20.2.10 Interest on Estate, Excise, Employment, and Foreign Taxes

Manual Transmittal

August 01, 2018

Purpose

(1) This transmits revised IRM 20.2.10, Interest, Interest on Estate, Excise, Employment, and Foreign Taxes.

Material Changes

(1) This IRM is being revised to incorporate Interim Procedural Updates (IPUs) and includes minor editorial changes and citation corrections.

(2) New IRM 20.2.10.1, Interest on Estate Tax Returns. Title changed to Program Scope and Objectives. New content added about information involving internal controls placed under this subsection to comply with rules and requirements under IRM 1.11.2.1. Prior content moved to IRM 20.2.10.2.

(3) New IRM 20.2.10.1.1, Installment Payments on Form 706 Estate Tax Return. Title changed to Background. New content added about background to comply with rules and requirements under IRM 1.11.2.1.1.

(4) New IRM 20.2.10.1.2, Deductions and Credits Against Estate Tax. Title changed to Authority. New content added about legal authorities to comply with rules and requirements under IRM 1.11.2.1.2.

(5) New IRM 20.2.10.1.3, Time Frame for Claims. Title changed to Responsibilities. New content about responsibilities added to comply with rules and requirements under IRM 1.11.2.1.3.

(6) New IRM 20.2.10.1.4, Recovery of Death Taxes Claimed as a Credit. Title changed to Program Management and Review to comply with rules and requirements under IRM 1.11.2.1.4.

(7) New IRM 20.2.10.1.5, Combination Adjustments. Title changed to Program Controls to comply with rules and requirements under IRM 1.11.2.1.5.

(8) New IRM 20.2.10.1.7 Title added, Related Resources. Information about technical guidance and information processing steps and methods for other interest on estate, excise, employment and foreign taxes abstracts other than general program added to comply with rules and requirements under 1.11.2.1.7

(9) IRM 20.2.10.3.1(3) removed IRC 902 because of 2017 repeal of IRC section 902 (Indirect Foreign Tax Credit).

(10) IRM 20.2.10.4.3.1, Special Interest Rules for Some Fuel Tax Credits, was revised to include changes for processing fuel tax credits based on the Bipartisan Budget Act of 2018, P.L. 115-123. and to state that interest must be manually computed and input with TC 770 when the interest-free period is missed.

(11) IPU 17U1182 issued 07-25-2017 was added for IRM 20.2.10.4.3, Interest Rules for Ultimate Vendor and Fuel Tax Claims, to clarify when interest must be manually computed.

(12) IRM 20.2.10.5.5.1, Underpayments of Federal Income Tax Due to an Administrative Error, was revised to add examples of what constitutes an administrative error.

(13) IPU 18U0558 is incorporated into IRM 20.2.10.4.3.1 and revised to include changes for processing fuel tax credits based on Bipartisan Budget Act of 2018, Public Law (P.L.) 115-123.

Effect on Other Documents

This material supersedes IRM 20.2.10, dated October 11, 2016. IPU 17U1182, issued 07-25-2017, and IPU 18U0558, issued 03-30-2018, are incorporated.

Audience

Any employee who needs to compute interest on estate, excise and foreign taxes.

Effective Date

(08-01-2018)

Adina Leach
Director, Business Support
Small Business/Self-Employed

Program Scope and Objectives

  1. Purpose: This IRM explains the procedures and updates related to policy guidance, information processing steps, interest rates and methods specific to estate, excise, and foreign tax returns in regards to assessments, refunds, and claims. If not covered here, see IRM 20.2, Interest.

  2. Audience: This IRM is intended for servicewide use by all employees who handle computations of interest, including employees in:

    • Small Business Self-Employed (SB/SE) Division

    • Large Business and International (LB&I) Division,

    • Tax Exempt and Government Entities (TE/GE) Division,

    • Wage and Investment (W&I) Division,

    • Appeals,

    • Taxpayer Advocate Service (TAS), and

    • Other IRS functions

  3. Policy Owner: Responsibility for overseeing interest resides with SB/SE, Operations Support (OS), Business Support Office (BSO).

  4. Program Owner: The Office of Servicewide Interest (OSI) is responsible for overpayment and underpayment interest policy and IRM 20.2, Interest. OSI’s role is to ensure the accuracy of interest and its fair and consistent application. OSI has overall responsibility for coordinating and approving any update to IRM 20.2, Interest, including IRM 20.2.10, Interest, Interest on Estate, Excise, Employment, and Foreign Taxes.

  5. Program Goals: Are to ensure interest is assessed as accurately as possible per the law, and maintain fair and consistent treatment of all taxpayers.

Background

  1. The Office of Servicewide Interest provides policy, training materials, interest tools, and manual interest procedures when applicable for overpayment and underpayment interest purposes. It is essential that managers, senior management officials, personnel, and examiners working with estate, excise, employment, and foreign tax issues correctly understand and follow technical guidance and information for interest rates and methods of computation.

Authority

  1. These procedures are covered under the following authority:

    • IRC 6601, Interest on Underpayment, Nonpayment, or Extensions of Time for Payment, of Tax

    • IRC 6621, Determination of Rate of Interest

    • IRC 6622, Interest Compounded Daily

    • Rev. Rul. 99-40

    Additional authorities can be found in the table located in IRM 20.2.5.6.1.

Responsibilities

  1. IRM 20.2.10 provides servicewide policy interest procedures for overpayment and underpayment interest purposes.

  2. All reference materials involving overpayment and underpayment interest must be consistent with the procedures in the IRM and must receive approval from the Office of Servicewide Interest (OSI) prior to distribution.

  3. Overall responsibility for the interest programs resides with OSI. OSI coordinates policy and procedures concerning administration of the interest programs.

  4. All actions, including actions by examiners, need to be followed in accordance with IRC 7803(a)(3), the Taxpayer Bill of Rights (TBOR), adopted in June 2014 and available at https://www.irs.gov/taxpayer-bill-of-rights.

Program Management and Review

  1. Nearly every function in the IRS has a role in proper interest administration. It is essential that each function conduct its operations with an emphasis on mitigating risk of inaccurate interest computations. Appropriate reviews should be conducted to ensure interest accuracy, consistency, and fairness.

  2. To promote the goals of accuracy, consistency, and fairness in the interest program, the Complex Interest Quality Measurement System (CIQMS) Staff, a section within OSI, conducts reviews of interest computations, forwarding their findings to program partners/stakeholders. OSI also prepare reports of significant issues, such as corrections to computer programming that affect taxpayers.

Program Controls

  1. In accordance with IRC 6601(a) and IRC 6611, the payment of interest is required on underpayments of tax and overpayments of tax, respectively, unless otherwise specified by law.

  2. IRC 6621 provides the interest rates on overpayments and underpayments of tax, which are tied to the Federal short-term interest rate. Interest rates are determined quarterly based on changes to the Federal short-term rate.

  3. Interest is statutory. It cannot be reduced or abated due to reasonable cause, nor can it be negotiated. See IRM 20.2.7, Abatement and Suspension of Debit Interest, for situations in which interest can be lawfully reduced or abated.

Related Resources

  1. For additional information, such as the latest interest news, job aids, interest tool updates, training materials, list of the analysts, etc., see https://portal.ds.irsnet.gov/sites/vl022/lists/interestinsider/landingview.aspx

Interest on Estate Tax Returns

  1. Estate tax may be extended or deferred and paid in installments as provided in IRC 6166, with interest assessed at a reduced rate. These tax modules are identified by a taxpayer identification number (TIN) ending in "V" (valid TIN) or "W" (invalid TIN) and MFT 52 TXPD 000000 with a Notice Status of 14. Instructions for determining the portion of estate tax that may be subject to the reduced rate are found in IRM 4.25.2, Campus Procedures for Estate Tax.

  2. Interest on a portion of the estate tax is charged at 2% for decedents whose date of death is after December 31, 1997.

  3. Interest on the amount that exceeds the 2% portion [as defined in IRC 6601(j)(2)] shall be paid at 45% of the normal interest rate as found in IRC 6621.

Installment Payments on Form 706 Estate Tax Return

  1. If all or a portion of an assessment (deferred amount) is paid in installments, compute and assess interest as shown below.

    1. Interest on the deferred amount that is not past due is computed from the return due date (excluding extensions of time to file) to the last prior installment due date.

    2. Interest on the deferred amount that is past due is computed from the return due date (excluding extensions of time to file) to the date of payment using the normal interest rate as provided by IRC 6621.

    3. Interest on the non-deferred amount is computed from the return due date (excluding extensions of time to file) to the date of payment using the normal interest rate.

    4. If Form 890, Waiver of Restriction on Assessments and Collection of Deficiency and Acceptance of Overassessments, is attached to the examination report, the IRS must issue notice and demand within 30 days of the date the waiver is signed to prevent the loss of interest. If the tax is over $100,000 and not fully paid, see IRM 4.4.18, Large Dollar Cases, for expedite procedures.

    5. If notice and demand is not sent within 30 days, interest on the deficiency cannot be charged from the 31st day after the waiver is signed to the date of notice and demand.

  2. If an extension of time to pay an estate tax deficiency assessment has been granted under IRC 6161(b)(2), compute interest on the entire balance due from the due date of the return to the date of payment using the normal interest rate.

  3. If an extension of time to pay the tax shown on the return (deferred amount) has been granted under IRC 6161(a)(2) or IRC 6163:

    1. Compute interest on the deferred amount from the due date of the return to the date of payment.

    2. Compute interest for the period of the extension of time to pay an installment under IRC 6161(a)(2) at the rate of 2% on the 2% portion and the remainder at 45% of the normal interest rate, from the due date of the installment to the date of payment.

  4. If the time for payment of estate tax is extended under IRC 6166 and a deficiency is assessed after the estate has made one or more timely interest payments:

    • The 2% rate as per IRC 6601(j) is used to determine the amount of interest that should have been paid in each annual interest payment.

    • Interest on any underpayment of interest accrues at the prevailing rate under IRC 6601(a) from the date the interest should have been paid under IRC 6166(f)(1) if the return had shown the correct tax liability. See Rev. Rul. 89-32.

    Note:

    The 2% rate was previously 4% for the estates of decedents who died before January 1, 1998. In addition, executors of estates of decedents who died before January 1, 1998, could have elected to use the new 2% rate for installments due after the date of the election. The election had to be made prior to January 1, 1999. See Rev. Proc. 98-15.

  5. Refer to IRM 4.25.2 for more information.

Deductions and Credits Against Estate Tax

  1. Death taxes paid to any state, the District of Columbia, or a foreign country, are allowed as a deduction or credit against federal estate tax owed for estates of citizens or residents of the United States. Death taxes include estate, inheritance, legacy, or succession tax. The tax must actually be paid to be taken as a deduction or credit. See IRC 2058 and IRC 2014.

    1. IRC 2058(a) allows the deduction for death taxes paid to a state or District of Columbia for estates of decedents who died after December 31, 2004. For estates of decedents who died before January 1, 2005, IRC 2011 allows the credit for death taxes paid to a state or District of Columbia. See IRM 20.2.10.1 (revision November 18, 2008).

    2. IRC 2014(a) and Treas. Reg. 20.2014-1(a)(1) allow the credit for death taxes paid to a foreign country or possession of the United States.

  2. This section explains the effect of the deduction and credit on interest computations.

  3. Interest is computed based on the tax adjustment information shown on Form 1366, Tax Analysis Worksheet for Overassessments of Estate Tax Involving Restricted Interest.

Time Frame for Claims

  1. The deduction allowed under IRC 2058 must be claimed within 4 years after the filing of the estate tax return, except if:

    1. A timely petition to Tax Court was filed, then within the 4-year period, or before the expiration of 60 days after the date the decision of the Tax Court becomes final, or

    2. Under IRC 6161 and IRC 6166, an extension of time has been granted for payment of the tax shown on the return, or of a deficiency, then within 4 years of the period of extension, or

    3. A claim for refund or credit of an overpayment has been filed within the time prescribed in IRC 6511, then the 4-year period or before the expiration of 60 days from the date of mailing of a certified/registered notice of disallowance of the claim, or before the expiration of 60 days after a decision by any court of competent jurisdiction becomes final with respect to a timely suit instituted upon such claim, whichever is later. See IRC 2058(b).

  2. The credit allowed under IRC 2014 must be claimed within 4 years after the filing of the estate tax return, except if:

    1. A timely petition to Tax Court was filed, then within the 4-year period or before the expiration of 60 days after the decision of the Tax Court becomes final, or

    2. Under IRC 6161, an extension of time has been granted for payment of the tax shown on the return, or of a deficiency, then within 4 years of the period of the extension. See IRC 2014(e).

  3. If the claim is timely filed, allow any refund of overpaid estate tax based on the IRC 2058 deduction or the IRC 2014 credit for taxes actually paid within the 4-year period, but do NOT allow interest on the refund.

Recovery of Death Taxes Claimed as a Credit

  1. If the executor or other person representing an estate recovers any state or foreign death tax claimed as a credit, he/she must notify the IRS within 30 days of the receipt of a refund, pursuant to Treas. Reg. 20.2016-1 by filing an amended return. If the IRS computes the amount of the redetermined federal estate tax (without regard to the statute of limitations provided in IRC 6501) it will be due upon notice and demand.

    If Then
    the redetermined deficiency is the result of recovery of any part of a state (or District of Columbia) death tax claimed as a credit. compute underpayment interest under the regular rules of IRC 6601.
    the redetermined deficiency is the result of recovery of any foreign death tax claimed as a credit. compute underpayment interest
    FROM:
    the date the executor of the estate (or another person) received the refund from the foreign government. See IRC 2016.
    TO:
    the full payment date, credit offset date, or the 23C date of the increased U.S. tax, whichever is the earliest.
    THEN:
    add this interest computation amount to any interest paid on the refund by the foreign government. The sum of the two amounts will be the interest assessment input with a TC 340 (use a non-restricting TC 340 whenever possible). See Rev. Proc. 60-17 Sect. 12.05.

    Note:

    IRC 2016 applies only to IRC 2014 for decedents who died and generation-skipping transfers after December 31, 2004.

Combination Adjustments

  1. If an examination determination involves a combination of general adjustments and an adjustment of the deduction or credit claimed on the return for state death taxes under IRC 2058, or foreign death taxes under IRC 2014, the Examination function will flag the case file for the restricted interest examiner. The file will contain Form 1366, Tax Analysis Worksheet for Overassessments of Estate Tax Involving Restricted Interest.

  2. Using Columns C and D of Form 1366, if a deficiency is shown in one column and an overassessment in the other, deduct the lesser amount from the greater amount to determine the net result.

    If the net result is Then
    a deficiency in Column C, compute underpayment interest under the regular rules of IRC 6601.
    a deficiency in Column D that results from a recovery of an amount claimed and paid as foreign death taxes, compute underpayment interest
    FROM:
    the date the executor of the estate (or another person) received the refund from the foreign government. See IRC 2016.
    TO:
    the full payment date, credit offset date, or the 23C date of the increased U.S. tax, whichever is the earliest.
    THEN:
    add this interest computation amount to any interest paid on the refund by the foreign government. The sum of the two amounts will be the interest assessment input with a TC 340 (use a non-restricting TC 340 whenever possible). See Rev. Proc. 60-17 Sect. 12.06.
    a deficiency in Column D that results from the recovery of an amount claimed and paid as state (or District of Columbia) death taxes, compute underpayment interest under the regular rules of IRC 6601. (Interest is NOT restricted on this deficiency).
    an overpayment in Column C, compute overpayment interest under the regular rules of IRC 6611(b).
    an overpayment in Column D, do not allow overpayment interest. Input TC 770 for zero. See Rev. Proc. 60-17 Sect. 12.03.
  3. In some instances, a redetermination is prepared after adjustments have been made to the amounts claimed as a state death tax deduction or foreign death tax credits and the resulting deficiencies or overassessments have been assessed or scheduled.

    • If the amount of the deduction or credit changes, prepare another Form 1366 showing the adjustments in each column as corrected. The amount in Column A should be identical to the amount on the original Form 1366.

    • Redetermine the interest on the basis of the corrected Form 1366 and adjust the interest assessed or allowed.

    If the redetermination results in Then
    a deficiency in Column D resulting from a correction to the amount of an overassessment previously allowed on the basis of a state or foreign death tax claim, compute underpayment interest
    FROM:
    the refund schedule date (since interest was not allowed on the previous overpayment).
    TO:
    the full payment date, credit offset date, or the 23C date of the increased U.S. tax, whichever is the earliest.
    an overassessment in Column D, do not allow overpayment interest. Input TC 770 for zero.
    an overassessment in both Columns C and D, apportion the allowance of overpayment interest between the general adjustment in Column C and the restricted overassessment in Column D.

Foreign Tax Credit (FTC)

  1. Per IRC 901, a taxpayer is entitled to a tax credit for certain taxes paid to a foreign government. The foreign tax credit (FTC) relieves U.S. taxpayers of the double tax burden imposed when the foreign source income is taxed by both the United States and the foreign country from which it is derived.

  2. FTC is claimed by the taxpayer on:

    • Form 1116, Foreign Tax Credit for Individual, Estate, or Trust.

    • Form 1118, Foreign Tax Credit - Corporations.

Adjustments to Foreign Tax Credit (FTC)

  1. A taxpayer (either an individual or a corporation) computes its foreign tax credit under IRC 901 with respect to the foreign income taxes that it pays or accrues during the taxable year. In addition, a domestic corporation may claim a foreign tax credit for foreign income taxes that are paid or accrued by a controlled foreign corporation in which the domestic corporation is a United States shareholder and that the domestic corporation is deemed to pay under IRC 960.

    If Then
    accrued foreign taxes when paid differ from the amounts claimed as FTC on the taxpayer’s return, the taxpayer must report the adjustment by filing an amended return showing the redetermined tax liability for the year in which the FTC was claimed.
    any part of the foreign tax actually paid is refunded by the foreign country, the taxpayer must report the refund by filing an amended return showing the redetermined tax liability for the year in which the FTC was claimed.
    accrued foreign taxes are not paid within 2 years after the close of the year to which the taxes relate, the taxpayer must reverse out the FTC for the unpaid tax by filing an amended return showing the redetermined tax liability for the year the FTC was claimed. If the foreign tax is paid in a later year, a claim for refund can be filed.
  2. The individual or corporation must provide the following information:

    • The date(s) and the amount(s) on which each foreign taxes were accrued, paid, and/or refunded.

    • Tax year or years that are affected by the redetermination.

    • Sufficient information to determine any interest due from or owing to the taxpayer.

    • The amount of overpayment interest paid (if any) by the foreign government and the dates received.

    • The foreign currency and the exchange rate used to translate each amount to U.S. dollars (because all of the amounts must be reported in U.S. dollars).

    • Form 1116 or Form 1118 (see form instructions).

  3. Under prior law, foreign tax redeterminations with respect to taxes paid or accrued by a foreign corporation that are deemed paid by a U.S. corporate shareholder under IRC 960 (IRC 902 was originally included but has since been repealed by the 2017 Tax Cuts and Jobs Act) are generally accounted for as prospective upward or downward adjustments to the foreign corporation’s pools of post-1986 undistributed earnings and post-1986 foreign income taxes at the end of the foreign corporation’s taxable year in which the redetermination occurs. The Tax Cuts and Jobs Act repealed IRC 902 effective for tax years of foreign corporations beginning after December 31, 2017 and for tax years of U.S. shareholders of such foreign corporations in which such tax years of the foreign corporations end.

Interest on Adjustments to Foreign Tax Credit (FTC)

  1. For interest on adjustments to FTC:

    If Then
    the adjustment results in a reduction of the FTC previously allowed for the year in which the foreign tax accrued and a corresponding increase in the taxpayer’s tax liability, compute underpayment interest on the increase
    FROM:
    the date the taxpayer received the refund of foreign taxes paid
    TO:
    the full payment date, credit offset date, or the 23C date of the increased U.S. tax, whichever is the earliest.
    THEN:
    add this interest computation amount to any interest paid on the refund by the foreign government. The sum of the two amounts will be the interest assessment input with a TC 340 (use a non-restricting TC 340 whenever possible). However, the above amount can’t be more than the amount that would have been assessed under normal interest procedures found in IRC 6601 and IRM 20.2, Interest. See Treas. Reg. 1.905-4T(e).
    the FTC claimed on the return was for accrued but unpaid taxes which were abated by the foreign country or possession of the U.S., compute underpayment interest on the corresponding increase in tax
    From:
    the due date of the return.
    To:
    the date of payment of the tax.
    the adjustment results in an increase in the FTC previously allowed and a corresponding decrease in the tax liability, compute overpayment interest under the regular rules of IRC 6611(b) and IRC 6611(f)(2).
  2. Normal interest procedures means recomputing the entire module to incorporate all the adjustments on the tax year. See IRM 20.2.1.5.2(4).

  3. When interest is included in the refund from the foreign government, two interest computations must be performed per Treas. Reg. 1-905-4T. The lesser interest amount is input with a TC 340. If it is determined that the lesser interest amount is from the first computation, input TC 340 for the interest computed to the applicable stop date with the TC 29X. Input a second TC 340 with cycle delay for the amount of overpayment interest paid that was included in the foreign refund. Input history item on AMS: the second TC 340 represents overpayment interest paid on the foreign tax refunded by the foreign government. This ensures that for any future interest updated, the original interest computation can be backed into.

  4. If the lesser interest amount is using the return due date as the effective date, input FTC with a TC 290/300. Input TC 340 and/or TC 772 as computed under regular rules.

  5. If underpayment interest is computed using the refund date, input the FTC with a TC 298/308 showing the refund date for each refund that has a different date.

  6. The taxpayer must verify the date and the amount of the refund received from the foreign government.

Filing FTC Claims and Amended Returns

  1. A claim for credit or refund attributable to foreign taxes paid or accrued must generally be filed within 10 years from the due date of the return for the year in which the foreign taxes were actually paid or accrued.

  2. A separate amended return must be filed for each year where a foreign tax credit is adjusted. The foreign tax credits from multiple years cannot be combined into one year to make the tax adjustment.

  3. When enough information is not provided, it may be necessary to contact the taxpayer or power of attorney before either making an assessment or denying a claim. (See IRM 20.2.10.3.1 for the required information.)

Carrybacks and Carryovers of Excess Foreign Taxes Paid

  1. .Taxpayers can carryback or carryover amounts by which the foreign taxes that they pay or accrue exceed the foreign tax credit limitation (“excess foreign taxes”). See IRC 904(c). However, taxpayers may not carryover or carryback excess foreign taxes that they are deemed to pay or accrue under IRC 960(d). If a carryback of foreign taxes paid or accrued to foreign countries or possessions of the United States results in an overpayment of tax, that overpayment is deemed not to have been made before the filing date for the taxable year in which such taxes were actually paid or accrued. See IRC 6611(f)(2).

  2. No interest will be paid on carryback and carryover refunds if issued within 45 days of the date the claim is received by the IRS. See IRC 6611(e) and IRC 6611(f)(4)(B).

  3. If the erroneous application of a carryback under IRC 904(c) or IRC 907(f) results in a deficiency, that deficiency must generally be assessed within one year after the expiration of the period within which a deficiency may be assessed for the year of the excess taxes described in IRC 904(c) or IRC 907(f) which result in such carryback. See IRC 6501(i).
    Example:

    If Then
    excess foreign taxes are erroneously carried back from 2017 and claimed in 2016, resulting in a deficiency for 2016, assess the deficiency within one year of the assessment statute expiration date of the 2017 tax year.

Computing Overpayment Interest on Excess Foreign Tax Carrybacks

  1. Overpayment interest on refunds attributable to the carryback of excess foreign taxes follow the same rules as would apply to a net operating loss (NOL) carryback. See IRM 20.2.9, Interest on Carryback of Net Operating Loss. . For purposes of computing overpayment interest:

    1. The interest start date is the due date of the return for the year in which the foreign taxes were paid if the return was filed on or prior to the due date or extended due date. If late filed, interest starts on the date the return was filed. Also, need to consider when the return becomes processible and when the payments or credits are available. Interest ends on the date the carryback is refunded minus all applicable back-off periods (see IRM 20.2.4.7, Refunds) or the date it is applied to another tax underpayment.

    2. No interest is allowed on carryback and carryover refunds if issued within 45 days of the date the claim is received by the IRS. See IRC 6611(e) and IRC 6611(f)(4)(B).

  2. The interest start date is never earlier than the due date of the return for the year in which the excess foreign taxes were generated. See IRC 6611(f)(2).

Excise Taxes

  1. Excise tax liabilities are reported on Form 720, Quarterly Federal Excise Tax Return, Form 730, Monthly Tax Return for Wagers, Form 11-C, Occupational Tax and Registration Return for Wagering, Form 2290, Heavy Highway Vehicle Use Tax Return, Form 6627, Environmental Taxes, and Form 8725, Excise Tax on Greenmail.

  2. Excise tax credits and refunds are claimed on Schedule C of Form 720, Form 8849, Claim for Refund of Excise Taxes, Form 730, Form 2290, Form 4136, Credit for Federal Tax Paid on Fuels),Form 6478, Biofuel Producer Credit, Form 8864, Biodiesel and Renewable Diesel Fuels Credit,Form 8906, Distilled Spirits Credit, and Form 8913, Credit for Federal Telephone Excise Tax Paid.

Interest on Excise Taxes

  1. Interest on the underpayment of excise tax, unless otherwise provided, is charged from the due date of the return to the date the account is full paid.

  2. Unless specifically stated otherwise, interest on the overpayment of excise tax is determined using the later of the:

    • due date of the return,

    • date the return is filed in processible form,

    • delinquent return received date, or the

    • date the tax is paid,

    to the date of the refund, less the appropriate back-off period. In the case of an offset to an outstanding liability with a future effective date, interest is paid FROM the later of the dates bulleted above TO the due date of the liability the overpayment is applied against. No interest is paid on an offset applied against unpaid liabilities due on or before the bulleted FROM dates above. See IRM 20.2.4.6, Offsets.

  3. Use the claim received date when the taxpayer is filing a claim for refund using a form with no filing requirement.

  4. For excise taxes applicable to corporate returns (e.g., fuel tax claims), the lower corporate and GATT (General Agreement on Tariffs and Trade) interest rates apply. Once the $10,000 threshold has been met for that module, then overpayment interest is computed at the GATT rate for all subsequent claims. See IRM 20.2.4.9, Special Credit Interest Rules for Corporations, for additional information, including calculation of the GATT threshold.

  5. Many excise tax adjustments are statutorily made without interest. See IRM 21.7.8, Excise Taxes.

Underpayment of "Collected" Excise Taxes

  1. Chapter 33 of the Internal Revenue Code imposes an excise tax on amounts paid for certain facilities and services. Compute interest on any underpayment of excise tax from the date the taxpayer makes the payment for the facility or service to the date the tax is paid.

    • The person paying for the facility or service is liable for the tax and is known as the "taxpayer."

    • The person receiving payment for the facility or service is known as the "collector."

  2. Compute underpayment interest to the date paid regardless of whether the taxpayer makes a delinquent payment of the tax to the collector or whether a direct assessment of the tax is made against the taxpayer by the IRS.

Interest Rules for Ultimate Vendor and Fuel Tax Claims

  1. Ultimate Vendor Claims. Claims by registered ultimate vendors of undyed diesel fuel, undyed kerosene, gasoline, aviation gasoline, and kerosene used in aviation (Form 720, Schedule C; Form 8849, Schedule 2) are paid with interest if the refund is not issued within 45 days of receipt (20 days for electronic claims) of a processible claim. No interest is paid when the 20-day or 45-day period is met. When the 20-day or 45-day interest-free period is missed, interest is generally computed from date the claim was received in processible form to the refund schedule date (less the back-off period of IRC 6611(b)(2) , for computer-generated refunds. See IRM 20.2.4.7.1.1 , Systemic Refund Dates for IMF and BMF. Electronic claims processed and issued as a systemic refund (TC 846) within 20 and 45 days of receipt must have allowable interest manually computed and entered with TC 770 because Master File cannot systemically perform the interest calculation. See IRC 6427(i)(3)(B). For UV gasoline claims, the 20 day rule only applies if UV provides certification pursuant to § 6416(a)(4)(C).

    If the claim is Then
    allowed and timely processed within 45 days (20 days for electronic claims) of the later of the claim received date or processible date, issue a manual refund without interest, no later than the 42nd day (15th day for electronic claims) after the claim received date or processible date.
    allowed but not timely processed within 45 days (20 days for electronic claims) of the later of the claim received date or processible date, interest is paid from the later of the claim received date or processible date to the refund schedule date, less the applicable back-off period for computer-generated refunds. See IRM 20.2.4.7.1.1, Systemic Refund Dates for IMF and BMF.

    Caution:

    If the claim is filed with a return, then allowable interest can’t start earlier than the return due date.

    Reminder:

    If issuing a manual refund, manually compute the interest and input with a TC 770. Otherwise, do not input a TC 770, because Master File can compute the interest.

    allowed for electronic claims that are processed and systemically issued as a refund (TC 846) within 20 to 45 days of the later of the claim received date or processible date, interest must be manually computed and paid from the later of the claim received date or processible date to the refund schedule date, less the applicable back-off period for computer-generated refunds. See IRM 20.2.4.7.1.1, Systemic Refund Dates for IMF and BMF. A manual computation is required because Master File cannot systemically perform the interest computation. TC 770 is input with the interest amount.

    Caution:

    If the claim is filed with a return, then allowable interest can’t start earlier than the return due date.

    Reminder:

    If a manual refund is issued, interest must be manually computed and entered with TC 770.

  2. Biodiesel, Alternative Fuel, and Mixture Claims. “Alcohol Fuel Mixture, Biodiesel Fuel Mixture, and Alternative Fuel Claims. IRC 6427(e)(1) and IRC 6427(e)(2) allow claims for certain fuel mixtures credits and the alternative fuel credit (Form 720, Schedule C; Form 8849, Schedule 3). These credits follow the same rules as claims by registered ultimate vendors described in paragraph (1) and in accordance with the above If and Then chart. See IRC 6427(i)(3)(B) (alcohol claims expired in 2011.)

    Note:

    Alternative fuel mixture claims after 2011 may only offset § 4081 liability. Furthermore, all of these claims expired as of December 31, 2017.

  3. For excise taxes applicable to corporate returns, the lower corporate and GATT interest rates apply. See IRM 20.2.4.9, Special Credit Interest Rules for Corporations, for additional information.

  4. Once the $10,000 GATT threshold has been met for the tax module, overpayment interest is computed at the GATT rate, including all subsequent claims. See IRM 20.2.4.9.1, GATT Credit Interest-Computations on Overpayments, for more information.

    Note:

    The correct taxable period for determining whether the $10,000 threshold has been met, is the taxable period from which the refund or credit is being made.

Special Interest Rules for Some Fuel Tax Credits
  1. Certain fuel tax credits have periodically expired and then been retroactively and/or prospectively reinstated since 2010. The most recent extender bill is the Bipartisan Budget Act of 2018, P.L. 115-123. Originally, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. 111-312, provided for a one-time claim for payment on a taxpayer's calendar year 2010 return for biodiesel mixtures, alternative fuels, and alternative fuel mixtures sold or used after December 31, 2009. The credit has since been extended for tax years 2012, 2014, 2015, and 2017.

    • The acts provide for a credit for biodiesel and renewable diesel used as fuel as well as biodiesel and renewable diesel fuel mixtures as determined under IRC 6426(c).

    • The acts also provide for a credit for alternative fuel and alternative fuel mixtures as determined under IRC 6426(d), IRC 6426(e), and IRC 6427(e).

  2. For 2017 credits:

    • The 180-day claim period for 2017 biodiesel mixtures and alternative fuel credits begins April 2, 2018, and ends September 29, 2018. Any claim that is submitted before April 2, 2018 is deemed filed on April 2, 2018. Claims are filed using Form 8849, Schedule 3.

    • All alternative fuel mixture credit claims allowed by IRC 6426(e) must be made on Form 720X, Amended Quarterly Federal Excise Tax Return.

    • See Notice 2018-21.

  3. For 2015 credits:

    • Claims for the 2015 biodiesel mixtures and alternative fuels credits must be filed between February 8, 2016 and August 8, 2016 using Form 8849, Schedule 3.

    • Claimants may offset 4081 liability with claims relating to alternative fuel mixtures on Form 720-X, Amended Quarterly Federal Excise Tax Return.

    • Refundable income tax credit claims must be filed on Form 4136

    • See Notice 2016-05.

  4. For 2014 credits:

    • Claims for the 2014 biodiesel mixtures and alternative fuels credits must be filed between February 9, 2015 and August 8, 2015 using Form 8849, Schedule 3.

    • Claimants may offset 4081 liability with claims relating to alternative fuel mixtures on Form 720-X.

    • Refundable income tax credit claims must be filed on Form 4136.

    • See Notice 2015-3.

  5. For 2012 credits:

    • Claims for the 2012 biodiesel mixtures, biodiesel, alternative fuel, and alternative fuel mixtures credits must be filed by July 1, 2013 using Form 720-X.

    • For amounts greater than the tax liability, a claim for payment of the excess is filed on Form 8849.

    • Refundable income tax credit claims must be filed on Form 4136.

    • See Notice 2013-26.

  6. For 2010 claims:

    • Claims must be filed on Form 8849 between February 2, 2011 and August 1, 2011.

    • See Notice 2011-10.

  7. For all other tax periods, normal claim processing applies.

  8. IRS has 60 days to refund these claims without paying interest. The 60-day period starts from the later of when the claim is received in processible form or the earliest date it can be considered as filed. If the 60-day period is not met, interest will be paid from the received date of the processible claim or the earliest date it can be considered as filed, whichever is later. Interest is paid using IRC 6621 overpayment rates.

    Example:

    A processible claim for 2017 credits is received February 5, 2018. IRS has until June 1, 2018 (April 2 plus 60 days) to pay the claim without interest. After that date, the taxpayer is entitled to overpayment interest from April 2, 2018 (the earliest date the claim is considered as filed).

    Caution:

    Because Master File does not calculate interest using the received date of a claim, interest must be manually computed and input with TC 770 when the interest-free period is missed.

    If the claim for 2017 credits is Then
    issued as a refund within the 60-day interest-free period that begins on the later of the:
    • received date of the claim

    • processible date of the claim, or

    • April 2, 2018

    no interest is allowed. Meet the interest-free period by issuing a manual refund no later than the 58th day after the claim received date, processible date, or April 2, 2018, whichever is later.
    not issued as a refund within the interest-free period, allow interest from the later of the claim received date, processible date, or April 2, 2018, to the refund schedule date, less the applicable back-off period for computer-generated refunds. See IRM 20.2.4.7.1.1, Systemic Refund Dates for IMF and BMF. Manually compute and input interest with TC 770.
  9. For a more detailed explanation and further instructions, please see IRM 21.7.8.4.7.3.1, Biodiesel and Alternative Fuel Incentives Claims.

Telephone Excise Tax Refund (TETR) Claims

  1. Taxpayers could request a credit or refund of the telephone excise tax on nontaxable service that was billed after February 28, 2003, and before August 1, 2006, only on their 2006 federal income tax returns. For this purpose, the 2006 income tax return meant the income tax return for calendar year 2006 or for the first taxable year including December 31, 2006. Details were covered by IRB 2006-25 1141 (Notice 2006-50) and IRB 2007-5 405 (Notice 2007-11), which amplified, clarified, and modified IRB 2006-25. The refund statute was open for six years from July 26, 2006, to July 26, 2012. Detailed instructions for the special interest rules that applied to these claims can be found in IRM 21.6.3.5.13, TETR Interest-General Information, (September 3, 2013 revision) for individual master file (IMF) tax modules and in IRM 21.7.4.4.23.4, TETR Interest, (September 6, 2013 revision) for business master file (BMF) tax modules.

    Caution:

    When a TETR refund has been issued with TETR overpayment interest, any subsequent refunds will not be allowed overpayment interest up to the amount of the original TETR overpayment interest. Subsequent refunds that are due overpayment interest will need to be manually computed.

TETR Claims Filed Prior to 2006
  1. Some taxpayers filed protective claims for TETR refunds for periods prior to the periods covered in Notice 2006-50 (taxes billed on or prior to February 28, 2003).

  2. If a claim was filed within the period of limitations and a notice of claim disallowance has not been sent, then the refund period of limitations remains open regardless of what other action may have been taken on the account. Interest will be paid on the refund from the later of: the return due date; or the payment date.

  3. If a notice of claim disallowance has been sent and more than two years have passed from the date of the notice of claim disallowance and the taxpayer has not filed a refund suit or obtained an extension of the time to file a refund suit, then the refund period has expired and the claim may not be paid. If two-year period has not expired or the taxpayer signed an extension of time to file a refund suit, the refund statute remains open. Interest will be paid from the later of:

    • The return due date; or

    • The payment date.

  4. Net rate interest netting as described in IRC 6621(d) is permitted on the overpayment interest portion of a TETR claim when submitted with Form 8913, Credit for Federal Telephone Excise Tax Paid. Normal netting methods apply when netting tax periods prior to 200612 as described in IRM 20.2.10.4.4.1 . For instructions for netting TETR interest using the ACT/DMI interest program, see IRM 20.2.14, Netting of Overpayment and Underpayment Interest.

TETR Claims Filed in 2006 and Later
  1. For periods covered by Notice 2006-50:

    1. Claims will only be allowed when filed with a Form 8913, Credit for Federal Telephone Excise Tax Paid, unless, as individuals, the safe harbor amount was claimed. This applies to claims filed before or after Notice 2006-50 was issued. Protective claims filed without Form 8913 should not be allowed for the tax periods covered in Notice 2006-50.

    2. If the procedures found in Notice 2006-50 and Notice 2007-11 have been followed, refunds will be issued with interest.

    3. If the taxpayer used the interest factors provided in the instructions for Form 8913, then the allowable interest has been covered through May 30, 2007. Additional interest will be allowed from May 30, 2007 to the current refund date, including the appropriate back-off period for systemically generated refunds (i.e., 9/13/16/20 days). See IRM 20.2.4.7.1.1, Systemic Refund Dates for IMF and BMF.

    4. The taxpayer is instructed to compute interest on lines 1 through 14 of Form 8913 to 45 days beyond the later of the return due date or the return received date. If the claim is not processed and the refund issued within 45 days of the received date, additional interest must be allowed from the date the taxpayer computed interest, to the current refund date, including the appropriate back-off period.

  2. Net rate interest netting, as described in IRC 6621(d), is permitted on the allowable interest portion of a TETR claim. For instructions for netting TETR interest using the ACT/DMI interest program, see IRM 20.2.14, Netting of Overpayment and Underpayment Interest.

    Note:

    Net rate interest netting of allowable TETR interest on IMF tax modules will not normally take place because of the interest rate equalization, after January 1, 1999, of the credit and underpayment interest rates for non-corporate taxpayers (tax motivated interest (TMT) excepted).

Computing TETR Credit Interest
  1. Under normal circumstances, the taxpayer would be required to file a Form 720 for each of the 14 TETR tax periods in order to claim the telephone excise tax refund. However, this requirement was waived and Form 8913 was developed so that taxpayers could file just one form with the 2006 income tax return to claim the credit for all 14 tax periods. Each of the 14 lines shown on Form 8913 represent a quarter for which the taxpayer is entitled to a TETR tax refund.

  2. For taxpayers subject to the corporate and GATT (General Agreement on Tariffs and Trade) interest rates, overpayment interest is computed at the corporate interest rate on the first $10,000 of each separate amount claimed for the 14 tax periods. "Each" overpayment exceeding $10,000 is subject to the GATT interest rate. Once the threshold has been met for each period, interest is computed at the GATT rate. Do not collectively aggregate the overpayments for each of the 14 tax periods shown on Form 8913 when making these overpayment interest calculations. See IRM 20.2.4.9, Special Credit Interest Rules for Corporations, for more information on computing interest using corporate and GATT interest rates. In order to properly apply the corporate and GATT rates, each of the 14 periods must be entered as separate modules in the ACT/DMI program.

  3. The taxpayer's entry on line 1, Column (d), of Form 8913 is entered to ACT/DMI as a Transaction Code (TC) 766 with a start date of 1 day prior to the interest start date as shown in the chart on Page 4 of the instructions for Form 8913. When computing interest for Form 8913 using ACT/DMI, use the dates shown in Figure 20.2.10-1.

    Note:

    ACT/DMI begins interest accruals the day after the date entered as the start date.

    Figure 20.2.10-1

    TETR Interest Start Date Chart

    Line From Form 8913 ACT/DMI Interest Start Date
    Line 1 July 31, 2003
    Line 2 October 31, 2003
    Line 3 January 31, 2004
    Line 4 April 30, 2004
    Line 5 July 31, 2004
    Line 6 October 31, 2004
    Line 7 January 31, 2005
    Line 8 April 30, 2005
    Line 9 July 31, 2005
    Line 10 October 31, 2005
    Line 11 January 31, 2006
    Line 12 April 30, 2006
    Line 13 July 31, 2006
    Line 14 October 31, 2006
TETR Instructions for an "Original" Form 8913 Claim - Corporate Taxpayers
  1. The following tables give step-by-step instructions:

  2. Step 1 - If the taxpayer is a corporation as defined in IRM 20.2.4.9(2), Special Credit Interest Rules for Corporations, and therefore subject to the lower corporate and GATT interest rates, each line of Form 8913, Credit for Federal Telephone Excise Tax Paid (lines 1-14) must be set up in ACT/DMI as a separate module.

    Using the ACT/DMI software program, interest is to be computed from the dates indicated using the chart in Figure 20.2.10-1, to 45 days beyond the original return due date or received date, whichever is later.

    Example:

    The original return was received on 03/15/2007; the interest is computed to 04/29/2007. Or, the original return was received on 09/15/2007; interest is computed to 10/30/2007. The "interest TO date" is based solely on the "original" return received date, not the received date of the amended return.

    Use the "Description" box in the "Edit Existing Module" screen to differentiate each individual line. For example, for line 1, enter "Form 8913 line 01" .  
  3. Step 2:

    • Add TC 766 for line 1 of Form 8913 into the first module using the amount the taxpayer entered on line 1, Column (d).

    • Compute interest to 45 days beyond the original return due date or received date, whichever is later.

    • Repeat step 1, IRM 20.2.10.4.4.4(1), and IRM 20.2.10.4.4.4(2), for each of the 14 lines on Form 8913.

    Note:

    Because each line is a separate computation, it may be helpful to use a blank Form 8913 and fill in the computed interest amounts in Column (e). This will simplify the actions to be taken in Step 3.

  4. Step 4:

    • Accept the figures in Column (d) and the total on line 15.

    • Using the interest amounts computed on ACT/DMI and input in Column (e), enter the total interest amount on line 15 of Form 8913

    Note:

    ACT/DMI will total the interest amount by using the Multi-Module screen. Click on the Multi-Module tab, highlight and select the modules of all 14 lines. Enter the date to be computed to as determined in step 1, and click on Process. Click on Reports in the Analysis Reports screen (top left hand box), select the 020 Report and View or Print (as applicable). The total amounts for all 14 lines can be found at the bottom of the last page.

  5. Step 4 - For an Original claim:

    • Line 15, Column (d) is the credit reference number (CRN) 253 amount for the adjustment and will be entered with the due date of the return as the transaction date.

    • Line 15 Column (e) is the CRN 254 interest amount for the adjustment and will also be entered with the due date of the return.

    Note:

    It is important to post the credit with the due date (not the current 23C Date) in order for these credits to be available to pay tax as of the due date, or if overpaid, to accrue additional interest from the date interest was computed to in steps 1 and 2. Use of CRN 253 and 254 will allow the adjustment to post with the return due date.

  6. Step 5 Create a separate module on ACT/DMI for the 2006 tax period:

    • Enter the entire module and include the TC 766 total amount and the TC 770 total amount computed from the Form 8913, entering these transactions into ACT/DMI with the due date of the return.

    • Enter the ACT/DMI credit suspension (TC 1011) for the total amount of the TC 766 and TC 770. Suspend from the due date of the return, to the date interest was computed in steps 1 and 2 (i.e., 45 days after original return received date). The overpayment interest amount (TC 770) will now be considered a credit as of the due date of the return but will only accrue additional overpayment interest beginning on the date interest was computed to in step 1.

    • Remove the "O" from the "Excl" column of ACT/DMI "Update Modules" screen on the TC 770 entry. It will not be included in the total amount of overpayment interest shown in the ACT/DMI 490 Report.

    • Compute interest to the current 23C Date, minus the appropriate back-off days.

    Note:

    Do not use TC 1011 if the original TETR overpayment interest was offset or applied as a credit elect, because it will erroneously suspend the overpayment interest twice.

  7. Step 6 - Once the total amounts have been determined:

    • Input the adjustment with the TC 766 amount as CRN 253 and the TC 770 amount as CRN 254 computed to 45 days beyond the original return due date or received date, whichever is later. Using CRN 253 and CRN 254 will allow the TC 766 and TC 770 to post with the due date of the return

    • Use TC 770 (NOT CRN 254) for the additional overpayment interest which accrued from 45 days beyond the due date or original return received date, to the 23C Date, minus the appropriate back-off days. This TC 770 will post with the 23C Date.

TETR Instructions for an Additional Form 8913 Claim - Corporate Taxpayers
  1. Step 1: See IRM 20.2.10.4.4.4(1).

  2. Step 2: Add TC 766 for line 1 of Form 8913

    • For an additionalForm 8913, also enter a separate TC 766 for the original Form 8913, line 1, Column (d) amount. The date of the TC 766 will be the corresponding date found in the chart in Exhibit 20.2.10-1 above. The two forms must be entered into one module because the taxpayer is entitled to the $10,000 threshold only once for each line.

    • Compute interest to 45 days beyond the original return due date or received date, whichever is later.

    • Repeat step 1, IRM 20.2.10.4.4.4(1) and step 2, IRM 20.2.10.4.4.4(2) for each of the 14 lines on Form 8913.

    Note:

    Because each line is a separate computation, it may be helpful to use a blank Form 8913 and fill in the computed interest amounts in Column (e). This will simplify the actions to be taken in step 3.

  3. Step 3:

    • Accept the figures in Column (d) and the total on line 15.

    • Use the interest amounts computed on ACT/DMI, which includes both the original and additional forms and enter in Column (e). Then add the total interest amount for line 15 of Form 8913

    Note:

    ACT/DMI will total the interest amount by using the Multi-Module screen. Click on the "Multi-Module" tab, highlight and select the modules of all 14 lines. Enter the date to be computed to as determined in step 1, and click on "Process" Click on "Reports." In the Analysis Reports screen top left hand box, select the 020 Report, then select View or Print. The total amounts for all 14 lines can be found at the bottom of the last page.

  4. Step 4 - For an "Additional" claim:

    • The amount on line 15, Column (d) is the CRN 253 amount of the adjustment and will be entered with the due date of the return.

    • Take the amount of overpayment interest shown on line 15 Column (e) and subtract the amount of the TC 770 CRN 254 previously posted with the original TC 766. This reduced figure is the amount of the CRN 254 that will be input along with your CRN 253 adjustment.

    Note:

    It is important to post both transactions with the due date (not current 23C Date) in order for these credits to be available to pay tax as of the due date, or if overpaid, to accrue additional overpayment interest from the date interest was computed to in steps 1 and 2. Use of CRN 253 and 254 will allow the adjustment to post with the return due date.

  5. Step 5: See IRM 20.2.10.4.4.4(5).

  6. Step 6: See IRM 20.2.10.4.4.4(6).

  7. Remember that additional overpayment interest is allowed from 45 days beyond the due date or original return received date, to the 23C Date, minus the appropriate back-off days. Use TC 770 (NOT CRN 254). This TC 770 will post with the 23C Date.

TETR Instructions for an "Amended" Form 8913 Claim - Corporate Taxpayers
  1. Step 1: See IRM 20.2.10.4.4.4(1).

  2. Step 2:

    • Add TC 766 for line 1 of Form 8913 into the first module using the amount the taxpayer entered on line 1, Column (d).

    • Compute interest to 45 days beyond the original return due date or received date, whichever is later.

    • Repeat step 1, IRM 20.2.10.4.4.4(1) and step 2, IRM 20.2.10.4.4.4(2) for each of the 14 lines on Form 8913

    Note:

    Because each line is a separate computation, it may be helpful to use a blank Form 8913 and fill in the computed interest amounts in Column (e). This will simplify the actions to be taken in step 3.

  3. Step 3:

    • Repeat step 1, IRM 20.2.10.4.4.4 (1) and step 2, IRM 20.2.10.4.4.4 (2) for each of the 14 lines on Form 8913.

    • Use the interest amounts computed on ACT/DMI, which includes both the original and additional forms and enter in Column (e). Then add the total interest amount from line 15 of Form 8913

    Note:

    ACT/DMI will total the interest amount by using the Multi-Module screen. Click on the Multi-Module tab, highlight and select the modules of all 14 lines. Enter the date to be computed TO as determined in step 1, and click on Process. Click on Reports. In the Analysis Reports screen top left hand box, select the 020 Report, then select View or Print. The total amounts for all 14 lines can be found at the bottom of the last page.

  4. Step 4 - For an "Amended" claim:

    • The amount on line 15, Column (d) must be reduced by the amount previously allowed as a TC 766 CRN 253 on the taxpayer's account. The difference is the new CRN 253 amount of the adjustment and will be entered with the due date of the return.

    • Take the amount of overpayment interest shown on line 15 Column (e) and subtract the amount of the TC 770 CRN 254 previously posted with the original TC 766. This reduced figure is the amount of the CRN 254 that will be input along with your CRN 253 adjustment.

    Note:

    It is important to post both transactions with the due date (not current 23C Date) in order for these credits to be available to pay tax as of the due date, or if overpaid, to accrue additional overpayment interest from the date interest was computed to in steps 1 and 2. Use of CRN 253 and 254 will allow the adjustment to post with the return due date.

  5. Step 5: See IRM 20.2.10.4.4.4(5).

  6. Step 6: See IRM 20.2.10.4.4.4(6).

TETR Instructions for Non-Corporate Taxpayers
  1. If the taxpayer is not a "corporation" as defined in IRM 20.2.4.9(2) and can use the non-corporate interest rates, the Form 8913 and the rest of the 2006 tax account can all be computed on one ACT/DMI module. The amounts from Form 8913, Column (d) will be input with the dates shown in the chart found in Figure 20.2.10-1. The "Interest-to-Date" will be the normal 23C Date, minus any applicable back-off days.

Payments Related to Certain Retailers and Manufacturers Excise Taxes

  1. IRC 6416(b) identifies certain payments as overpayments subject to credit or refund without interest (Form 720, Schedule C, Form 8849, Schedule 6); price adjustments; specified uses and resales; tax-paid articles for further manufacture; tires; return of certain installment accounts; and truck chassis, bodies, and semitrailers used for further manufacturing. These overpayments are refunded without interest.

Gasoline Used in Farming

  1. IRC 6420 provides for a payment (without interest) to the ultimate purchaser of gasoline, if the gasoline is used on a farm for farming purposes and the ultimate purchaser is an owner, tenant, or operator of a farm. The farm must be located in the U.S.

  2. Annual excise tax claims are made on Form 8849, Schedule 6. The overpayment may be refunded or taken as an income tax credit as provided for in IRC 6420(g). Overpayment interest is not allowed for either the refund or the credit.

    Note:

    An annual income tax claim is filed on Form 4136, Credit for Federal Tax Paid on Fuels

    .

Fuels Not Used for Taxable Purposes (Form 8849 and Ultimate Purchaser)

  1. IRC 6421 provides for a payment (without interest) if gasoline is used in an off highway business use; in inter-city, local or school buses; or sold to any person for an exempt purpose. IRC 6427 provides for a payment (without interest) if a tax has been imposed on the sale of fuel and the purchaser uses the fuel for a nontaxable purpose or resells the fuel. Claims are made on Form 720, Schedule C, Form 720-X, or Form 8849, Schedule 1. Depending on the type of taxpayer, the overpayment may be refunded or taken as an income tax credit as provided for in IRC 6421(i).IRC 6427 (k) .

  2. Overpayment interest is not allowed on either type of credit.

  3. If the claim amount needs to be offset for a balance due on another module, the credit transfer date will be the received date of the claim.

Laid-off Wagers

  1. IRC 6419(b) identifies as an overpayment the tax on a wager that is laid off by the taxpayer (Form 8849, Schedule 6, or Form 730, line 5). These overpayments are refunded without interest.

Vaccines

  1. IRC 4132(b) identifies as an overpayment any tax on a vaccine that is returned to the manufacturer or destroyed (Form 720, Schedule C, or Form 8849, Schedule 6). The tax shall be abated, credited or refunded without interest.

Heavy Highway Vehicles

  1. IRC 4483(d) identifies as an overpayment tax paid on the use of heavy highway vehicles when the vehicle is used for 5,000 miles or less (7,500 for agricultural vehicles) (Form 2290, Line 5). The credit or refund of the tax is made without interest.

2011 Form 2290 Extended Return Due Date
  1. Treasury Decision 9537 provided final and temporary regulations that changed the due date for filing Form 2290 for tax periods July 1, 2011, August 1, 2011, and September 1, 2011 to November 30, 2011. The original due dates are August 31, September 30, and October 31, 2011, respectively.

  2. Interest accrued on any unpaid amounts for the above noted tax periods on December 1, 2011.

  3. Returns for the above stated tax periods were not processed by the IRS prior to November 1, 2011.

Chemicals

  1. “IRC 4662(d) identifies as an overpayment any tax paid on a taxable chemical that is used in the manufacture or production of any other substance that is a taxable chemical , and, in some cases, used as (or used in the manufacture of) qualified fuel, fertilizer, or animal feed. IRC 4662(e) exempts from the tax the export of taxable chemicals. The credit or refund of the tax is made without interest. The tax imposed by IRC 4661(a) expired after December 31, 1995.”

  2. IRC 4682 identifies as an overpayment any tax paid on an ozone-depleting chemical that is under certain conditions, diverted or recovered as part of as part of a recycling process, used in further manufacturing, used as a feedstock, exported, or used as a propellant in a metered-dose inhaler (Form 720, Schedule C, or Form 8849, Schedule 6). The credit or refund of the tax is made without interest.

Tax on Removal of a Taxable Fuel

  1. IRC 4081 imposes a tax on removal, entry, or sale of certain types of fuel. Underpayment interest is computed from the return due date (RDD) on any second tax assessed to the account.

  2. IRC 4081(e) provides for a refund of those taxes in certain cases. Claims for refund made under this Code section must be filed on Form 8849, Schedule 5. See IRM 21.7.8.4.5.5, Form 8849 Schedule 5, IRC Section 4081(e) Claims, for processing procedures.

    1. The credit availability date for credits allowed under IRC 4081(e) is the due date of the return. These credits are posted to Master File as a TC 766 (input with the appropriate credit reference number) using the return due date and are refunded without interest.

    2. In the event any second tax is paid with subsequent payments (made after the RDD), those payments may be refunded with interest. Because the latest credits on the module are refunded first, the subsequent payments would be refunded before the IRC 4081(e) (TC 766) credit.

Employment Taxes

  1. If a correction is necessary to the amount of tax originally reported and paid for employment taxes imposed by the Internal Revenue Code (IRC) sections referenced below, a tax adjustment can be made using interest-free procedures.

    • IRC 3101 - Federal Insurance Contribution Act (FICA) tax on employees

    • IRC 3111 - FICA tax on employers

    • IRC 3201 - Railroad Retirement Tax Act (RRTA) tax on employees

    • IRC 3221 - RRTA tax on employers

    • IRC 3402 - Income tax collected at source

  2. Generally, overpayments of these taxes are adjusted without interest under IRC 6413(a) and underpayments are adjusted without interest under IRC 6205(a).

  3. In some circumstances, interest on an overpayment or underpayment of employment taxes will accrue:

    1. If a taxpayer does not qualify for an overpayment adjustment or an underpayment adjustment under IRC 6413(a) or IRC 6205, respectively.

    2. If a taxpayer qualifies for an underpayment adjustment but fails to timely pay the amount due (IRC 6205).

    3. If, in lieu of a request for an overpayment adjustment, a taxpayer files a claim for credit or refund for overpayment of employment taxes under IRC 6402 or IRC 6414.

  4. Per Treas. Reg. 31.6205-1(b)(2)(i), if a taxpayer discovers an error in the amount of employment taxes that should have been paid, he may qualify to pay that additional tax without being charged underpayment interest. To qualify for an interest-free adjustment, the corrected return must be filed by the due date of the return for the period when the error was discovered (ascertained). However, the tax must be paid when the corrected return is filed in order to qualify for the interest-free adjustment.

    Example:

    On August 12, 2015, an employer discovers (ascertains) that he has reported and paid less FICA tax than was due on his original Form 941, Employer's QUARTERLY Federal Tax Return for the 201503 tax period, and submits a payment of $10,000 on August 24, 2015 for what he anticipates the additional tax liability to be. For the period in which the error was discovered, the Form 941 due date is October 31, 2015. To qualify for an interest free tax adjustment under IRC 6205, the taxpayer files Form 941-X, Adjusted Employer's QUARTERLY Federal Tax Return or Claim for Refund, on October 5, 2015 to correct the error which is before the due date of the tax return for the period in which the error was discovered. The assessment of additional FICA tax totaling $10,000 carries an effective date (liability date) of October 5, 2015. Overpayment interest is not allowed to accrue on the $10,000 payment from its availability date of August 24, 2015 to the assessment date of October 5, 2015.

    Example:

    The facts are the same as in Example 1, except payment of $8,000 is sent on October 5, 2015. The remaining $2,000 needed to fully pay the liability is paid on May 2, 2016. The underpayment nterest-free period only applies to the $8,000 payment. The additional unpaid liability of $2,000 is charged underpayment interest from October 5, 2015 to May 2, 2016 and the employer is sent a notice for the additional penalties and interest due.

  5. If either credit or underpayment interest applies, then follow normal interest rules. For a claim entitled to overpayment interest, see IRM 20.2.4.6.5, Applying Overpayments as Credits to Liabilities for the Same Tax Period. For underpayment interest, see IRM 20.2.5, Interest on Underpayments.

Underpayment Adjustments on Employment Taxes

  1. An employer who has underreported and/or underpaid FICA tax, RRTA tax or income tax withholding, must correct the error on the form that corresponds to the return being corrected (e.g., if the original return filed was a Form 941, corrections are reported on Form 941-X). See Exhibit 20.2.10-1 , Which Form to File. The adjusted return on which the correction is shown must provide:

    • A detailed explanation of the correction

    • The date the error was ascertained

    • The return period being corrected, and

    • Other information as explained in the regulations or instructions relating to the adjusted return.

  2. An error is ascertained when the employer has sufficient knowledge of the error to be able to correct it. See Treas. Reg. 31.6205-1(a)(4).

  3. If all of the above information is provided and the adjustment is reported by the due date of the return for the return period in which the error is discovered (ascertained), input the adjustment with the appropriate blocking series, using a Transaction Code (TC) 298 or 308 and an interest computation date (INT-CMPTN-DT) equal to the received date of the adjusted return. If the underpayment is paid in full by the time the adjusted return is received ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , no interest is due. If the underpayment is not paid in full by the time the adjusted return is received ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , interest will be computed from the interest computation date and the failure to deposit (FTD) may apply. See IRM 20.1.4.21.5(7), Adjusted Returns (Forms 941-X, 943-X, 945-X, and CT-1X). ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Example:

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

  4. When an adjusted return is not received by the due date for filing the return for the return period in which the employer discovered the error, the adjustment is not considered to have been timely reported. In this instance, interest is due on the underpayment from the due date (without regard to an extension of time for filing) of the original return for the period in which the error occurred.

  5. Once the following notices have been sent out to the taxpayer, any additional underpayment adjustments are not eligible for an interest-free period after the earlier of the following:

    1. Receipt of notice and demand for payment based on an assessment.

    2. Receipt of Letter 3523, Notice of Employment Tax Determination Under IRC Section 7436 (Notice of Determination). See IRM 8.7.16.25, Explanation of IRC 7436 Notices of Determination of Worker Classification, for petitioned cases.

    The amount must then be paid with normal interest as described in IRC 6601. See Treas. Reg. 31.6205-1(a)(6).

    Note:

    The interest-free provisions of IRC 6205 and IRC 6413(a) do not apply to Federal Unemployment Tax Act (FUTA) returns.

  6. These same rules apply to adjustments made by IRS. If it is determined that the taxpayer is eligible for the interest-free provisions of IRC 6205(a)(2), then Form 3198, Special Handling Notice for Examination Case Processing, needs to be marked. TC 308 will be input using the agreement date as the interest computation date on the closing document. If the taxpayer full pays with the agreement, then there will be no additional interest due. See IRM 4.23.8.3, Interest-Free Adjustments- In General. Otherwise, interest will start on the agreement date for the unpaid amount until full paid. Failure to deposit penalty may also apply.

  7. An underpayment interest suspension period based on IRC 6601(c), also known as an "870 waiver," does not apply to employment tax returns, including Schedule H. To prevent an erroneous interest suspension, an agreement date should not be entered on the closing document or Form 2859, Request for Quick or Prompt Assessment.

Combined Annual Wage Reporting (CAWR) Assessments

  1. Combined annual wage reporting (CAWR) proposed assessments may result in an interest-free adjustment for FICA tax reported on Form 941.

    1. If the taxpayer agrees with the proposed CAWR increase (whether or not an adjusted return was filed or a payment was made), the adjustment is interest-free if the discrepancy is in income tax withholding, FICA tax, or RRTA tax. Input the adjustment with the appropriate blocking series and a TC 298 or TC 308, using as the interest computation date the received date of the CAWR agreement.

      Note:

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

    2. If the taxpayer does not pay the entire balance at the time of agreement ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ to the CAWR tax increase, interest on the unpaid balance will be computed from the date of agreement ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . Failure to deposit penalty may apply. Whenever tax adjustments are made and a manual computation of interest is required, ensure corresponding adjustments to penalties and interest are made. See IRM 20.2.10.5.1 .

  2. After receipt of notice and demand for payment based on a CAWR assessment, no interest-free adjustment of such tax can be made by filing an adjusted return or by agreeing to the assessment by signing Form 2504, Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment.

  3. For complete instructions on the input of CAWR assessments, see IRM 4.19.4, CAWR Reconciliation Balancing.

Household Employment Taxes

  1. The interest-free provisions for adjustments on BMF employment taxes also cover errors of household employment taxes reported on IMF Form 1040 Schedule H, Household Employment Taxes. If an employer discovers an error on a Form 1040 Schedule H that was filed with Form 1040, U.S. Individual Income Tax Return, Form 1040-NR, U.S. Nonresident Alien Income Tax Return, or Form 1040-SS, U.S. Self-Employment Tax Return, the employer will file a Form 1040X, Amended U.S. Individual Income Tax Return, and attach a corrected Form 1040 Schedule H. If an employer discovers an error on a Form 1040 Schedule H that was filed with Form 1041, U.S. Income Tax Return for Estates and Trusts, the employer will file an amendedForm 1041 and attach a corrected Form 1040 Schedule H. If an employer discovers an error on a Form 1040 Schedule H that was filed as a stand-alone return, the employer will file another stand-alone Form 1040 Schedule H with the corrected information. See IRM 21.6.4.4.8, Schedule H, Household Employment Taxes, for more information.

    Note:

    The interest-free provisions of IRC 6205 and IRC 6413(a) do not apply to FUTA taxes.

  2. Underpayment adjustments are interest-free if reported by the due date of the return for the return period in which the error was discovered and payment is made by the time the adjusted return is received ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    Exception:

    If withheld income tax is involved, see IRM 20.2.10.5.5 .

  3. If the corrected Form 1040 Schedule H is filed by the due date of the return for the period in which the error was discovered, but payment is not made by the time the corrected Form 1040 Schedule H is received ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , interest is computed from the received date ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ of the corrected Form 1040 Schedule H. See IRM 20.2.10.5.5.1 .

  4. Employment tax regulations effective January 1, 2009, require payment of employment tax increases (including Form 1040 Schedule H) for income tax withheld and social security and Medicare taxes at the time the adjusted return or Form 1040 Schedule H is filed (FUTA taxes are not affected). ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    Instructions for Form 1040 Schedule H state that the tax must be paid when the taxpayer files the corrected Form 1040 Schedule H.

Underpayments of Federal Insurance Contributions Act (FICA) and Railroad Retirement Tax Act (RRTA)

  1. If the employer discovers the error before the return is filed, the employer has to report and pay the correct amount of tax with the return. THIS IS NOT AN ADJUSTMENT. If the employer does not report and pay the correct amount by the due date of the return, the error cannot later be corrected through an interest-free adjustment. Interest is computed from the normal due date (without regard to an extension of time for filing) of the original return for the tax period in which the error occurred.

  2. If the employer discovers the error after the return is filed, the error can be corrected by reporting the additional amount due on an adjusted return for the period in which the error occurred. The adjusted return is made on the form that corresponds to the return being corrected. See Exhibit 20.2.10-1 .

    1. The adjusted return must be filed by the due date for filing the return for the return period in which the error was discovered and within the statute of limitations as per IRC 6501 for the return period being corrected.

    2. If full payment is made with the timely filed adjusted return, then no underpayment interest is due. See Treas. Reg. 31.6205-1(b)(2). The underpayment can be paid using the Electronic Federal Tax Payment System (EFTPS) or by sending a check with the adjusted return. Credit card payments will be accepted for certain adjusted returns (e.g., Form 941-X, Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund).

  3. If the adjusted return is filed timely (by the due date for filing the return for the return period in which the employer discovered the error), but payment is not made at the time of filing ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , interest is computed on any unpaid amount from the received date≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ of the adjusted return until paid in full. Plus, the failure to deposit penalty may apply when payments are not made timely. If the correct interest computation date (INT-CMPTN-DT) is used with TC 298 or TC 308, Master File will correctly compute the interest unless underpayment interest on the module otherwise requires restriction. The interest computation date is the received date of the adjusted return for the period in which the error occurred. See IRM 20.2.10.5.1 .

    Note:

    The interest-free provision of IRC 6205does not apply to penalties. Interest on any penalties is due and will start from the return due date, extended return due date, or assessment date, whichever is applicable.

  4. If the adjusted return is not filed by the due date for filing the return for the return period in which the error was discovered, interest is due on the underpayment from the due date of the original return for the period in which the error occurred.

    Example:

    The taxpayer submitted a Form 941-X reporting an increase to FICA taxes for the tax period ending March 31, 2015. He indicated that the errors were "discovered" on September 20, 2016 (during the 3rd quarter of 2016). His Form 941-X was filed on November 30, 2016. Because the return was not filed by the due date for filing the return for the return period in which the error was discovered (i.e., October 31, 2016), interest is computed from April 30, 2015, the due date of the original return. The adjustment will be input with a TC 290 or TC 300 and the interest doesn’t need to be restricted unless other conditions warrant it.

  5. Generally, the correction of an error may be made under the above procedures during an audit of the return, provided the employer corrects the error before notice and demand or Letter 3523 is issued. See Treas. Reg. 31.6205-1(a)(6).

    1. Interest-free adjustments will not be allowed in cases in which the taxpayer's returns for prior years were audited and additional tax was found to be due with respect to the same issue involved in the current audit.

    2. Interest-free adjustments will not be allowed in cases in which the taxpayer knowingly under reports an employment tax liability in subsequent years.

    Interest will be assessed on such adjustments in accordance with IRC 6601.

    Note:

    Unless otherwise excepted, Form 2504, Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment (Employment Tax Adjustments Not Subject to IRC 7436), Form 2504-T, Agreement to Assessment and Collection of Additional Employment Tax and Acceptance of Overassessment (Employment Tax Adjustments Subject to IRC 7436) , and Form 2504-S, Agreement to Assessment and Collection of Additional Tax and Acceptance of Additional Tax and Acceptance of Overassessment (Employment Tax Adjustments Subject to IRC 7436; Worker Classification or Section 530 issues Not Addressed in this Exam) and such other forms as may be required, are considered to be adjusted returns for purposes of an interest-free adjustment

    . See Treas. Reg. 31.6205-1(a)(7).

  6. Corrections on a return prepared under IRC 6020(b) do not typically qualify for an interest-free adjustment. Interest on this type of return is computed from the due date of the original return. IRC 6020(b) gives the IRS the authority to file a tax return for a business when it does not file a required return.

    Exception:

    Interest-free adjustments can apply to IRC 6020(b) modules if the taxpayer signs the prepared IRC 6020(b) return or signs an agreement (such as Form 2504) and files a return. See IRM 4.4.9, Delinquent and Substitute for Return Processing.

  7. An original return that was previously not filed may qualify for the interest-free provisions of IRC 6205 if:

    • An employer erroneously filed a return reporting FICA tax, but was instead required to file a return reporting RRTA tax.

    • An employer erroneously filed a return reporting RRTA tax, but was instead required to file a return reporting FICA tax, or

    • A return was not filed because of failure to treat any individual(s) as an employee(s).

    See Treas. Reg. 31.6205-1(b)(2)(ii) and (iii).

  8. Rev. Rul. 99-40 (i.e., May/Sequa), as it relates to credit elects to determine interest start dates of unpaid installments or deposits, does not apply to employment taxes. See IRM 20.2.5.7, Revenue Ruling 99-40 (Modifies and Supersedes Revenue-Ruling 88-98) Use of Money, for more information on Rev. Rul. 99-40. However, it does apply to refunds without interest because the IRS had the use of the taxpayer’s money. This includes, but is not limited to, Form 941, Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees, Form 944, Employer’s ANNUAL Federal Tax Return, and Form 945, Annual Return of Withheld Federal Income Tax.

    Reminder:

    Under IRC 6601(a) interest on an underpayment can only be charged when the tax is both due and unpaid.

Underpayments of Income Tax Withheld from Wages

  1. If no income tax or less than the correct amount of income tax is withheld and the error is discovered before the return is filed for the period in which the wages were paid, the employer shall report and pay the correct amount of tax required to be withheld on the return. THIS IS NOT AN ADJUSTMENT. If the employer does not report and pay the correct amount of tax by the time the return is filed, he cannot later correct the error through an interest-free adjustment. Interest is computed from the due date of the original return for the period in which the error occurred.

    Example:

    Prior to filling out his Form 941 for the period ending June 30, 2015, an employer realizes that he should have withheld federal income tax on certain taxable fringe benefits. Since the employer discovered the error prior to filing his Form 941, the employer must report and pay the correct amount of tax on his second quarter Form 941 due July 31, 2015. This is NOT an adjustment.

  2. If the under withholding of income tax is discovered after the return has been filed, the error can be corrected by reporting the additional amount due on an adjusted return (e.g., Form 941-X), for the return period in which the wages were paid. The adjusted return is eligible for interest-free treatment if:

    • The adjusted return is filed by the due date for filing the return for the return period in which the error is discovered, and

    • The error is discovered within the same calendar year that the wages were paid.

      Note:

      Income tax withholding cannot be corrected for prior year returns unless it involves an administrative error, IRC 3509 applies, or the adjustment is reported on Form 2504 or Form 2504-T. See IRM 20.2.10.5.5 (3)(b)and IRM 20.2.10.5.5.1 below.

  3. If the employer discovers an error resulting in an underpayment of income tax withheld in the same calendar year in which the wages or compensation was paid, reports the underpayment by the due date of the return for the quarter in which the error is discovered, and all required tax is paid by the time the adjusted return is received ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , NO INTEREST IS DUE on the underpayment. See Treas. Reg. 31.6205-1(c)(2).

    Example:

    The taxpayer submitted a Form 941-X reporting increases of both FICA tax and income tax withholding for the 1st quarter 2010. He indicated the error was "discovered" on November 5, 2010, (during the 4th quarter of 2010). His Form 941-X and his payment of tax were received December 22, 2010. Since the additional tax was reported by the 4th quarter due date of January 31, 2011, the entire additional tax is assessed on the 1st quarter tax module with Blocking Series 20X and TC 298 or Blocking Series 47X and TC 308 with December 22, 2010 entered in the Interest Computation Date (INT-CMPTN-DT) field. NO DEBIT INTEREST IS DUE because the tax was paid by December 22, 2010 (≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ the received date of Form 941-X).

    1. If the underpayment is reported timely (by the due date of the return for the period in which the error was "discovered" ), but the amount of tax due on the return is not paid by the time of filing ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , interest is computed from the received date of the adjusted return ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . Plus, failure to deposit penalty may apply.

      Example:

      The same underpayment occurs as in the example above. The Form 941-X reporting the underpayment was filed on December 22, 2010, but the additional tax was not paid. Interest is computed from December 22, 2010, the received date of the adjusted return ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . The entire additional tax is assessed on the 1st quarter tax module with the appropriate blocking series, TC 298 or TC 308 and December 22, 2010 is entered in the INT-CMPTN-DT field.

    2. If an underpayment of income tax withholding is not reported on an adjusted return by the due date of the return for the period in which the error was discovered, interest is computed from the due date of the original return for the quarter in which the wages were paid.

      Example:

      An underpayment of income tax withholding occurs for the first quarter of 2015. It was discovered May 5, 2015 but the underpayment is not reported and paid until August 14, 2015. Because it was not reported by the due date of the 2nd quarter (July 31, 2015), interest is computed from the due date of the 1st quarter, April 30, 2015. The entire additional tax is assessed with a TC 290 on the 1st quarter tax module. No interest restriction is necessary unless the module was previously restricted or otherwise requires restriction.

    The adjustment is made on the form that corresponds to the return being corrected. See Exhibit 20.2.10-1.

    Note:

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

Underpayments of Federal Income Tax Due to an Administrative Error
  1. If a taxpayer reported less federal income tax withholding on a return than was actually withheld, he may correct the error as an interest-free adjustment under IRC 6205. This applies to errors found on returns for the current calendar year as well as to errors found on returns for prior calendar years. This is known as a correction of an administrative error. The rules for qualifying for an interest-free adjustment are the same as for correcting underpayments of FICA tax and RRTA tax. See IRM 20.2.10.5.4 .

    Example:

    An employer withheld income tax of $7,500.00 from employee wages and reported the $7,500.00 figure on the employees' Form W-2, "Wage and Tax Statement" . However, due to an error in addition, the employer reported $7,900.00 in withholding on its Form 941 for the year. The employer files a Form 941-X seeking a refund of $400.00. This situation would constitute an administrative error.

    Example:

    An employer withheld income tax of $3,600.00 from employee wages and reported the $3,600.00 on the employees' Form W-2 However, due to a transposition error, the employer reported $6,300.00 in withholding on itsForm 941 for the year. The employer files a Form 941-X seeking a tax abatement of $2,700.00. This situation would constitute an administrative error.

Income Tax Over Withheld
  1. If an employer discovers that income tax was over withheld from an employee's wages and paid to IRS, the employer may correct the error by making an adjustment to correct the overpayment if the error was discovered in the same calendar year in which the wages were paid. The employer must repay or reimburse the employee for the over collection in any subsequent quarter during the same calendar year.

    If Then
    repaid, the employer must obtain and keep, as part of his records, a receipt from the employee. See Treas. Reg. 31.6413(a)-1(b)(1)(i).
    not repaid the employer can reimburse the employee by applying the over collection against subsequent tax required to be withheld from wages paid during the same calendar year in which the over collection occurred.

    Once the employer repays or reimburses the employee for the over collection, the employer may adjust,without interest, the over collection on an adjusted return for the quarter in the calendar year in which the over collection occurred. The amount of the adjustment will be applied without interest to the current quarter or current yearly return as applicable. Since interest is not allowable, input a TC 770 with a zero amount, when needed.

    Note:

    Adjustment of income tax withholding is applicable only if the employer has repaid or reimbursed the employee during the same calendar year in which the wages were paid or if the adjustment is made to correct an administrative error (i.e., the amount reported on the prior return was not actually withheld from the employees' wages).

  2. The adjustment is made on the form that corresponds to the return being corrected. See Exhibit 20.2.10-1. No refund to the employer is allowed under IRC 6414 for the amount of any overpayment of income tax which the employer withheld from an employee.

  3. If the amount reported on the prior year return was more than the amount actually withheld from the employee's wages, an employer may file a claim for refund with interest, instead of amending the return for the return period in which the error was made.

  4. The claim for refund is made on the form that corresponds to the return being corrected. See Exhibit 20.2.10-1.

  5. The regulations under IRC 6413 provide a 90-day rule under which an overpayment adjustment is not permitted if the adjusted return would be filed within 90 days of the expiration of the period of limitations. See Treas. Reg. 31.6413(a)-2(d)(2).

Interest on Income Tax Withholding Assessments Abated under IRC 3402(d)
  1. When an employer fails to withhold income tax from employees' wages, he or she is liable for payment of the tax required to be withheld, unless the employer can show that the tax not withheld has been paid by the employee. See IRC 3402(d).

  2. The employer is liable for interest and any penalties due for failure to withhold and pay over the tax, even if the tax was paid by the employee. Underpayment interest runs from the due date of the return for the period for which the employer failed to withhold to the earlier of the date of payment by the employer or employee. Underpayment interest can only be charged if the tax is due and unpaid. The date the tax liability is paid is the correct end date for interest. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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  4. When the tax liability has been paid, Form 4669 is filed in order to reduce any previous underpayment interest. Use TC 299 or TC 309 with the overpayment interest start date (INT-CMPTN-DT), rather than restricting the module, unless it is already restricted. Exam cases should annotate Form 3198, Special Handling Notice for Examination Case Processing, indicating which start date to use. This will be the date the tax liability was fully paid.

    Example:

    An employee pays the tax liability on April 15, 2015 for his 2014 return. The employer files Form 4669, Statement of Payments Received, stating that the required tax has now been paid. The employer is only liable from the due date of the Form 941 on January 31, 2015 until the tax payment date of April 15, 2015. Therefore, a TC 299 or TC 309 will be input using April 15, 2015. Master File will only charge underpayment interest from February 1, 2015 until April 15, 2015.

  5. On all amounts not subject to IRC 3402(d) abatement, interest is computed from the due date of the return until the date of assessment or payment, whichever is earlier. Interest continues until the liability is fully paid.

  6. The above procedures apply only if the adjustment doesn't qualify for interest-free treatment under IRC 6205. If the adjustment does meet the requirements of IRC 6205, then no interest is charged.

  7. See IRM 8.7.16, Appeals Employment Tax Procedures, for additional information.

Form 941-M, Employer's Monthly Federal Tax Return
  1. For periods beginning after December 31, 2011, Form 941-M , Employer's MONTHLY Federal Tax Return, is no longer accepted due to the electronic filing requirement for deposits.

  2. Form 941-M was developed for those taxpayers having difficulty filing quarterly returns. Although the forms had a monthly filing requirement, the actual due date for an employment tax return is quarterly. Manually computing and restricting interest was unnecessary, since all three months in a quarter were usually held and submitted with a dummy Form 941. Form 941-M could not be submitted for processing by itself.

Overpayments of FICA and RRTA Taxes

  1. If the over collection and overpayment is discovered after the return is filed, the employer (after repaying or reimbursing the employee) may correct the overpayment of both the employer and the employee's share of the FICA tax or RRTA tax by filing an adjusted return for the period in which the error occurred. The overpayment will be applied as a credit to the current tax period. The adjusted return must be filed before the expiration of the period of limitations as described in IRC 6511. This "adjustment" is made without interest. See IRM 20.2.10.5.6 (6).

  2. An error is discovered when the employer has sufficient knowledge of the error to be able to correct it. See Treas. Reg. 31.6413(a)-2(a)(4).

  3. The adjusted return is made on the form that corresponds to the return being corrected. See Exhibit 20.2.10-1.

  4. If the employer elects to file a "claim for refund" instead of an adjusted return and apply the credit to the current tax period, overpayment interest is allowed from:

    • The due date of the return for the period in which the overpayment occurred,

    • The date the return is filed in processible form [IRC 6611(g)], or

    • The date the tax is paid

    (whichever is later), to the refund schedule date minus any applicable back-off period. See IRM 20.2.4.7, Refunds.

  5. When allowing overpayment interest on employment tax returns, take into consideration the special return due date rule. Form 941, Form 943, Form 944, and Form 945 may be filed on or before the 10th day of the second calendar month following the end of the tax period, if timely deposits are made in full payment of the amount of tax reported. See Treas. Reg. 31.6071(a)-1(a)(1). These returns should not be considered late filed.

    Example:

    An employer timely deposits the full amount of tax reported on his original Form 941 for the first quarter (in order for deposits to be timely they must be deposited on or before April 30th). His return is received for processing on May 9th. Based on the special return due date rule, the return is considered timely filed. He later files a Form 941-X as a "claim for refund" and because the original return was timely filed, he receives overpayment interest from April 30th, the normal return due date for the first quarter.

  6. To file a claim for refund of an overpayment of FICA or RRTA tax, the employer must repay or reimburse the employee's share of FICA or RRTA tax to the employee or secure the written consent of the employee for allowance of the refund or credit. However, if after reasonable efforts, the employer cannot locate the employee or the employee, once contacted, will not provide the requested consent, the employer is not required to repay or reimburse the employee. If the employer cannot locate the employee or if the employee, once contacted, will not provide the requested consent, the employer can file a claim only for the employer’s share of FICA or RRTA taxes.

  7. The claim for refund is made on the form that corresponds to the return being corrected (e.g., Form 941-X). See Exhibit 20.2.10-1.

  8. The regulations under IRC 6413 provide a 90-day rule under which an overpayment adjustment is not permitted if the adjusted return would be filed within 90 days of the expiration of the period of limitations. See Treas. Reg. 31.6413(a)-2(d)(2). The employer must choose the claim for refund option on the appropriate "X" form. See Exhibit 20.2.10-1.

Employee FICA Tax or RRTA Tax Withheld

  1. If an employee worked for two or more employers during a year, the employee may have had too much FICA or Tier 1 RRTA tax withheld. The employee can claim the excess FICA or Tier 1 RRTA tax as a credit against the employee’s income tax on Form 1040.

  2. If any one employer withheld too much FICA or Tier 1 RRTA tax, an employee cannot take the excess as a credit against the employee’s income tax. The employer should adjust the tax for the employee. If the employer does not adjust the over collection, the employee can file a claim for refund using Form 843, Claim for Refund and Request for Abatement.

    Note:

    Overpayment interest on a FICA tax overpayment issued to an individual employee is to be paid at the non-corporate rate, regardless of whether or not the overpayment is posted to the Form 941 account or the Form 1040 account. See IRM 21.7.2.4.6.4.2, Excess Social Security and Medicare Tax Withheld - Employee Claims for Refund, for procedures on processing these claims.

  3. If a non-resident alien receives a refund of erroneously withheld FICA taxes (e.g., students arriving on F, J or M visas who may be exempt from paying FICA taxes), refer to IRM 21.8.1, IMF International Adjustments, IRM 21.8.2, BMF International Adjustments, or IRM 21.7.12, Non-Master File (NMF) Adjustments. IRS is required to withhold taxes from the employer computed at the applicable treaty rate prior to issuing a refund to a non-resident alien. The net interest amount (if any) is refunded at the non-corporate rate. See IRM 21.8.2.7.3, Processing Employee Claims, for adjustment procedures.

Trust Fund Recovery Penalty (TFRP)

  1. The trust fund recovery penalty (TFRP) was created to encourage prompt payment of trust fund taxes (IRC 7501) and to ensure ultimate collection of such taxes from a secondary source in any event. This includes payment of employment taxes (income tax withholding, social security taxes, Medicare taxes, or railroad retirement taxes), or collected excise taxes. The employer or collector holds withholdings or collections in trust for the United States until it is paid (usually by making Federal tax deposits) regardless of whether any funds were placed in a segregated account or were simply part of a general account. This penalty is imposed when trust fund taxes cannot be immediately collected from the employer or collector. See IRC 6672. The following is suggested to make it clear that tracing rules don’t apply; see Begier v. IRS, 496 U.S. 53 (1990).

  2. The TFRP is assessed on MFT 55 and posts as a Transaction Code (TC) 240, Reference Number 618. Any abatements of this penalty will post to the module with a TC 241, Reference Number 618 and will carry the same 23C date as the TC 240.

  3. Credits posting to the module with a TC 241, Reference Number 697 or 699 are based on actual payments made on a related account.

  4. Payments may also be posted with TC 670, 680 or 70X.

Interest on TFRP
  1. Since the TFRP itself is not an employment tax, underpayment interest on the TFRP is charged from the 23C date of the TC 240, Reference Number 618, until paid in full.

  2. Underpayment and overpayment interest is computed at the rates established under IRC 6621.

    Note:

    Master File is capable of making the correct interest calculation under most circumstances. Do not unnecessarily restrict the module.

Foreign Affiliates of Domestic Corporations

  1. Domestic corporations that employ U.S. citizens or residents in their foreign affiliates may enter into agreements under IRC 3121(l) whereby FICA coverage is extended to those citizens or residents. Under these agreements, the corporations pay the amounts equivalent to FICA taxes imposed by IRC 3101 and IRC 3111. Whether the amount is overpaid or underpaid, adjustments are without interest.

  2. Special Rule for Overpayment Not "Adjusted" - A domestic corporation may file a claim for refund of any overpayment made under an agreement under IRC 3121(l). The law provides a special two-year limit from the date of the overpayment for claiming such a refund. The claim must be plainly marked "Claim under IRC 3121(l)" on the applicable amended form. See Exhibit 20.2.10-1. Adjustment documents for such overpayments should bear a similar notation.

COBRA Benefits

  1. The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) provides an employee the right to elect to continue paying health care premiums to their employer when due to a "qualifying event" the employee has lost coverage under the employer’s group health plan. A federal subsidy of 65% if the COBRA premium is available to assist in paying the premium for eligible individuals for up to 15 months. Employers are allowed a credit against their employment tax for the amount of premium assistance provided to the employee.

  2. The American Recovery and Reinvestment Act of 2009 (as modified by the Department of Defense Appropriations Act of 2010) provides premium assistance for COBRA continuation coverage for certain individuals and their families who lose health plan coverage due to an involuntary termination of employment occurring between September 1, 2008 and February 28, 2010.

  3. A federal subsidy of 65% of the COBRA premium is available to assist in paying the premium for eligible individuals for up to 15 months. Employers are allowed a credit against their employment tax for the amount of premium assistance provided to the employee.

  4. The credit is reported on Form 941, Form 943, or Form 944, and is treated as a deposit made on the first day of the return period (year or quarter). Employers can apply the credit to offset their federal tax deposits, generate a refund, or both. If refunding, normal overpayment interest rules per IRC 6611 apply.

  5. A COBRA premium assistance credit is input using credit reference number (CRN) 299 (which generates TC 766) and a credit effective date of the first day of the tax return period. If reversing or reducing the credit, the credit reference number is input as a negative (-) amount.

  6. Recapture of COBRA credits are eligible for an interest-free adjustment per IRC 6205.

  7. See IRM 21.7.2.5.19, Premium Assistance for COBRA Benefits, for more information.

HIRE Benefits

  1. Under the Hiring Incentives to Restore Employment (HIRE) Act of 2010 enacted March 18, 2010, a tax benefit was made available to employers who hired certain previously unemployed workers (“qualified employees”) in their trade or business.

  2. This credit adjusts the payroll tax exemption for wages paid to qualified employees from March 19 through 31, 2010 (HIRE refundable credit). It can be identified by CRN 296. If reversing the credit, then input as a negative (-).

  3. CRN 296 can be input separately or with any combination of other transaction codes or credit reference numbers.

  4. Master File programming was corrected in January of 2011 to recognize that reversals of HIRE refundable credits (CRN 296) are eligible for interest-free adjustments under IRC 6205. When a TC 298 is input along with a CRN 296 reversal, the Interest Computation Date generates a second date field (showing as “COBRA/TAX-HOL>” on IDRS) which the computer will use as the start date for interest accruals. Prior to the programming update, HIRE refundable credit reversal procedures included instructions to restrict penalty and interest calculations with TC 340 and TC 270 as appropriate.

  5. See IRM 21.7.2.5.20, HIRE — Payroll Tax Exemption, for more information.

Form 5884-C, Work Opportunity Tax Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans

  1. VOW to Hire Heroes Act of 2011 expanded the work opportunity tax credit (WOTC) to businesses that hire certain eligible unemployed veterans who began work before January 1, 2013. This law also made the WOTC available to certain tax-exempt organizations who hired qualified veterans who began work on or after November 22, 2011, and before January 1, 2013.

  2. Subsequent legislation has extended the WOTC for qualified veterans until January 1, 2020.

  3. The credit is reported on Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans. The credit cannot be claimed on an original employment tax return or on an amended Form 94X.

  4. CRN 290 is used to adjust the WOTC claimed on Form 5884-C. Use a negative (-) when decreasing the credit. However, by law, this credit is NOT a refundable credit.

  5. The credit is applied against the employer's share of the social security tax liability using the first day of the tax period. However, for purposes of calculating underpayment interest the credit is available on the normal return due date. For purposes of calculating overpayment interest, the normal provisions of IRC 6611 apply, including the 45-day rule.

  6. This credit is not eligible for an interest-free period per IRC 6205.

  7. See IRM 21.7.2.5.22, Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, for more information.

Federal Unemployment Tax

  1. IRC 3302(a) provides for allowing a credit against the tax imposed by IRC 3301 for the amount of contributions paid by the employer into a state unemployment fund in any taxable year. An additional credit is also allowed under IRC 3302(b).

  2. Credits allowed under IRC 3302, to the extent not previously allowed, are considered an overpayment.

  3. No interest is allowed or paid on such an overpayment. See IRC 6413(d).

  4. When the taxpayer reduces his or her tax as a result of an increase in state credits, input TC 770 with a zero amount.

  5. Returns for prior periods reporting FUTA tax cannot be adjusted interest-free. IRC 6205 and IRC 6413(a) do not apply to FUTA tax.

Which Form to File

If the return originally filed was To make corrections, the employer (payer) will file
Form 940, Form 940, Annual Federal Unemployment Tax Act (FUTA) Tax Return (check box "amended" under Type of Return).
Form 941 or Form 941-SS, Form 941-X, Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund.
Form 943, Form 943-X, Adjusted Employer's Annual Tax Return for Agricultural Employees or Claim for Refund.
Form 944, Form 944-X, Adjusted Employer’s ANNUAL Federal Tax Return or Claim for Refund.
Form 945, Form 945-X, Adjusted Annual Return of Withheld Federal Income Tax or Claim for Refund.
Form 941-PR, Form 941-X (PR), Ajuste a la Declaración Federal TRIMESTRAL del Patrono o Reclamo de Reembolso.
Form 943-PR, Form 943-X (PR), Ajuste a la Declaración Federal Anual del Patrono de Empleados Agrícolas o Reclamo de.
Form 944-SP, Form 944-X (SP), Ajuste a la Declaración Federal Anual de Impuestos del Patrono o Reclamo de Reembolso.
Form CT-1, Form CT-1 X, Adjusted Employer's Annual Railroad Retirement Tax Return or Claim for Refund.