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20.2.4.6
(03-01-2002)
Offsets
-
An overpayment and credit interest on the overpayment may be applied as an
"offset"
against any outstanding liability of tax, interest, additional amount, additions to the tax, or penalty on another tax period.—IRC section 6402(a)
-
Use the earliest available overpayments in the module to satisfy the outstanding liabilities.
-
Once all outstanding liabilities are satisfied, refund any excess overpayment (plus interest) to the taxpayer.
Caution:
In order to be
"outstanding"
a balance must be unpaid, even if the payment is made later than the offset is available.
Example:
Due to a tax decrease on a taxpayer's 1998 Form 1120, there is credit of $20,000 available to be offset or refunded with an
availability date of March 15, 1999. The taxpayer's Form 1120 for 1997 was examined and additional tax assessed for $10,000,
which the taxpayer paid with interest on December 23, 2000. Although the 1998 overpayment is available prior to the December
payment, the balance on 1997 is no longer
"outstanding"
and the entire $20,000 will be refunded from 1998, if there are no other outstanding liabilities.
Reminder:
The most recent unused payments in the tax module are refunded.
20.2.4.6.1
(03-01-2002)
Interest on Offsets
-
Generally, when an offset is made, interest is allowed from the availability date of the overpayment to the due date of the
outstanding liability to which it is applied.
Example:
Appeals determines that a taxpayer has an overpayment of $15,000 on his 1998 Form 1120 and an underpayment of $25,000 on his
Form 1120 for 1999. The taxpayer has not paid the balance on the 1999 tax period and requests that his overpayment be applied.
Assuming that no other interest issues are present, credit interest is allowed on the $15,000 from March 15, 1999 (the due
date of the 1998 return) to March 15, 2000 (the due date of the 1999 return). Both the $15,000 and the accrued interest are
applied to the 1998 balance on March 15, 2000.
| If the overpayment is applied to: |
Then |
| Unpaid liabilities (including tax, penalties, additions to tax) due beforethe overpayment availability date
|
No interest is allowed on the overpayment. |
| Unpaid liabilities due after the overpayment availability date
|
Credit interest is allowed
FROM: the availability date
TO: the due date of liability
|
| Unpaid liability for another taxpayer due after the availability date
|
Credit interest is allowed
FROM: the availability date
TO: the 23C date of the credit transfer applying credit to the liability.
|
20.2.4.6.2
(03-01-2002)
Overpayments Offset Against Debit Interest
-
The due date for debit interest paid by an overpayment offset is as follows:
| If the debit interest |
Then the due date for debit interest is |
| Accrued ON OR BEFORE December 31, 1982 |
the assessment date of interest |
| Accrued AFTER December 31, 1982
|
as the interest accrues |
20.2.4.6.3
(03-01-2002)
Rules for Applying Offsets
-
An overpayment exists when the amounts paid exceed the liability. Generally, the overpayment is applied to the oldest outstanding
liability, that is, the oldest CSED.
-
Do not credit an overpayment (other than an overpayment of an installment) against an installment of future tax unless the
taxpayer has requested, in writing, that the Service do so. Do not ask taxpayers to allow the Service to credit the overpayment.
Do not transfer an overpayment beyond the current installment.
Example:
On May 15, 2001, a taxpayer files a Form 1120X for 199912 requesting a tax decrease of $5,000. The taxpayer asked that the
overpayment be applied to his Form 1120X for 200112. Inform the taxpayer that his overpayment will be applied to his first
installment for 200112. Allow overpayment interest from the credit availability date to April 15, 2001 and apply the credit
with the April 15, 2001 date.
Reminder:
If the taxpayer is requesting the overpayment be applied to the next succeeding tax period, transfer as credit elect and allow
no credit interest.
20.2.4.6.4
(03-01-2002)
Master File and Systemic Offsets
-
Master File can generally perform systemic offsets within the same account (same taxpayer) correctly and will also transfer
allowable interest.
Note:
Effective cycle 199501 and subsequent, TC 856/736 posts with the TC 776 transaction date, which is the date to which credit
interest is computed.
20.2.4.6.5
(03-01-2002)
Different Taxpayers and Offsets
-
An overpayment and the interest thereon may be credited to the liability of a different taxpayer with the overpaid taxpayer's
consent.
-
Allow interest on the overpayment from the date it arose to the 23C date of the transfer actually applying the credit to the
other taxpayer's liability (i.e., If the cases are being closed on the same day, then compute credit interest to the current
23C date and apply the overpayment to the liability as of that same day).—Revenue Procedure 65–20
Example:
Taxpayer A is requesting a $10,000 overpayment be transferred from his 1999 Form 1120 to Taxpayer B's 1998 Form 1120. The
Service is processing the request on August 2, 2001. Compute credit interest on Taxpayer A from the availability date of the
credit to August 13, 2001 (the 23C date of the credit transfer) and apply the $10,000 overpayment as well as the related credit
interest on August 13, 2001. Debit interest continues to run on Taxpayer B on the $10,000 and allowable credit interest until
August 13, 2001.
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