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.

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.

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:

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:

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

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.

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:

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.

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.

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).

When computing allowable interest on an overpayment that is offset:

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

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.

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.

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).

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.

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).

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.

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).

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

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.

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

Exceptions to systemic processing of offsets:

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.

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

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 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).

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.

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

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)).

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:

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.

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.

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.

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.

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).

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."

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" ).

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.

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.

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:

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.

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.

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.

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

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.

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.

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."

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).

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

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:

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.

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).

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.

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.

To determine if the threshold has been met:

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).

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

The GATT rate affects annual and net rate interest computations.

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.

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.

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:

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.

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:

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.

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.