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20.2.5.3
(03-01-2002)
Interest on Penalties and Additions to Tax
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With the exceptions of (2) through (5) below, penalties (including penalties referred to as
"additions to tax"
) are due on the date of notice and demand (IRC section 6601(e)(2)(A)), which is the assessment date or
"23C"
date. Therefore, interest is computed and assessed on penalties from the assessment date.
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Interest on the following penalties is due from the due date of the related return (RDD), the extended due date, or July 18,
1984, whichever is later. (Use 07181984 as start date on CC COMPA). This change is effective for interest accrued after July
18, 1984, with respect to penalties assessed on or after July 18, 1984 (IRC section 6601(e)(2)(B)). If assessed before July
18, 1984, use the 23C date of the assessment as the interest start date.
Note:
For returns due after December 31, 1989, refer to (5).
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IRC section 6651(a)(1), Failure to File Penalty (TC 16X)
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IRC section 6659, Gross Valuation Overstatement Penalty (TC 240, Reference Number 680)
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IRC section 6660, Valuation Understatement Penalty for purposes of estate or gift taxes (TC 240, Reference Number 682)
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IRC section 6661, Substantial Understatement Penalty (TC 240, Reference Number 681)
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When IRC section 6651, 6659, 6660, and 6661 penalties have been asserted due to the recapture of carryback allowances, interest
on the penalty accrues from the due date of the loss year return, the extended due date of the loss year return, or July 18,
1984, whichever is later. With these penalty adjustments, interest must be manually computed and restricted by input of TC
340.
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If an extension is later reversed, as shown by TC 462 (Correction of a TC 460 Transaction Processed in Error), compute interest
on the penalty from the original return due date or from July 18, 1984, whichever is later.
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TC 240 (Miscellaneous Penalty), penalties assessed on civil penalty modules (MFTs 13 and 55) with Reference Numbers 510–518,
601–603, 606 and 611 are due and payable on April 1 of the year following the calendar year for which the return or statement
was made. Interest is charged from April 1 to the date the penalty is paid.—IRC section 6676(d)(1)(B) and IRC section 6724(c)(3)(B)
Note:
IRC section 6676 was repealed for returns and statements, if the due date is after December 31, 1989.
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Effective for returns with due dates after December 31, 1988 (without regard to extensions) interest is computed on the Fraud
Penalty (TC 320) or Negligence Penalty (TC 350) from the due date or extended due date. whichever is later,
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Interest on penalties asserted due to the recapture of carryback credits begins on the due date of the loss year return or
the extended due date, whichever is later. With these adjustments, penalty and interest must be manually computed and restricted
by input of TC 340.
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For returns due after December 31, 1989, (without regard to extension), interest on the Accuracy Related Penalty (IRC section
6662) is computed from the due date or extended due date, whichever is later, of the related return.
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Interest on the Fraudulent Failure to File Penalty (IRC section 6651(f)) is computed from the due date of the related return
or extended due date, whichever is later, for returns due on or after December 1, 1989 (not including extensions).
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Interest is computer generated on penalty assessments according to the above rules. Do NOT manually compute and assess interest on the above penalties unless a manual restriction of interest is necessary for some
other reason.
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See Exhibit 20.2.5 - 1., Interest on Penalties, shows how the interest rules described above are applied. Since the late filing penalty (TC 166)
is one of the penalties assessed as of the return due date, it posts with that date as its 23C date. It is placed in CC DINCOMP
screen just under the TC 150 and is assigned the date of 04301993 as its interest start date.
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For Failure to Pay Penalty (FTP) (TC 276), interest begins on the assessment date (the 23C date) of the posting cycle. The
DINCOMP Display shows how FTP penalty was inserted into the computation according to the 07191993 assessment date.
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See Exhibit 20.2.2–1, Return Due Date Chart.
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