 |
20.2.5.7
(03-01-2002)
Revenue Ruling 99–40 (Formerly Revenue–Ruling 88–98) Use of Money
-
In Avon Products Inc. v. United States: 588 F.2d 342 (2d Cir. 1978) the court interpreted IRC Section 6601(a) to mean that
interest on an underpayment can only be charged when the tax is both due and unpaid. This impacts interest computations when
a subsequent underpayment is determined after either
-
A refund without allowable interest in issued, and/or
-
An overpayment is applied to a succeeding tax period as a credit elect.
20.2.5.7.1
(03-01-2002)
Rev. Rul. 99–40 and Refunds
-
If a refund was issued without interest, compute interest on a subsequent underpayment using a current TXMOD or Master File
transcript as follows:
-
Compute a running module balance including the subsequent underpayment from the return due date to the availability date of
the amount refunded.
-
Suspend underpayment interest on the amount of the refund or the module balance whichever is less from the availability date
to the date of the refund.
-
Resume interest on the full module balance including the amount suspended for the refund.
Note:
Refunds given WITH credit interest are covered in Chapter 23.
20.2.5.7.2
(03-01-2002)
Rev. Rul. 99–40 and Credit Elects (May/Sequa)
-
When a taxpayer elects to apply an overpayment to the succeeding year's estimated taxes (credit elect), the credit elect is
applied to unpaid estimated tax payments in order to avoid failure to pay estimated income tax penalty under IRC sections
6654 or 6655 for that year.
Note:
Transaction Codes 830/836 identify the credit elect amount on the overpaid module and Transaction Codes 710/716 identify the
credit elect amount on the subsequent year tax module.
-
If a subsequent underpayment is assessed on a tax module with credit elect to a succeeding tax period, the taxpayer may request
interest be computed according to Rev. Rul. 99-40. Employees may receive such requests on Form 843 or informal claims. There
is no requirement that such requests be filed on Form 843. These claims/requests impact both IMF and BMF returns for which estimated tax payments
are made.
-
If the claim also requests an adjustment to tax, existing claim procedures will be followed (CAT A, etc.).
-
If the taxpayer already has an open/active account on AIMS or IDRS, the claim will be routed for association.
-
Claims/requests involving restricted interest are only sent to Appeals when:
-
The claim/request year is open in Appeals.
-
The claim/request has been disallowed and the taxpayer requests the case be sent for Appeals consideration.
-
Once it is determined that there is a underpayment in tax in a year for which the taxpayer made a credit elect, determine
whether the credit elect was needed to avoid failure to pay estimated tax penalty for the succeeding tax period. The following
information is needed to make this determination:
-
when the tax became overpaid,
-
what, if any, payments of estimated tax the taxpayer made for the succeeding tax period,
-
estimated tax liability for each installment period based on the taxpayer's required installments of estimated tax for purposes
of section 6654 or section 6655.
Note:
Benefit is allowed even if there is a penalty for failure to make timely estimated tax payments on the succeeding tax period.
Example:
There is a $10,000 estimated tax payment due for the first installment and the taxpayer paid $2,000 and had a credit elect
for $5,000. The estimated tax penalty would be on the faiure to pay $3,000, but the taxpayer would still recieve the benefit
of $5,000 in an underpayment interest calculation.
-
This information can be found on the TXMOD or Master File transcripts of the taxpayer's account for the underpayment and succeeding
tax period, and the taxpayer's return for the succeeding period, including Form 2220, Underpayment of Estimated Tax by Corporations;
Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts; or Form 2210-F, Underpayment of Estimated Tax
by Farmers and Fisherman.
-
Using the information described in 3 and 4 above, determine the amount of each of the taxpayer's required installments of
estimated tax for the succeeding year. See IRC sections 6654(d) and 6655(d) or (e).
-
Compute interest on the subsequent underpayment as follows:
-
Using current TXMOD or Master File information compute a running module balance
-
Suspend underpayment interest on the lesser of the credit elect or underpayment amount from the return due date to the date
of the estimated tax payment to which it is applied.
-
Resume interest on the module balance plus underpayment that is less than or equal to the estimated tax payment.
-
See Exhibit 20.2.5 - 3.for an example of Rev-Rul 99-40.
20.2.5.7.3
(03-01-2002)
Credit Elects and Employment Tax
-
Compute interest on overpayments treated as credit elects on Employment tax cases as follows:
| If a subsequent assessment is made and |
Then compute underpayment interest |
| An employment tax overpayment is applied to the next period |
On the originating employment tax period
FROM: due date of next period
TO: date of full payment
|
-
Example:
An employer elects to apply an employment tax overpayment from a timely filed Form 941 from the first quarter return period
to the second quarter return period. Later, there is a subsequent assessment made on the first quarter return.
-
The overpayment from the first quarter is considered available as of April 30.
-
Credit is posted as of April 30 to the second quarter, without interest.
-
Compute debit interest on the first quarter subsequent assessment
FROM: second quarter RDD (July 31) TO the 23C date or date of payment, whichever is earlier.
20.2.5.7.4
(03-01-2002)
Rev. Rul. 99–40 and Carrybacks
-
When a subsequent assessment (general adjustment), including penalties, is made and a carryback has previously been allowed
and refunded for the same year without interest, debit interest on the subsequent assessment for that year (up to the amount
of the carryback) is not computed for the period between the carryback availability date and the carryback refund date.
-
Compute underpayment interest on the subsequent assessment as follows:
-
Using a current TXMOD or Master File transcript, compute a running module balance on interest from the due date of the tax
to the date the carryback is available.
Note:
For interest accruing for periods prior to October 4, 1982, the date the carryback is available is first day after the end
of the loss year or the date the tax was paid, whichever is later.
-
Suspend interest on the lesser of the module balance or the carryback amount on the carryback availability date.
-
Resume debit interest on the suspended amount from the carryback refund date to the applicable ending date, waiver date plus
30 days (if applicable), payment date or 23C date, whicgever is earlier.
-
See IRM 20.2.10 for rules concerning reassessments of erroneous carryback allowances.
-
Effective for adjustments posting in cycle 198909 and later, debit interest is systemically computed in refund situations
under the above rules if the module is not restricted.
Do not unnecessarily restrict a tax module.
|
|
|
