Subtract 45 days from the date to which credit interest is otherwise allowed. Example: The IRS initiates an adjustment on a Form 1120 for tax year 2009 resulting in an overpayment that is offset to a liability on tax year 2011. The availability date of the overpayment is March 15, 2010; the due date of the liability is March 15, 2012. Interest on the offset is computed from March 15, 2010 to January 30, 2012 (March 15, 2012, less 45 days). When offset, the overpayment will be applied to the 2011 tax module with the liability due date of March 15, 2012. If the credit interest is also offset, it will be applied with a date of January 30, 2012. When processing an IRS-initiated adjustment via Document Code 47 or 54, input Priority Code (PC) 3. Priority Code 3 will allow credit interest to be computer generated from the interest start date to the 23C date less 45 days plus the applicable back-off period. See IRM 20.2.4.7.1.1, Systemic Refund Dates for IMF and BMF, for the various back-off period routines. Note: For Document Code 47, Priority Code 3 is also used as the settlement amount or amended return freeze "unpostable bypass." Master File "reads" PC 3 for the unpostable bypass and the applicable back-off period when both criteria apply. When a refund adjustment is not being processed, Master File reads the PC 3 for only the unpostable bypass. When a refund adjustment is processed with PC 3, and the 45-day rule is not applicable, manually compute the credit interest and input it with TC 770. Note: For Document Code 54, Priority Code 3 should be used when it is necessary to bypass Unpostable Code 180, Reason Code 2, and apply the 45-day back-off period that is applicable to IRS-initiated adjustments. When processing a manual refund, 45 days are backed-off from the refund schedule date. The additional back-off period described in IRM 20.2.4.7.1.1(2) is not added, as it applies only to systemic refunds. 20.2.4.7.6 (03-05-2015) 180-Day Rule In 2010, Public Law 111–147 (HIRE Act), added IRC 6611(e)(4) to increase the interest-free processing period from 45 days to 180 days on any overpayment resulting from tax deducted and withheld under Chapter 3 (withholding of tax on non-resident aliens and foreign corporations) or Chapter 4 (taxes to enforce reporting on certain foreign accounts) of the Internal Revenue Code. IRC 6611(e)(4) substitutes "180 days" for "45 days" each place it appears in IRC 6611(e)(1), (refunds after return is filed-see IRM 20.2.4.7.5.2); IRC 6611(e)(2), (refunds after claim for credit or refund-see IRM 20.2.4.7.5.3); and IRC 6611(e)(3), (IRS-initiated adjustments-see IRM 20.2.4.7.5.5). The effective date of amended section IRC 6611(e)(4) applies to: Refunds on original returns with due dates (determined without regard to extensions) after March 18, 2010. Refunds after claims for credit or refund on amended returns and claims filed after March 18, 2010 (regardless of the taxable period to which such refund or credit relates). IRS-initiated adjustments resulting in refunds and or credits of an overpayment or interest after March 18, 2010 (regardless of the taxable period to which such refund or credit relates). Note: In practice, the effective date of IRC 6611(e)(4) for overpayments originating from Chapter 4 adjustments will not take place until after December 31, 2012, the date payments under IRC 1471 through IRC 1474 of Chapter 4 are recognized as being made. Chapter 3 withholding is identified by TC 766 with Credit Reference Number (CRN) 330 through 333, and is reported on Form 990-PF, Form 990-T, Form 1040 NR, U.S. Resident Alien Income Tax Return, Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, Form 1120-F, U.S. Income Tax Return of a Foreign Corporation, and Form 8804, Annual Return for Partnership Withholding Tax (Section 1446). The literal “180-DAY-CR-INT-TO-DT” indicates the date used to calculate credit interest on Chapter 3 withholding taxes. When the 180-day interest-free period is missed and interest is systemically computed for credits identified by TC 766 CRN 330-333 (i.e., Chapter 3 withholding), the interest "TO" date is posted, for audit-trail purposes, in the “180-DAY-CR-INT-TO-DT” field. If an overpayment for which interest is being calculated includes credit not comprised of Chapter 3 withholding, the interest "TO" date for that credit is posted in the “CR-INT-TO-DT”' field. Thus, if a TC 776 includes interest on Chapter 3 withholding credit and non-Chapter 3 withholding credit, both fields (“180-DAY-CR-INT-TO-DT” and “CR-INT-TO-DT”) will be populated with their respective dates. The “180-DAY-CR-INT-TO-DT” field should be used in the same manner when interest is computed manually. 20.2.4.7.7 (03-05-2015) Manual Refunds A manual refund (TC 840) is a refund that is not systemically generated (TC 846). Before issuing a manual refund, the actual overpayment available for refund must be determined. Consider previously assessed failure to file and failure to pay penalties and interest that will be affected by the adjustment action. Any decrease in penalties or interest, which have beenpaid, must be added into the overpayment amount. In addition, unassessed accruals of penalty and or interest may reduce the overpayment amount. Verify the taxpayer has no outstanding liabilities that must be satisfied. Offset capability is lost when a manual refund is issued. When an outstanding tax debt is identified, a manual refund may only be issued for the amount of overpayment in excess of the balance due. (Exception: An Offset Bypass Refund (OBR) indicator may be used to bypass outstanding debts when economic hardship exists). Credit interest is computed according to the date certified by the Accounting Function for allowing the refund. Each IRS campus will have local instructions for the interest "TO" date because the certified date is affected by how near or how far the Regional Finance Center is in relation to the campus for which it prints checks. Example: Suppose your campus currently uses two working days for the interest "TO" date. If you input a manual refund on the fifth of the month, the interest "TO" date is the seventh of the month (provided a holiday or weekend is not involved). The interest "TO" date will be adjusted by the appropriate number of days if a holiday or weekend falls in the sequence of the working days. For example, the interest "TO" date for a manual refund input on a Thursday would be the following Monday. Caution: The Accounting Function may also establish a cut-off time for manual refund processing. Any manual refunds input on IDRS (Integrated Data Retrieval System) after the cut-off time are included in the next working day's business. In this instance, the interest "TO" date is two working days after the day on which Accounting considers the refunds input. The local cut-off time may change according to current local needs. In addition, processing times may vary depending on whether the manual refund is on a Form 5792, Request for IDRS Generated Refund (IGR), or Form 3753, Manual Refund Posting Voucher. The interest "TO" date for a manual refund may not be the same as the refund posting date on Master File or IDRS. When backing into a posted manual refund, it may be necessary to add or subtract one or more working days to or from the posting date. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Manual refunds of $1,000,000 or more require a technical review of the interest computation by a senior interest specialist before documentation is sent to the Accounting Function for processing of the refund. When manually computing interest, attach the supporting documentation and or computation to the manual refund documents before routing to Accounting. For specific instructions on preparing manual refunds, see IRM 21.4.4, Refund Inquiries, Manual Refunds, and IRM 21.4.4.5, Other Manual Refund Requirements. 20.2.4.8 (03-05-2015) Special Rules Special rules apply for interest on: Cash Bonds. IRC 6603 Deposits. Credit for Increasing Research Activities-Suspension Periods. Unidentified Remittances. Credit Elects. Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax. 20.2.4.8.1 (03-05-2015) Cash Bonds Credit interest is NOT allowed on a cash bond deposit, or any portion of a cash bond deposit that is offset to other tax liabilities or returned to the taxpayer, before or after assessment, Rev. Proc. 84-58 (superseded by Rev. Proc. 2005-18). Exception: In the event a deposit in the nature of a cash bond is posted to a taxpayer's module as a "payment of tax" , interest is allowed under IRC 6611 on an overpayment later determined to be due from the date the deposit was posted as a "payment of tax" to the date of refund or offset. Rev. Proc. 84-58 provides that a deposit in the nature of a cash bond will be posted to the taxpayer's account as a "payment of tax" as of the date the assessment is made (typically, the 23C date of the deficiency assessment). The amount treated as a "payment of tax" cannot exceed the proposed deficiency plus any interest that has accrued on the deficiency. Any amount of a deposit that is not posted as a "payment of tax" because it exceeds the liability, will continue to be considered a deposit and, provided no other liabilities exist, will be returned to the taxpayer without interest. If another liability does exist, the deposit will not convert to a "payment of tax" until it is offset and applied to another assessed liability. Credit interest cannot accrue on a cash bond deposit until it is converted to a "payment of tax." Example: A taxpayer submits a cash bond deposit of $6,000, dated October 18, 2000, that exceeds the proposed deficiency (i.e., tax, penalty, interest) on his 199812 tax module. At the end of the examination, the taxpayer is assessed a liability of $4,500. The IRS then transfers the remaining cash bond of $1,500 to an unpaid tax deficiency of $2,000 on year 199912 (assessed on November 7, 2000) using debit and credit transaction codes TC 640 and TC 642, designated payment code 12, and a debit and credit transaction date of October 18, 2000. No credit interest is allowed on the transfer. Although the transferred cash bond is available to reduce debit interest as of its availability date of October 18, 2000, credit interest cannot accrue on the deposit, if the deficiency for tax year 199912 is subsequently reduced, until November 7, 2000, the assessment date of the 199912 deficiency, and the date the deposit was converted to a "payment of tax." If, as of the date of a deficiency assessment, a deposit in the nature of a cash bond is posted to a taxpayer's module as a "payment of tax," any subsequent full or partial abatement of the deficiency that results in an offset or refund will accrue credit interest from the date the abated deficiency was originally assessed (i.e., the date it became a "payment of tax" ). Example: A taxpayer submits a cash bond deposit of $1,000 for an assessment of the same amount. It is later determined that the actual assessment should have been $800. Credit interest is allowed on $200 from the 23C date of the $1,000 assessment to the date the overpayment is either refunded or offset. A taxpayer may request the return of all or part of a deposit made in the nature of a cash bond at any time before the IRS assesses the tax. That amount will be returned to the taxpayer, without interest, unless the IRS determines that assessment or collection of the tax determined to be due would be in jeopardy, or that the amount should be applied against any other liability. In such cases, the deposit will not be returned, but will be applied against a jeopardy or termination assessment or against the other liability. Cash bond deposits are identified by a TC 640 (Advanced Payment of Determined Deficiency or Underreporter Proposal), Blocking Series "999" and Designated Payment Code (DPC) 12. For cash bond payments posted after January 1, 1990, the Blocking Series is 990–999. Prior to cycle 198427, interest is not allowed on the refund or offset of any portion of a posted TC 640. After cycle 198427, and prior to January 1, 1990, only those TC 640s blocked "999" are refunded or offset without interest. Note: When moving a deposit in the nature of a cash bond from one tax module to another, maintain the identity of the cash bond on the receiving module by using Designated Payment Code (DPC) of 12 on the credit side of the transfer. There is no systemic means to identify and allow a Master File calculation of credit interest on a deposit in the nature of a cash bond. When credit interest is permitted, it must be manually computed and input with TC 770. 20.2.4.8.2 (03-05-2015) IRC 6603 Deposits The American Jobs Creation Act of 2004, P.L. 108-357, 118 Stat. 1418 (the "Act" ) was enacted on October 22, 2004. Section 842 of the Act added new IRC 6603 to permit taxpayers to make deposits to suspend the running of interest on potential underpayments of tax. Rev. Proc. 2005-18 provides guidance establishing procedures for taxpayers to make, withdraw, or identify deposits to suspend under IRC 6603 the running of interest on potential underpayments. Remittances submitted to suspend the running of interest under this section are referred to as "6603 deposits." This revenue procedure supersedes Rev. Proc. 84-58, 1984–2 C.B. 501, which provided procedures for taxpayers to make remittances (cash bonds) in order to suspend the running of interest on deficiencies. IRC 6603 codifies the taxpayer's right to make a deposit in lieu of a payment to stop the running of interest on a potential deficiency, and, for the first time, provides for the accrual of interest on a deposit returned to the taxpayer to the extent that the deposit is attributable to a disputable tax. The amount and nature of the disputable tax must be identified at the time the amount is remitted to the IRS, or the date a converted cash bond is identified by the taxpayer as a 6603 deposit. Until further guidance is issued, taxpayers are permitted to use any reasonable method for calculating the amount of disputable tax. However, to the extent that a taxpayer's calculation of a disputable tax exceeds the amount proposed as a deficiency in a 30-day letter issued to the taxpayer, or the taxpayer desires to remit a deposit prior to receiving the 30-day letter, the taxpayer must provide a written statement to the IRS identifying and describing the amount of the disputable tax at the time the deposit is remitted. The written statement must also include: The taxpayer's calculation of the amount of disputable tax; A description of any item of income, gain, loss, deduction or credit for which the taxpayer has a reasonable basis for the treatment of the item on its return, and for which the taxpayer reasonably believes that the IRS also has a reasonable basis for disallowing the taxpayer's treatment of the item; and The basis for the taxpayer's belief that it has a reasonable basis for the treatment of any item on its return and that the Secretary also has a reasonable basis for disallowing the taxpayer's treatment of such item. If a taxpayer has been issued a 30-day letter, the amount of disputable tax is, at a minimum, the amount of the proposed deficiency specified in the letter. If a taxpayer fails to identify the amount and nature of the disputable tax in writing or provide a copy of the 30-day letter at the time of the deposit, the payment of interest will not be allowed if the deposit is later withdrawn by the taxpayer unless the taxpayer subsequently provides the IRS a written statement identifying and describing the amount of the disputable tax. In such cases, interest will be allowed on the deposit under IRC 6603 as of the date on which the amount and nature of the disputable tax is identified. Note: The amount identified as disputable tax can include penalty and or interest charges. An overpayment may not be converted to a 6603 deposit. The IRS has IRC 6402 authority to apply overpayments to outstanding liabilities. Taxpayers cannot assume this authority by directing the IRS to convert an overpayment to a 6603 deposit. 20.2.4.8.2.1 (03-05-2015) Identification and Rate of Interest for 6603 Deposits Remittances submitted after October 22, 2004, identified as "6603 deposits" are processed and posted in the same manner as the IRS previously processed a cash bond remittance. Deposits are identified by TC 640 (Advance Payment of Determined Deficiency or Underreporter Proposal), Blocking Series "990-999," or TC 640 with Designated Payment Code (DPC) 12. Caution: Because a 6603 deposit is posted in the same manner that the IRS used to process a cash bond remittance after January 1, 1990 (TC 640, Blocking Series 990 to 999, or TC 640 with DPC 12), the payment posting date alone cannot be relied upon as the date a deposit is subject to the provisions of IRC 6603. This applies to a deposit made after October 22, 2004, and before March 28, 2005, and also for a cash bond deposit that is being "converted" to a 6603 deposit. The IRC 6603 effective date for such deposits is, instead, the date the IRS receives the written statement. See IRM 20.2.4.8.2.4, Designating a Deposit Made Under Rev. Proc. 84-58 (Cash Bond) as a Deposit Under IRC 6603. Note: A deposit made after the effective date of IRC 6603 cannot be designated as a deposit in the nature of a cash bond. Likewise, a 6603 deposit cannot be re-designated as a deposit in the nature of a cash bond. See IRM 20.2.4.8.2.4, Designating a Deposit Made Under Rev. Proc. 84-58 (Cash Bond) as a Deposit Under IRC 6603. Besides TC 640, a 6603 deposit can also include TC 680, Designated Payment of Interest, and TC 690, Designated Payment of Penalty. Note: When a 6603 deposit is split to account for what is designated for tax (TC 640), interest (TC 680), and penalty (TC 690), each will typically carry the same posting date. To the extent a deposit (e.g., TC 640, TC 680, TC 690) is attributable to a disputable tax, IRC 6603(d) provides for a unique rate of interest, known as "6603 deposit interest" , to be paid on 6603 deposits. The rate of interest is the Federal short-term rate provided under IRC 6621(b), compounded daily. The ACT/DMI Program (version 6.13 and subsequent) provides a Federal Short-Term Rate Chart specifically for computing interest on 6603 deposits. The rate of interest allowed is lower than the rates for overpayments. Example: IRC 6621(a)(1) provides for the payment of interest on overpayments at the Federal short-term rate plus 3 percentage points (2 percentage points in the case of a corporation, and for corporate overpayments exceeding $10,000, only a "0.5" percentage point is added). If the prevailing corporate overpayment rate is 5%, then the Federal short-term rate is 3%. For an individual, if the overpayment rate is 6%, the Federal short-term rate is still 3%. The Federal short-term rate is the same whether the overpayment is for an individual or corporation. Rev. Proc. 2005-18 provides that a 6603 deposit will be posted to the taxpayer's account as a "payment of tax" as of the date the assessment is made (typically, the 23C date of the deficiency assessment). The amount designated as a "payment of tax" cannot exceed the determined deficiency plus any interest that has accrued on the deficiency. Any amount of a 6603 deposit that is not posted as a "payment of tax" because it exceeds the liability as ultimately determined, will continue to be considered a 6603 deposit and will be returned to the taxpayer with interest. Interest on the returned deposit, to the extent the deposit is attributable to a disputable tax, will be allowed at the Federal short-term rate from the date of the deposit until the date it is refunded, less the applicable back-off period. If the deposit exceeds the amount of disputable tax, interest under IRC 6603 or IRC 6611 is generally not allowed on the excess. See IRM 20.2.4.8.2, IRC 6603 Deposits. If, as of the date of a deficiency assessment, a 6603 deposit is posted to a taxpayer's account as a "payment of tax," any subsequent full or partial abatement of the deficiency that results in an excess 6603 deposit will accrue interest (to the extent the deposit is attributable to a disputable tax), from the date of the deposit to the date of refund, less the applicable back-off period. Example: A taxpayer submits a 6603 deposit of $100,000, dated February 6, 2012, for an assessment of disputable tax of the same amount on the Form 1120 account of tax year 201012. It is later determined that the actual assessment should have been $80,000. The excess 6603 deposit of $20,000 is returned to the taxpayer as a refund. Because the amount of the deposit did not exceed the amount of disputable tax, as originally determined, the excess remittance of $20,000 retains its character as a deposit and bears interest at the Federal short-term rate from the date of deposit. Thus, interest on the refund is allowed from the deposit date of February 6, 2012, to the refund schedule date (less the applicable back-off period). Example: A taxpayer submits a 6603 deposit of $5,000 for an assessment of disputable tax, comprising $4,700 of tax and $300 of interest. After the assessment, the taxpayer files a claim for abatement of interest. The IRS determines that the $300 interest amount is excessive, and the taxpayer was properly liable for only $200 of interest. Because the amount of the deposit did not exceed the amount of disputable tax, as originally determined, the excess remittance of $100 retains its character as a deposit and bears interest at the Federal short-term rate from the date of deposit to the date of refund or offset. Interest allowed on 6603 deposits does not qualify for interest netting under IRC 6621(d) (net rate interest netting) or Rev. Proc. 94-60 (within module [annual] netting). The provisions of IRC 6611(e) (i.e., the 45-day back-off period) do not apply to IRC 6603 deposits. There is no systemic means to identify and allow a Master File calculation of interest at the Federal short-term rate on 6603 deposits. IRC 6603 deposit interest must be manually computed and input with TC 770. A 6603 deposit is not considered a payment for purposes of the IRC 6621(c) large corporate underpayment rate. A 6603 deposit is not a payment of tax and will not cause a notice to be disregarded for large corporate underpayment purposes. 20.2.4.8.2.2 (03-05-2015) Applying an Excess 6603 Deposit Against Another Liability An excess 6603 deposit is not an overpayment as defined in IRC 6402(a). Therefore, the IRS may not, on its own accord, offset an excess 6603 deposit to an outstanding tax liability, nor to an unassessed liability that has been determined in a statutory notice of deficiency (Rev. Rul. 2007-51). Additionally, the common law right to offset does not apply to excess 6603 deposits. An excess 6603 deposit may result from: A deposit not posted as a payment of tax because it exceeds the liability as ultimately determined, or A subsequent full or partial abatement of a liability that was previously satisfied with a 6603 deposit. In both instances, the excess section 6603 deposit cannot, via the IRS's unilateral action, be applied against another assessed or unassessed liability; only the taxpayer can make such a designation. The taxpayer's request must: (1) be made in writing, (2) be directed to the same office where the original deposit was made, and (3) include a computation of the disputable tax the deposit is to be applied against. When a properly executed written request is received to credit an excess 6603 deposit against another assessed or unassessed liability, the deposit is to be transferred from the losing tax module and to the receiving tax module using the date of the deposit. Section 6603 deposit interest is not allowed on the transfer. If, however, the liability on the tax module to which the deposit is applied is either fully or partially abated, or if the deposit is not posted as a payment of tax because it exceeds the liability as ultimately determined, 6603 deposit interest is allowed on the deposit credited to the receiving module from the date of deposit. Example: A taxpayer submits a 6603 deposit of $6,000, dated June 12, 2010, that exceeds the proposed deficiency on his 200812 tax module, but not the amount of disputable tax (tax, penalty and interest) as calculated by the taxpayer. At the end of the examination, the taxpayer is assessed a liability of $4,500. Following a written request from the taxpayer, the IRS then transfers the remaining 6603 deposit of $1,500 to a proposed, yet unassessed, disputable tax liability on year 201012. The transfer is made using debit and credit transaction codes TC 640 and TC 642, with a debit and credit transaction date of June 12, 2010. No interest is allowed on the transfer. The transferred 6603 deposit is available to reduce debit interest on tax year 201012, as of the due date of the tax liability: March 15, 2011. When the assessment for tax year 201012 is made, the deposit will convert to a "payment of tax" on the 23C date of the assessment. However, if the deficiency for tax year 201012 is subsequently reduced, thereby releasing the deposit, interest will accrue on the deposit ($1,500) at the Federal short-term rate from June 12, 2010, the date of the deposit. Note: When moving a 6603 deposit from one tax module to another, maintain the identity of the deposit on the receiving module by using Designated Payment Code (DPC 12) on the credit side of the transfer. 20.2.4.8.2.3 (03-05-2015) Request for Return of an IRC 6603 Deposit IRC 6603(c) provides that, based on a written request, the IRS will return to the taxpayer any amount of a deposit to the extent the deposit has not been used to pay tax, unless collection of the tax is in jeopardy. Deposit remittances submitted after October 22, 2004, are allowed credit interest if, by request, the deposit is returned to the taxpayer. A taxpayer may request the return of all or part of a deposit at any time before the deposit is used for a payment of tax. Taxpayers who desire the IRS return a deposit must submit a written statement to the IRS campus or examining office to which the original deposit was sent requesting that the deposit be returned. The written statement must also include: The date(s) and amount(s) of the original deposit(s); The type(s) of tax to which the deposit was intended to be applied; The tax year(s) to which the deposit was intended to be applied. The deposit will be returned to the taxpayer and, to the extent the deposit is attributable to a disputable tax, interest will be paid. Such interest is computed at the Federal short-term rate, compounded daily, for the period from the date of deposit to the refund schedule date, less the applicable back-off period. 20.2.4.8.2.4 (03-05-2015) Designating a Deposit Made Under Rev. Proc. 84–58 (Cash Bond) as a Deposit Under IRC 6603 Remittances submitted prior to October 22, 2004, that were posted as "cash bonds" (per Rev. Proc. 84-58) may, upon written request, be "converted" to a "6603 deposit" for purposes of earning interest. Any portion of a cash bond made under Rev. Proc. 84-58 will not earn interest unless the IRS receives a written statement to identify and convert these previously posted cash bonds as "6603 deposits." The date the IRS receives the written statement is the date a "converted" 6603 deposit can begin to bear interest (see exception for converted cash bonds in Paragraph (4), below). Taxpayers requesting conversion of a cash bond to a 6603 deposit must send the written statement to the IRS campus or examining office where the deposit was originally submitted. If the deposit relates to a tax year under examination or in Appeals, the statement should be submitted to that office. The written statement must include: The date(s) and amount(s) of the original cash bond deposit(s); The type(s) of tax to which the cash bond deposit was intended to be applied; The tax year(s) to which the cash bond was intended to be applied; The deposit amount attributable to "disputable tax" for the underpayment tax period. The amount determined as "disputable tax" may require an examination of the return and case records. In the case of an amount held as a cash bond under Rev. Proc. 84-58 on October 22, 2004, the deposit will be treated as made on October 23, 2004 (for purposes of allowing interest on the returned deposit) if the taxpayer provided the written statement identifying the cash bond as a "6603 deposit" before May 27, 2005. Example: 1: Taxpayer Y submitted a cash bond payment for the 2002 tax year on July 7, 2004. Taxpayer Y then submitted a written statement on March 10, 2005, requesting that the cash bond be converted to a 6603 deposit. On November 7, 2005, Taxpayer Y requests that the deposit be returned (the deposit has not been used to pay any tax liability nor is collection in jeopardy). Since Taxpayer Y provided the written statement for the bond conversion before May 27, 2005, interest is allowed at the Federal short-term rate FROM October 23, 2004, to the date the deposit is scheduled to be refunded, less the applicable back-off period. Example: 2: The facts are the same except that the written statement was received June 3, 2005. If the taxpayer requests that the deposit be returned, the date from which interest begins is June 3, 2005. Case file documentation is critical when a taxpayer requests that an amount be treated as a 6603 deposit for a previously posted cash bond. The date of the taxpayer letter requesting the "conversion" must be reflected in the source documents maintained with the case file. To document the request, date stamp the original letter, maintaining it in the case file, and provide the taxpayer a copy advising them to maintain it for their records. Except as provided in Paragraph (4), above, the date on which the IRS receives the written statement is the date that a converted deposit begins to accrue any allowable interest. Because IRC 6603 superseded Rev. Proc. 84-58, Rev. Proc. 2005-18 does not permit taxpayers to designate a deposit made under IRC 6603 as a deposit under Rev. Proc. 84-58. In addition, no provision of IRC 6603 or Rev. Proc. 2005-18 permits a taxpayer to convert a designated deposit to a payment or undesignated remittance. Once designated, a 6603 deposit remains a designated deposit until it is applied by the IRS as described by Rev. Proc. 2005-18. 20.2.4.8.3 (03-05-2015) Credit for Increasing Research Activities-Suspension Periods The Tax Relief Extension Act of 1999 reinstated this credit retroactively for the period July 1, 1999 through June 30, 2004. However, it provided for two suspension periods where a portion of the credit could not be taken into account until certain dates. First suspension period: Credit arising from July 1, 1999 to September 30, 2000 cannot be taken into account prior to the later of October 1, 2000, or the date the return (which includes all or part of the first suspension period) is considered filed, including approved extensions. Second suspension period: Credit arising from October 1, 2000 to September 30, 2001 cannot be taken into consideration prior to the later of October 1, 2001, or the date the return (which includes all or part of the second suspension period) is considered filed, including approved extensions. Note: Returns which are timely filed by the approved extension date are considered timely filed on the original return due date. Credit interest must be manually computed and adjusted. Compute credit interest with a start date of the later of: The day after the suspension date (October 1, 2000 for first suspension period or October 1, 2001 for the second). The due date of a timely filed and paid return. The received date of a late filed return. The payment date. The 45-day interest-free provision of OBRA 1993 applies. Suspended research credit adjustments can be identified by TC 299 with an interest computation date of the later of the due date of the return that includes the suspension period (assuming the return was timely filed by the due date, including extensions), or the day after the suspension period ends (October 1, 2000, for the first suspension period or October 1, 2001, for the second suspension period). Notice 2001-2 provides information to assist taxpayers who filed claims related to the suspension periods. It appeared in Internal Revenue Bulletin 2001-2, dated January 8, 2001. Notice 2001-14 provides information on Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns, filed for returns involving the suspension periods. It appeared in Internal Revenue Bulletin 2001-14, dated April 2, 2001. 20.2.4.8.4 (03-05-2015) Unidentified Remittances Credit interest is allowed on a remittance in the Unidentified or Excess Collection accounts when it is applied to a correct tax module and an overpayment results. Compute credit interest from the later of the payment received date, the return due date, the return received date (if delinquent), or the return processible date. If a remittance in the Unidentified or Excess Collection accounts is refunded because it cannot be associated with a correct tax module, credit interest is not allowed on the refund. 20.2.4.8.5 (03-05-2015) Credit Elect When an overpayment reported on a return or amended return is applied as a credit elect to estimated tax for the succeeding year, credit interest is not allowed on that overpayment. See Treas. Reg. 301.6402-3(a)(5) and Treas. Reg. 301.6611-1(h)(2)(vii). If the IRS made an error and posted the overpayment as a credit elect instead of a refund, appropriate credit interest may be allowed when the error is corrected. If the taxpayer is not liable for estimated tax payments, and he or she erred in entering the overpayment as a credit elect, credit interest is not allowed when the error is corrected. If the taxpayer requests permission to change a credit elect to a refund, Policy Statement 3-14 in IRM 1.2.12.1.14 provides, "When an income tax overpayment is elected for credit to estimated tax for the following year, it must be so applied. If the taxpayer wishes to change his or her election (after the filing of the overpayment return) in order to have the overpayment refunded, the refund may be made only upon showing that the taxpayer would suffer undue financial hardship. Refunds in such cases will be limited to individual taxpayers whose requests are submitted far enough in advance to permit refund to be made prior to the end of the taxable year to which the credit was applied. Interest will not be allowed on the overpayment for the reason that the IRS was precluded from making the refund within the usual 45-day interest-free period." Example: Taxpayer Mary Jones timely files her 201112 Form 1040 showing an overpayment of $500 which she requests be applied to her estimated tax payments for 201212. In August 2012, she requests that the credit elect be refunded. She states that she has sufficient withholding to cover her 2012 taxes and that she is experiencing a severe hardship and needs the credit elect refunded. The credit elect is reversed and refunded, without interest, from the 201112 tax period. When an overpayment originating from a net operating loss carryback adjustment is credited to the estimated tax account of the year immediately succeeding the loss year, the credit is not subject to the provisions of Treas. Reg. 301.6402-3(a)(5) and Treas. Reg. 301.6611-1(h)(2)(vii). Example: A taxpayer timely files his Form 1040 for year 201112 reflecting a loss (loss year). He then files a Form 1040X carrying back the Net Operating Loss (NOL) to 2010 (gain year), which creates an overpayment for 2010. At the taxpayer's request, the IRS agrees to credit the overpayment to the first quarter estimated tax installment for 201212 (due 04/15/2012). Since the application of the year 2010 overpayment to the estimated income tax for year 2012 is not a credit elect (i.e., 2012 is not the immediate succeeding tax year of 2010), the provision prohibiting credit interest in Treas. Reg. 301.6402-3(a)(5) and Treas. Reg. 301.6611-1(h)(2)(vii) is inapplicable. Nevertheless, interest will not accrue on the amount offset because the date of the overpayment (04/15/2012) is the same as the due date of the estimated tax installment against which the credit is taken (04/15/2012). See IRM 20.2.4.6.2, Rules for Applying Offsets Under Section 6402, for additional information on applying carryback overpayments to future installments of estimated tax. See IRM 20.2.5, Interest on Underpayments, for instructions on debit interest and credit elects. 20.2.4.8.6 (03-05-2015) Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax, is filed by corporate taxpayers to request a refund of overpaid estimated tax for the tax year. The function of Form 4466 is to enable corporate taxpayers to receive a refund of excessive estimated tax without having to wait until their tax return is filed. See IRM 3.17.79.3.12, Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax. Upon receiving Form 4466, the IRS has a period of 45 days to review the application, credit the amount of the overpayment against a liability (if a liability is present), and refund the remainder (if any) to the corporation. Even so, interest is not paid on an overpayment initiated by the filing of Form 4466 , unless the IRS fails to refund the amount within the 45-day period provided in IRC 6611(e). To determine whether the 45-day period of IRC 6611(e) has been met (see IRM 20.2.4.7.5.2, 45-Day Rule and All Original Tax Returns), add 45 days to the later of the following dates: The return due date (determined without regard to any extension of time for filing the return). The return received date (used when the return is filed after the return due date, determined without regard to any extension of time for filing the return). The date the return was received in processible form (Return Processible Date (RPD), or Correspondence Received Date (CRD) may be present). If the 45-day period of IRC 6611(e) is missed, interest is paid from the overpayment availability date (as defined in IRM 20.2.4.3, Availability Dates for Overpayments, and IRM 20.2.4.3.1, Availability Dates for Overpayments-Payment and Credit Types) to the refund schedule date (less the applicable back-off period). The received date of Form 4466 is not to be used for tolling the 45-day interest-free period. Caution: Interest on an overpayment may be computed from other than its availability date when the original tax return was filed late (IRC 6611(b)(3)) or in unprocessible form (IRC 6611(g)). See IRM 20.2.4.4, Delinquent Returns, and IRM 20.2.4.5, Unprocessible Returns. If all or part of the overpayment shown on Form 4466 is credited to a balance due on another tax module (or modules), debit the overpaid module with TC 820 and credit the balance due tax module with TC 700. The transaction date (TRANS-DT) for both the debit and credit sides of the transfer is the current date (date of input). Example: The IRS receives Form 4466 on 02/01/2012 from Lilium Corp. for a quick refund of $50,000 from its Form 1120 tax module for the year ending December 31, 2011 (return due date 3/15/2012). Before refunding, the employee finds the taxpayer has a balance due on its 2009 Form 1120 tax module. The balance due on the 2009 tax module, calculated to the date the credit transfer is input (02/13/2012), is determined to be $32,453.00. A credit transfer is then entered on 02/13/2012, debiting the 2011 tax module with TC 820 and crediting the 2009 tax module with TC 700. Both TC 820 and TC 700 are input for $32,453.00, and are dated 02/13/2012. The remaining overpayment of $17,547.00 is issued as a manual refund on 02/15/2012. No interest is paid on the refund. The effect of offsetting all or part of a Form 4466 overpayment using the date the credit transfer is made may make available on the receiving module a credit that is dated prior to the return due date of the losing module. Nevertheless, if the credit on the receiving module is subsequently refunded or offset, it is considered to be available, for purposes of computing credit interest, with the same date that was used to apply it to the receiving module. Example: The scenario is the same as in the prior example, with the addition that a subsequent tax decrease is processed for the 2009 tax module, releasing the credit of $32,453.00. Interest on the overpayment of $32,453.00 (provided no exceptions in IRC 6611 are met) is computed from 02/13/2012, not the return due date of the 2011 tax module (03/15/2012). 20.2.4.9 (03-05-2015) Special Credit Interest Rules for Corporations Effective January 1, 1999, debit and credit interest rates were equalized for all taxpayers except for "corporations" (Revenue Reconciliation Act of 1998 (RRA '98), section 3302). A corporate overpayment interest rate is established for entities deemed to be corporations. A corporation is any BMF taxable entity with at least one of the following significant filing requirements: Form 990-C, Farmer's Cooperative Association Income Tax Return. Form 990-T, Exempt Organization Business Income Tax Return (and proxy tax under section 6033(e), with Org. Code 4 or 5. Form 1120 Generally, Master File or IDRS sets a corporate indicator (the literal "GATT" on CC TXMOD) for BMF returns subject to the corporate overpayment rate. BMF taxpayers that are not "corporate" filers are allowed overpayment interest at the equalized non-corporate rate. See IRM 20.2.5.8, Large Corporate Underpayment (LCU) Introduction, for procedures for debit interest on corporate taxpayers. 20.2.4.9.1 (03-05-2015) GATT Credit Interest-Computations on Overpayments Effective after December 31, 1994, the General Agreement on Tariffs and Trade (GATT) established a lower credit interest rate for large corporate overpayments. The GATT rate is one and a half points below the normal corporate credit interest rate for overpayments exceeding $10,000 for all business taxpayers with a corporate filing requirement. Interest on overpayments for non-corporate BMF taxpayers is not subject to the GATT rate. Credit interest accrued through December 31, 1994, is not considered for purposes of determining whether the $10,000 GATT threshold has been reached. 20.2.4.9.2 (09-03-2010) Determining the GATT Threshold The GATT threshold consists of any and all overpayments previously refunded or offset (excluding overpayment interest). Do not add overpayments from other tax periods or types of tax to determine whether the threshold amount is exceeded. The threshold is determined separately for each tax module. Note: Overpayments include amounts refunded, offset, or applied as a credit elect. Note: Prior to January 1, 1999, only the principal component of refunds (TC 840, TC 846) were considered by Master File to reduce the threshold. Overpayments offset to other modules (TC 820, TC 826, TC 830, TC 836, etc.) did not reduce the threshold. To determine if the threshold has been met: Add all previous overpayments (excluding overpayment interest) for the tax module to the amount that you are currently processing. If the total is less than or equal to the $10,000 threshold amount, then the overpayment being processed is subject to normal corporate credit interest rates. If the total exceeds the $10,000 threshold, the excess amount represents the portion of the current overpayment that is subject to the lower GATT rate. Any difference between the current overpayment amount and the GATT overpayment amount is subject to corporate credit rates. 20.2.4.9.3 (03-05-2015) GATT Rate The reduced GATT rate applies not only to the excess portion of an overpayment that exceeds $10,000, but also to the interest that accrued on the excess portion under pre-GATT law (Post-Counsel GATT computation). Normal corporate credit interest is computed on the $10,000 from the overpayment availability date to the scheduled refund date or the offset date, and Normal corporate credit interest on the excess amount is computed from the overpayment availability date to December 31, 1994, then Interest on the excess amount and on the related normal corporate credit interest accrued through December 31, 1994, is computed at the GATT rate to the scheduled refund date or the offset date. The total of the normal corporate credit interest and the interest at the GATT rate is the allowable interest on the refund or offset. Note: See IRM 20.2.4.3, Availability Dates for Overpayments, and IRM 20.2.4.3.1, Availability Dates for Overpayments-Payment and Credit Types, for a definition of "overpayment availability date." Caution: Interest on an overpayment may be computed from other than its availability date when the original tax return was filed late (IRC 6611(b)(3)) or in unprocessible form (IRC 6611(g)). See IRM 20.2.4.4, Delinquent Returns, and IRM 20.2.4.5, Unprocessible Returns. Prior to January 1, 1998, Master File programming computed GATT interest (Pre-Counsel GATT computation) as follows: Normal credit interest was computed on the entire overpayment from the overpayment availability date to December 31, 1994. Normal credit interest rates were used to compute interest on all interest accruals to December 31, 1994 and the $10,000 threshold amount to the refund or offset date. GATT rates were applied only to the excess principal from January 1, 1995 to the refund schedule or offset date. Under pre-counsel GATT, offsets and amounts applied as a "credit elect" were not considered in determining the GATT threshold amount. Note: An offset or credit elect not previously considered in determining the GATT threshold should be considered when a new overpayment is processed after post-counsel GATT was implemented. Do not change or "correct" credit interest only because it was computed under pre or post-Counsel GATT computations before January 1998. Note: See IRM 20.2.4.3, Availability Dates for Overpayments, and IRM 20.2.4.3.1, Availability Dates for Overpayments-Payment and Credit Types, for a definition of "overpayment availability date." Caution: Interest on an overpayment may be computed from other than its availability date when the original tax return was filed late (IRC 6611(b)(3)) or in unprocessible form (IRC 6611(g)). See IRM 20.2.4.4, Delinquent Returns, and IRM 20.2.4.5, Unprocessible Returns. The GATT rate affects annual and net rate interest computations. When netting the interest on a module in which credit interest was allowed at the lower GATT rate, debit interest is computed at the GATT rate during the applicable overlapping period. See IRM 20.2.14, Netting of Overpayment and Underpayment Interest, for specific netting instructions. The amount of GATT interest allowed on the refund that is subject to netting must be manually determined so that the overpayment amount may be netted at the normal or GATT rate, whichever is applicable, during the overlapping period. For netting purposes, use the pre or post-Counsel GATT computation in the same manner it was used on the original overpayment. The ACT/DMI software provides special transactions for use with modules involving GATT considerations. These transaction codes are TC 1003 (transaction type "Interest" ), and TC 1004 (transaction type "Interest High" ). These transactions allow ACT to properly handle interest and principal for GATT purposes (they are not necessary for modules not affected by GATT). The ACT/DMI software recognizes both TC 1003 and TC 1004 as interest, and will not apply a TC 1003 or TC 1004 amount to the GATT threshold. When entering tax module data on ACT/DMI, use the refund transaction from the transcript (TC 840 or TC 846) to show the refund of principal only. Use TC 1004 for the interest portion if any of the refund interest was computed at the normal corporate, "High" rate (or interest on the first $10,000 of principal if the refund was issued before January 1, 1995). Use TC 1003 if the refund interest is entirely computed at the GATT rate. 20.2.4.10 (03-05-2015) Seized Property If the wages, bank account, etc., of a person other than the taxpayer (who actually owed the tax liability) are wrongfully levied upon, interest is paid when the levied amount(s) are returned to the person. Compute interest from the date the money was originally received by the IRS to the refund schedule date (less the applicable back-off period). See IRC 6343(c)(1). If property of a person other than the taxpayer is wrongfully seized and sold, interest is paid when the proceeds from the sale of that property are returned to the person. Compute credit interest from the date of the sale of the property to the refund schedule date. See IRC 6343(c)(2). Interest on wrongfully seized property or levied upon amounts is determined at the overpayment rate under IRC 6621. The provisions of IRC 6611(e) (i.e., 45 or 180-day rule) are not applicable. If a levied amount is returned to the taxpayer who actually owed the tax liability, interest is not to be paid on the returned amount. See IRC 6343(d). If there are surplus proceeds for a taxpayer as described in IRC 6342(b) after seized property is sold and the proceeds are applied as provided in IRC 6342(a), interest is not to be paid on the surplus. IRC 6342 does not provide for interest. Also, the surplus proceeds are not overpayments and, therefore, interest is not payable under IRC 6611. 20.2.4.11 (09-03-2010) Erroneous Interest Computations There are times when overpayment interest on a module is computed incorrectly. Different procedures apply to the following: Excessive interest paid. Excessive interest paid and refunded and or offset. Insufficient interest paid. 20.2.4.11.1 (03-05-2015) Excessive Interest Paid Excessive interest allowed to the taxpayer, which has not refunded or offset (not yet paid), may be adjusted without regard to a period of limitation. 20.2.4.11.2 (03-05-2015) Recovery of Excessive Interest Paid Assessment procedures cannot be used to recover excessive credit interest paid to a taxpayer because there is no statutory authority for assessing the amount of money erroneously paid and refunded as overpayment interest. Erroneous refunds that are not assessable under the Internal Revenue Code, including refunds of excessive credit interest paid to a taxpayer, are categorized as Category D Erroneous Refunds. Excessive overpayment interest may be recovered in the following ways: Voluntary repayment. Erroneous Refund Suit under IRC 7405. IRC 6532(b) generally required that the suit be brought by the U.S. within two years from the time the refund check or direct deposit clears (the date the bank or the ACH hold period expires) the bank, or five years if the erroneous refund was "induced by fraud or misrepresentation of a material fact." ). See IRM 21.4.5.14.1.1, Statute of Limitations Category D Erroneous Refunds IRC 6532(b) ERSED. Note: Coordinate with local Counsel before any action is taken to pursue recovery under the five-year statute. Offset. The IRS possesses a "Common Law Right to Offset" against a refund due the taxpayer to recover the full amount of an erroneous refund within the following boundaries:i) The erroneous refund may be offset, without a period of limitation, against any refund otherwise due the taxpayer so long as the offset involves the same taxpayer, the same type of tax, and the same tax year to which the refund is related. Contact Chief Counsel, Procedure and Administration, if your case involves an erroneous refund of overpayment interest and offset is outside of the two-year period of limitations for filing an erroneous refund suit. (See Chief Counsel’s non-acquiescence to Pacific Gas & Electric Company v. United States, 417 F.3d 1375 (Fed. Cir. 2005), and AOD 2006-02; 2006-26 IRB 1).ii) If the erroneous refund and the refund to be offset do not arise within the same tax module and the same tax period of the same taxpayer, the offset must be made within the applicable Erroneous Refund Statute Expiration Date (ERSED). Erroneous refunds that are recovered by suit accrue interest at the rate specified by IRC 6621 from the refund date to the date of recovery — IRC 6602. See IRM 20.2.7.6, Erroneous Refunds IRC 6404(e)(2), for exceptions. See IRM 21.4.5.5, Account Actions for Category D Erroneous Refunds, and IRM 21.4.5.14, Collection Methods for Category D Erroneous Refunds, for further information. 20.2.4.11.3 (03-05-2015) Recovery of Excessive Interest Applied in an Offset If the taxpayer's overpayment interest is offset to another module and it is determined that the allowance of the interest was erroneous, the offset can be reversed so long as it has not refunded from the account to which it was applied, and so long as the 10-year collection period described in IRC 6502 for the tax module to which the offset was applied has not expired. Also, the period (normally the collection period) applicable to adjusting the tax module from which the overpayment was derived and to which it is to be returned cannot be expired. Reversal may, however, negatively impact the module to which the credit was applied. When the IRS makes an offset with overpayment interest as provided under IRC 6402(a), the taxpayer is treated as paying the tax, interest, addition to tax and or penalty for the year of the outstanding tax liability and upon such payment, the assessment for that year is satisfied. If the offset is reversed, the IRS may not automatically revive the assessment unless the requirements in paragraph (2) below are met. Use the procedures described in paragraphs (2) and (3) below. Alternatively, the IRS may use the procedures described in IRM 20.2.4.11.2 to recover the excessive interest from the year of the overpayment. The assessment can be reinstated if: The application of the excessive interest resulted from a clerical error and not a substantive determination, and The reinstatement would not prejudice the taxpayer (e.g., if a refund was issued from the tax module to which the offset was applied, the taxpayer may be prejudiced by the reinstatement of the assessment). Compare IRM 25.6.1.10.2.1.1.1, Clerical Errors. If the assessment cannot be reinstated, then in order to collect the abated amount using the tax collection procedures, the liability will have to be reassessed within the period of limitation for assessment using the normal assessment procedures. 20.2.4.11.4 (03-05-2015) Insufficient Interest Paid The allowance of interest under IRC 6611 is usually made at the time the overpayment is scheduled. In cases where interest on refunds or credits was insufficient and is legally allowable, an informal claim or claim filed on Form 843, Claim for Refund and Request for Abatement, is sufficient notice to consider and allow additional overpayment interest. Any adjustment of such interest may be allowed and paid upon request at any time within six years of the date on which the overpayment was scheduled. See Rev. Rul. 57–242 (six-year period for an adjustment of overpayment interest that has been refunded); 28 U.S.C. § 2401(a) (six-year statute of limitations to sue for additional overpayment interest in the district courts); and 28 U.S.C. § 2501 (six-year statute of limitations in the U.S. Court of Federal Claims). The six-year period of limitation also applies to the allowance of additional interest on an overpayment of tax when the IRS discovers the error, whether or not the error was made by the IRS. If the claim is denied, the taxpayer can protect his or her right to such interest only by filing a civil suit within six years of the date on which the overpayment was scheduled. There is no valid extension of this period. The IRS may, however, allow and pay additional overpayment interest after the six-year period if the taxpayer files an administrative claim for additional interest within the six-year period of limitations under 28 U.S.C. §§ 2401 and 2501. Even though a taxpayer does not file suit, the IRS continues to have authority under IRC 6611 to consider a timely filed administrative claim for additional interest. Nevertheless, taxpayers should continue to be cautioned that filing a claim for overpayment interest with the IRS within the 6-year period of limitation does not toll or protect the six-year statute under 28 U.S.C. §§ 2401 and 2501. See Rev. Proc. 2000–26 and Rev. Rul. 57–242. 20.2.4.12 (03-05-2015) Manually Computing Credit Interest When it is necessary to manually compute credit interest, IDRS Command Code (CC) COMPA and or InterestNet, commonly referred to as the Automated Computation Tool (ACT/DMI) are used. CC COMPA is typically used for non-complex interest computations, while ACT/DMI is recommended for more complex interest computations. Note: ACT/DMI is the preferred interest computation tool. There are few instances when COMPA should be solely used. When computing credit interest with CC COMPA, the appropriate definer must be used. See the following table. If computing credit interest then use before 01/01/1999 for a non-corporate taxpayer, CC COMPAC. on or after 01/01/1999 for a non-corporate taxpayer, CC COMPA. before 01/01/1995 for a corporate taxpayer, regardless of the overpayment amount (See IRM 20.2.4.9, Special Credit Interest Rules for Corporations, for the definition of a "Corporate" taxpayer), CC COMPAC. on or after 1/1/95 for a corporate taxpayer and the overpayment amount is less than or equal to $10,000, Caution: If the GATT threshold has been met, use the GATT interest rate (COMPAG), regardless of the overpayment amount. (See IRM 20.2.4.9.2, Determining the GATT Threshold). CC COMPAC. on or after 1/1/95 for a corporate taxpayer and the overpayment amount is greater than $10,000, or the GATT threshold has previously been met (See IRM 20.2.4.9.2, Determining the GATT Threshold), CC COMPAG (GATT). Note: Add the COMPAC interest (first $10,000) with the GATT interest (over $10,000) for the total interest allowed on the overpayment.