20.2.4. Overpayment Interest

(1) Overpayment interest is sometimes referred to as credit interest or allowable interest. 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 computations of overpayment interest correctly understand and follow technical guidance and information for interest rates and methods of computation.

(1) These procedures are covered under the following authority:

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

• IRC 6611, Interest on Overpayments

• IRC 6621, Determination of Rate of Interest

• IRC 6622, Interest Compounded Daily

(1) The Office of Servicewide Interest is responsible for the content of this IRM, answering related questions, and inputting any work requests.

(2) The program manager of Office of Servicewide Interest is responsible for oversight of the interest programs.

(3) The Director, Business Support Office, is the executive responsible for policy and procedures.

(4) The Taxpayer Bill of Rights (TBOR) lists rights which already existed in the tax code, putting them in simple language and grouping them into 10 fundamental rights. Employees are responsible for being familiar, and acting in accord, with taxpayer rights. See IRC 7803(a)(3), Execution of Duties in Accord with Taxpayer Rights.

(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.

(1) In accordance with IRC 6611(a), interest is allowed and paid on any overpayment of tax at the overpayment rate established under IRC 6621.

(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.

(1) See IRM 20.2.1-2, Definition of Terms, for the definitions of interest terms.

(1) For additional information, such as the latest interest news, job aids, interest tool updates, training material, list of the analysts, etc., see the Interest Knowledge Base.

(1) Prepayment credits (payments made before the due date of the return) are deemed paid as of the due date of the return (determined without regard to any extension of time to file) whether the return is timely or late filed.

• Prepayment credits are available for offset and or refund as of the return due date (determined without regard to any extension of time to file such return).

Exception: An overpayment of prepayment credits shown on a return filed prior to its un-extended return due date may be offset and or refunded by the IRS before the un-extended return due date. When such an offset is made, it will carry the 23C date of the posted TC 150 of the tax module from which the offset originated (Master File programming will not accept a future date). The offset is available to reduce the debit balance on the receiving module as of the same 23C date. If the offset occurs after the un-extended return due date, it will carry the due date of the return (determined without regard to any extension of time to file). In addition, an offset and/or refund of an overpayment derived from the filing of Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax, may carry a date prior to the un-extended due date of the return. See IRM 20.2.4.9.5, Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax.

• Interest on overpayments based on prepayment credits is allowed, when permitted, from the later of the original return due date (determined without regard to any extension of time to file such return), delinquent received date of the original return, or the date information needed to process the original return is received (provided the processible date is after the due date, including any extension of time for filing). Interest on prepayment credits can accrue no earlier than the due date of the return (determined without regard to any extension of time to file such return), IRC 6611(d) and IRC 6513(b).

If the return is	then allow interest on a prepayment credit, when permitted, from the later of the
timely filed (return received by the original or extended due date),	original return due date (determined without regard to any extension of time for filing), or the date information needed to process the original return is received (provided the processible date is after the due date, including any extension of time for filing).
late filed (return not received by the original or extended due date),	delinquent received date of the original return, or the date information needed to process the original return is received.

(2) Payments made on or after the return due date (determined without regard to any extension of time to file) are available for offset and or refund as of the received date of the payment. Interest on payments made on or after the return due date is allowed, when permitted, from the received date of the payment, delinquent return received date or return processible date, whichever is later.

(3) An overpayment due to a carryback from a subsequent loss year is available for offset and/or refund as of the due date of the loss year return (determined without regard to any extension of time to file). Interest on the overpayment is allowed, when permitted, from the later of the:

• Due date of the loss year return (determined without regard to any extension of time for filing).

• Received date of a delinquent loss year return (determined with regard to any extension of time for filing).

• Date the loss year return is received in processible form (provided the processible date is after the loss year return's due date or extended due date).

• Date the overpayment on the gain year arose.

(4) If a taxpayer fails to file a return, the IRS may prepare a Substitute For Return (SFR) under IRC 6020(b). Interest, when permitted, is not allowed until a delinquent return or signed waiver (for example, Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment, Form 870-AD, Offer to Waive Restrictions on Assessment and Collection of Tax Deficiency and to Accept Overassessment, Form 890, Waiver of Restriction on Assessments and Collection of Deficiency and Acceptance of Overassessments-Estate, Gift, and Generation-Skipping Transfer Tax, or Form 4549, Report of Income Tax Examination Changes), is received by the IRS. The overpayment availability date is the later of the:

1. Date of payment/credit creating the overpayment.

2. Delinquent return received date (see IRM 20.2.4.5, Delinquent Returns).

3. Date information needed to process the return is received (see IRM 20.2.4.6, Unprocessible Returns).

4. Date the taxpayer signed an agreement to make the assessment.

   Note: If the taxpayer does not provide a return or signed waiver, input TC 770 .00 to prevent interest from being paid.

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(6) IRC 7503 provides that, in the case where the due date for paying falls on a Saturday, Sunday, or legal holiday, the payment is considered to have been made on the due date if it is mailed or electronically transmitted on the next succeeding day which is not a Saturday, Sunday, or legal holiday. ("Legal holiday" means any legal holiday in the District of Columbia, or any statewide legal holiday in the office where the return is required to be filed.) However, because IRC 7503 does not change the date for performing an act, such a payment is deemed paid, for purposes of offset, refund and computing overpayment interest, as of the date of the payment, not the return due date.

(1) In some situations, a credit used to satisfy a liability may later be "released." When this occurs, the availability date of the released credit is:

• The date the released credit was available, if no interest was allowed because there was no interest period.

Example: An examination of a taxpayer’s Form 1040 for the 202112 tax year results in a tax increase, which is paid by an offset overpayment comprised entirely of prepayment credits from the taxpayer’s 202212 tax module. The offset is credited to the 202112 tax module with an availability date of April 15, 2023. No interest is allowed on the offset. Later, the taxpayer files Form 1040-X, Amended U.S. Individual Income Tax Return, for year 202112 reporting a tax decrease equal to the assessment, which releases the credit offset from year 202212. The availability date of the released credit is April 15, 2023, the date on which it was originally applied to the 202112 tax module.

• The date to which interest was allowed on the released credit, if interest was allowed on the released credit when it was first applied.

Example: The facts are the same as in the above example, except the liability exists on tax year 202312. The overpayment offset from year 202212 is applied to the 202312 tax module on the liability due date of April 15, 2024. Interest on the offset is allowed from the availability date of the overpayment (April 15, 2023) to the liability due date. When Form 1040-X is filed for year 202312, and releases the amount credited from year 202212, the availability date of the credit is April 15, 2024, the date to which interest was allowed.

(1) When the taxpayer supplies the additional information that results in a processible return, update a previously established RPD with the date the additional information is received. Interest is allowed on the overpayment that comprised the original refund from the later of the: (i) payment received date; (ii) return due date, determined without regard to any extension of time for filing; (iii) delinquent return received date, or (iv) date information needed to process the original return is received (provided the processible date is after the due date, including any extension of time for filing).

(2) The RPD is updated through CC ADJ54. See IRM 2.4.16-4, Input Screen CC ADJ 54, for input instructions.

(3) If a return was erroneously coded as unprocessible or the RPD was input incorrectly and a correction to the RPD is input later, manually recompute any interest to be paid on the original refund and input with TC 770. This action is required because Master File will not adjust the interest on refunds previously issued.

(1) Generally, when an offset is made, interest is allowed from the availability date of the overpayment to the due date of the outstanding liability to which it is applied (IRC 6611(b)(1)).

(2) When computing allowable interest on an overpayment that is offset:

(3) The availability date of the overpayment is determined by the payment(s) and/or credit(s) of which it is comprised. See IRM 20.2.4.4.1, Availability Dates for Overpayments - Payment and Credit Types.

(4) Since an overpayment can be made up of multiple payments and or credits, it may have more than one availability date. Offset the earliest available payment or credit that comprises the overpayment, in the order of first-in, first-out.

(5) Interest may be computed from other than the availability date of the overpayment when the original tax return was filed late (IRC 6611(b)(3)), or in unprocessible form (IRC 6611(g)). (See IRM 20.2.4.5, Delinquent Returns, and IRM 20.2.4.6, Unprocessible Returns). In the event the return was filed late or unprocessible, interest on an overpayment offset is allowed from the later of the date of the overpayment, the delinquent return received date, or the date information needed to process the original return is received (provided the processible date is after the due date, including any extension of time for filing).

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(7) When an overpayment is available earlier than a liability and a manual offset is required, interest on the offset must be manually computed on the module that generated the overpayment. Master File will only generate the correct amount of overpayment interest if it originates the offset. Expressly, offset overpayment interest will systemically generate only on systemic offsets, not manual offsets.

(8) Although underpayment interest on an assessment of tax may not begin until a date later than the actual due date (typically due to use of money per Rev. Rul. 99-40), overpayment interest on the amount offset into the module will stop on the liability due date. This rule also applies to the recapture of a previously allowed carryback credit. When a carryback recapture is satisfied by an offset, any overpayment interest will be computed to the loss year return due date, not the date of the carryback refund.

(1) When there are outstanding liabilities for several periods and the overpayment is insufficient to cover them all, generally the overpayment is applied to offset the liability with the shortest CSED, which is generally the oldest outstanding liability.

(2) When an election is made to apply an overpayment to the next year’s estimated income tax, the IRS will credit the overpayment in the order necessary to avoid the addition to tax for underpayment of estimated income tax. Accordingly, the designation of all or part of the overpayment to a specific estimated tax installment on the immediately succeeding tax year is not necessary and will not be accepted (Rev. Rul. 99-40).

(3) When an overpayment originating from a net operating loss carryback adjustment is credited to an installment of future tax, interest on the offset is allowed from the start date (loss year return due date, determined without regard to extensions; received date of delinquent loss year return; date the loss year return is filed in processible form; or date the overpayment arose, whichever is later) to the due date of the estimated tax installment against which the credit is taken.

(4) A refund should not be delayed to accommodate the possibility of a future offset. The IRS may, however, credit an overpayment against a liability when a determination of liability has been made and a notice of deficiency has been issued, even though the deficiency has not been assessed and the taxpayer may challenge the proposed deficiency in Tax Court (see Rev. Rul. 2007-51). The IRS may also credit a liability identified in a proof of claim filed in a bankruptcy case even though the liability has not been assessed or included in a notice of deficiency (see Rev. Rul. 2007-52).

(5) When a payment or credit is moved and or reversed, any offset(s) that generated from that payment or credit are typically reversed (TC 701, TC 702, TC 821, TC 822). Interest allowed as a result of the offset must also be reversed (TC 851, TC 731, TC 772). Master File will not systemically adjust the interest (see IRM 20.2.4.7.6, Master File and Systemic Offsets).

(1) An overpayment and the interest thereon may be credited to the liability of a different taxpayer with the overpaid taxpayer's consent. See IRM 4.4.3, AIMS Procedures and Processing Instructions - Credit Transfers and Reprocessing Returns.

(2) Allow interest on the overpayment from the date it arose to the 23C date of the transfer actually applying the credit to the other taxpayer's liability. If the cases are being closed on the same day, compute interest to the current 23C date and apply the overpayment to the liability as of that same day - Rev. Proc. 65-20.

(1) The due date for underpayment interest when paid by an offset overpayment is as follows:

(1) The IRS has, over the years, had different procedures concerning the accrual of overpayment interest on credits applied to liabilities for the same tax period.

(2) Prior to August 1, 1983, interest was not allowed on an overpayment applied to unpaid tax, interest, penalty, or additions to tax for the same tax period because an overpayment was not deemed to exist for the tax period until the entire liability was satisfied. See Rev. Proc. 60-17.

(3) Effective August 1, 1983, Rev. Proc. 83-58 provided that if an overpayment was applied as a credit to an unpaid liability for the same taxpayer, same tax period, and same type of tax, interest was allowed from the availability date to the due date of the liability to which the overpayment was applied.

(4) Rev. Rul. 98-37 announced the obsolescence of Rev. Proc. 83-58 based on changes made to the Internal Revenue Code and accompanying regulations in order to conform to the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) and the Deficit Reduction Act of 1984, section 158 (DEFRA). Therefore, when an overpayment of any credits made on or after August 25, 1992 is applied to unpaid interest, penalties, or additions to tax due for the same year and the same type of tax, interest is not allowed to accrue on the overpayment.

(5) A tax period overpayment comprised of multiple payments and/or credits is applied to unpaid tax, interest, penalty, or additions to tax for the same tax period in the order of earliest payments/credits first.

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

(2) Exceptions to systemic processing of offsets:

• When an overpayment is available earlier than a liability and a manual offset is required, interest on the offset must be manually computed on the module that generated the overpayment. Master File will only generate the correct amount of overpayment interest if it originates the offset. Expressly, offset overpayment interest will systemically generate only on systemic offsets, not manual offsets.

• When Master File is allowed to offset manually computed overpayment interest, it will use the 23C date of the TC 770 for both the TC 856 and TC 736, which can cause erroneous underpayment interest accruals on the module where the TC 736 posts. When a TC 770 must be offset, a manual transfer using TC 850 and TC 730 is always used. Debit with TC 850 using the 23C date of the TC 770, and credit with TC 730 using the date interest on the TC 770 was computed to ("CR-INT-TO-DT" of TC 770).

• When interest is allowed on an offset overpayment, input TC 772 to remove or reduce that interest when the offset of overpayment principal and or overpayment interest is through manual action(s), either fully or partially reversed. Master File will not systemically adjust the overpayment interest.

Example: Overpayment principal (offset with TC 826), and its accompanying interest (posted with TC 776 and offset with TC 856) are fully reversed with TC 821 and TC 851. When TC 821 and TC 851 post back to the module, Master File will not generate TC 777 to systemically remove the interest previously allowed by TC 776 and offset with TC 856; the interest must be manually removed with TC 772.

(1) A systemic refund (TC 846) is an overpayment issued to the taxpayer by means of normal computer processing.

(2) Provided interest on the overpayment refunded to the taxpayer is allowed, it will run until a date "preceding the date of the refund check by not more than 30 days," IRC 6611(b)(2). The date of the refund check for computer-generated Individual Master File (IMF) and Business Master File (BMF) refunds is:

• IMF: Date shown with the literal "RFND-PAY-DT" or "RFND-PYMT-DT" that accompanies TC 846.

• BMF: 23C date of the TC 846 plus 1 calendar day (minus 6 calendar days for direct deposit).

(3) In accordance with IRC 6611(b)(2), overpayment interest on systemic refunds is computed to:

• IMF: "RFND-PAY-DT" or "RFND-PYMT-DT" minus 6 business days (minus 4 business days for direct deposit).

  Note: If a systemic refund is being issued with a manual interest calculation (TC 770), compute interest to the 23C date of the adjustment minus 18 calendar days.

  Exception: If the adjustment meets the criteria to generate a Priority Refund Transcript (Refund, Refund-E, Refund-S, $ 1M) or a CP 12, CP 16, CP 21 or CP 24, and a manual interest computation (TC 770) is being posted, calculate interest to the adjustment 23C date minus 11 calendar days.

  Note: For additional information see IRM 3.30.123.24, Processing Timeliness Criteria for CADE 2; IRM 3.14.1.6.14.3, Million $ Refund Transcripts; IRM 3.14.1.6.14.4, Refund S Transcripts; and IRM 3.14.1.6.14.5, Refund E Transcripts.

• BMF: 23C date minus 9 calendar days (minus 16 calendar days for direct deposit).

(4) To determine if a TC 846 amount was direct deposited, look for a Direct Deposit (DD) indicator on TXMOD or IMFOLT (DD: "0" for paper check, "9" for direct deposit) near the right margin either on the same line as the TC 846 or the next line. See IRM 3.14.1.7.1.3, Direct Deposit Refunds, for additional identifiers for direct deposit refunds.

(5) The back-off period of IRC 6611(b)(2) is applied to systemic refunds, not manual refunds.

(6) Non-application of the back-off period is not considered an erroneous payment of interest, as the IRS has discretion under IRC 6611(b)(2) to apply a back-off period from zero to thirty days. If no back-off period was applied, the period of zero days is considered to have been made. Similarly, the application of a numerically significant back-off period, even one that inadvertently differs from the standards described in paragraph (2) above, is not considered erroneous unless it exceeds the 30-day limitation.

(1) A manual refund (TC 840) is an overpayment issued to the taxpayer that is not generated by normal computer processing (TC 846).

(2) When it is necessary to issue a manual refund (see IRM 21.4.4.3, Why Would a Manual Refund Be Needed?), use, depending on the circumstance, Form 3753, Manual Refund Posting Voucher, or Form 5792, Request for IDRS Generated Refund (IGR). See IRM 21.4.4, Manual Refunds.

(3) Before issuing a manual refund, the actual overpayment available for refund must be determined.

• Consider previously assessed failure-to-file and failure-to-pay penalties and interest that will be affected by the adjustment action. Any decrease in penalties or interest that have been paid must be added into the overpayment amount. In addition, unassessed accruals of penalties and/or interest may reduce the overpayment amount.

• Verify the taxpayer has no outstanding liabilities that must be satisfied. Offset capability is lost when a manual refund is issued.

• When an outstanding tax debt is identified, a manual refund may only be issued for the amount of overpayment in excess of the balance due. (Exception: An Offset Bypass Refund (OBR) indicator may be used to bypass outstanding debts when economic hardship exists).

(4) Interest allowed, when applicable, on an overpayment issued as a manual refund is computed TO the refund issue date (date of the refund check).

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(6) Manual refunds of $1,000,000 or more require a technical review of the interest computation (to be determined by that function) before documentation is sent to the Accounting Function for processing of the refund.

(7) When manually computing interest, attach the supporting documentation and computation to the manual refund documents before routing to Accounting.

(8) For specific instructions on preparing manual refunds, see IRM 3.12.37.26.5, Manual Refund, IRM 21.4.4, Manual Refunds, and IRM 21.4.4.6, Other Manual Refund Requirements.

(1) The 45-day rule provides for a processing period during which interest is either barred or limited on overpayments originating from:

• Original tax returns, IRC 6611(e)(1).

• Amended tax returns/claims for credit or refund, IRC 6611(e)(2).

• IRS-initiated adjustments, IRC 6611(e)(3).

• Carryback claims and applications, IRC 6611(e) in coordination with IRC 6611(f)(4)(B). See IRM 20.2.9, Interest on Carryback of Net Operating Loss.

(2) An exception to the 45-day rule applies to individuals who have served in a combat zone. If a taxpayer's original return is timely filed (determined by taking into account the combat zone suspension period), the 45-day rule of IRC 6611(e)(1) through IRC 6611(e)(3) shall not apply (see IRC 7508(b)(2)).

(1) In 2010, Public Law 111–147 (HIRE Act), added IRC 6611(e)(4) to increase the interest-free processing period from 45 days to 180 days on any overpayment resulting from tax deducted and withheld under Chapter 3 (withholding of tax on non-resident aliens and foreign corporations) or Chapter 4 (taxes to enforce reporting on certain foreign accounts) of the Internal Revenue Code.

(2) IRC 6611(e)(4) substitutes "180 days" for "45 days" each place it appears in:

• IRC 6611(e)(1), refunds after return is filed. See IRM 20.2.4.8.3.1, 45-Day Rule and All Original Tax Returns.

• IRC 6611(e)(2), refunds after claim for credit or refund. See IRM 20.2.4.8.3.2, 45-Day Rule and Amended Returns and Claims, OBRA 1993.

• IRC 6611(e)(3), IRS-initiated adjustments. See IRM 20.2.4.8.3.3, 45-Day Rule and IRS Initiated Adjustments.

(3) IRC 6611(e)(4) applies to:

• Refunds on original returns with due dates (determined without regard to extensions) after March 18, 2010.

• Refunds after claims for credit or refund on amended returns and claims filed after March 18, 2010 (regardless of the taxable period to which such refund or credit relates).

• IRS-initiated adjustments resulting in refunds and or credits of an overpayment or interest after March 18, 2010 (regardless of the taxable period to which such refund or credit relates).

(4) Chapter 3 and/or 4 withholding is identified by TC 766 with Credit Reference Number (CRN) 330 through 333, and is reported on Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation, Form 990-T, Exempt Organization Business Income Tax Return, Form 1040-NR, U.S. Nonresident Alien Income Tax Return, Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, Form 1120-F, U.S. Income Tax Return of a Foreign Corporation, and Form 8804, Annual Return for Partnership Withholding Tax (Section 1446).

(5) The literal “180-DAY-CR-INT-TO-DT” indicates the date used to calculate overpayment interest on Chapter 3 and/or 4 withholding taxes.

• When the 180-day interest-free period is missed and interest is systemically computed for credits identified by TC 766 CRN 330-333 (Chapter 3 and/or 4 withholding), the interest TO date is posted, for audit-trail purposes, in the “180-DAY-CR-INT-TO-DT” field.

• If an overpayment for which interest is being calculated includes credit not comprised of Chapter 3 and/or 4 withholding, the interest TO date for that credit is posted in the “CR-INT-TO-DT”' field. Thus, if a TC 776 includes interest on Chapter 3 and/or 4 withholding credit and non-Chapter 3 and/or 4 withholding credit, both fields (“180-DAY-CR-INT-TO-DT” and “CR-INT-TO-DT”) will be populated with their respective dates. The “180-DAY-CR-INT-TO-DT” field should be used in the same manner when interest is computed manually.

(1) This subsection provides instructions for determining when undeliverable, returned, intercepted, non-receipt and non-negotiable refund checks are to receive overpayment interest.

(1) Interest is not allowed on a cash bond deposit, or any portion of a cash bond deposit that is offset to other tax liabilities or returned to the taxpayer, before or after assessment, Rev. Proc. 84-58 (superseded by Rev. Proc. 2005-18).

(2) Rev. Proc. 84-58 provides that a deposit in the nature of a cash bond will be posted to the taxpayer's account as a "payment of tax" as of the date the assessment is made (typically, the 23C date of the deficiency assessment). The amount treated as a "payment of tax" cannot exceed the proposed deficiency plus any interest that has accrued on the deficiency. Any amount of a deposit that is not posted as a "payment of tax" because it exceeds the liability, will continue to be considered a deposit and, provided no other liabilities exist, will be returned to the taxpayer without interest. If another liability does exist, the deposit will not convert to a "payment of tax" until it is offset and applied to another assessed liability. Interest cannot accrue on a cash bond deposit until it is converted to a "payment of tax."

(3) If, as of the date of a deficiency assessment, a deposit in the nature of a cash bond is posted to a taxpayer's module as a "payment of tax," any subsequent full or partial abatement of the deficiency that results in an offset or refund will accrue interest from the date the abated deficiency was originally assessed (the date it became a "payment of tax").

(4) A taxpayer may request the return of all or part of a deposit made in the nature of a cash bond at any time before the IRS assesses the tax. That amount will be returned to the taxpayer, without interest, unless the IRS determines that assessment or collection of the tax determined to be due would be in jeopardy, or that the amount should be applied against any other liability. In such cases, the deposit will not be returned, but will be applied against a jeopardy or termination assessment or against the other liability.

(5) Cash bond deposits are identified by a TC 640 (Advanced Payment of Determined Deficiency or Underreporter Proposal), Blocking Series "999" and Designated Payment Code (DPC) 12.

• For cash bond payments posted after January 1, 1990, the Blocking Series is 990–999.

• Prior to cycle 198427, interest is not allowed on the refund or offset of any portion of a posted TC 640.

• After cycle 198427, and prior to January 1, 1990, only those TC 640s blocked "999" are refunded or offset without interest.

(6) There is no systemic means to identify and permit a Master File calculation of allowable interest on a deposit in the nature of a cash bond. When interest is allowable, it must be manually computed and input with TC 770.

(1) The American Jobs Creation Act of 2004, P.L. 108-357, 118 Stat. 1418 (ACJA) was enacted on October 22, 2004. Section 842 of the Act added new IRC 6603 to permit taxpayers to make deposits to suspend the running of interest on potential underpayments of tax. Rev. Proc. 2005-18 provides guidance establishing procedures for taxpayers to make, withdraw, or identify deposits to suspend under IRC 6603 the running of interest on potential underpayments. Remittances submitted to suspend the running of interest under this section are referred to as 6603 deposits. This revenue procedure supersedes Rev. Proc. 84-58, 1984–2 C.B. 501, which provided procedures for taxpayers to make remittances (cash bonds) in order to suspend the running of interest on deficiencies.

(2) IRC 6603 codifies the taxpayer's right to make a deposit in lieu of a payment to stop the running of interest on a potential deficiency, and, for the first time, provides for the accrual of interest on a deposit returned to the taxpayer to the extent that the deposit is attributable to a disputable tax. The amount and nature of the disputable tax must be identified at the time the amount is remitted to the IRS, or the date a converted cash bond is identified by the taxpayer as a 6603 deposit. Until further guidance is issued, taxpayers are permitted to use any reasonable method for calculating the amount of disputable tax. However, to the extent that a taxpayer's calculation of a disputable tax exceeds the amount proposed as a deficiency in a 30-day letter issued to the taxpayer, or the taxpayer desires to remit a deposit prior to receiving the 30-day letter, the taxpayer must provide a written statement to the IRS identifying and describing the amount of the disputable tax at the time the deposit is remitted. The written statement must also include:

1. The taxpayer's calculation of the amount of disputable tax;

2. A description of any item of income, gain, loss, deduction or credit for which the taxpayer has a reasonable basis for the treatment of the item on its return, and for which the taxpayer reasonably believes that the IRS also has a reasonable basis for disallowing the taxpayer's treatment of the item; and

3. The basis for the taxpayer's belief that it has a reasonable basis for the treatment of any item on its return and that the Secretary also has a reasonable basis for disallowing the taxpayer's treatment of such item.

(3) If a taxpayer has been issued a 30-day letter, the amount of disputable tax is, at a minimum, the amount of the proposed deficiency specified in the letter, including penalty and/or interest charges.

(4) If a taxpayer fails to identify the amount and nature of the disputable tax in writing or provide a copy of the 30-day letter at the time of the deposit, the payment of interest will not be allowed if the deposit is later withdrawn by the taxpayer unless the taxpayer subsequently provides the IRS a written statement identifying and describing the amount of the disputable tax. In such cases, interest will be allowed on the deposit under IRC 6603 as of the date on which the amount and nature of the disputable tax is identified.

(5) An overpayment may not be converted to a 6603 deposit. The IRS has IRC 6402 authority to apply overpayments to outstanding liabilities. Taxpayers cannot assume this authority by directing the IRS to convert an overpayment to a 6603 deposit.

(1) Interest is allowed on a remittance in the Unidentified or Excess Collection accounts when it is applied to a correct tax module and an overpayment results. Overpayment interest is generally computed from the later of the payment received date, the original return due date, the original return received date (if delinquent), or the date information needed to process the original return is received (provided the processible date is after the due date, including any extension of time for filing). See IRM 20.2.4.4, Availability Dates for Overpayments, IRM 20.2.4.4.1, Availability Dates for Overpayments - Payment and Credit Types, IRM 20.2.4.5, Delinquent Returns, and IRM 20.2.4.6, Unprocessible Returns.

(2) If a remittance in the Unidentified or Excess Collection accounts is refunded because it cannot be associated with a correct tax module, interest is not allowed on the refund.

(1) Pursuant to Treas. Reg. 301.6402-3(a)(5), the IRS is authorized to credit an overpayment of income tax against estimated tax for the succeeding taxable year. A credit under Treas. Reg. 301.6402-3(a)(5) is generally referred to as a “credit elect overpayment” or simply a “credit elect.”

(2) When an overpayment reported on a return or amended return is applied as a credit elect to estimated tax for the succeeding year, interest is not allowed on that overpayment. See Treas. Reg. 301.6402-3(a)(5) and Treas. Reg. 301.6611-1(h)(2)(vii).

(3) If the IRS made an error and posted the overpayment as a credit elect instead of a refund, appropriate interest may be allowed when the error is corrected.

(4) If the taxpayer is not liable for estimated tax payments, and they erred in entering the overpayment as a credit elect, interest is not allowed when the error is corrected.

(5) If the taxpayer requests permission to change a credit elect to a refund, Policy Statement 3-14 in IRM 1.2.1.4.14, Elections to apply income tax overpayments to estimated tax may be reversed upon showing of undue financial hardship, provides "When an income tax overpayment is elected for credit to estimated tax for the following year, it must be so applied. If the taxpayer wishes to change his or her election (after the filing of the overpayment return) in order to have the overpayment refunded, the refund may be made only upon showing that the taxpayer would suffer undue financial hardship. Refunds in such cases will be limited to individual taxpayers whose requests are submitted far enough in advance to permit refund to be made prior to the end of the taxable year to which the credit was applied. Interest will not be allowed on the overpayment for the reason that the IRS was precluded from making the refund within the usual 45-day interest-free period."

(6) When an overpayment originating from a net operating loss carryback adjustment is credited to the estimated tax account of the year immediately succeeding the loss year, the credit is not subject to the provisions of Treas. Reg. 301.6402-3(a)(5) and Treas. Reg. 301.6611-1(h)(2)(vii).

(1) Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax, is filed by corporate taxpayers to request a refund of overpaid estimated tax for the tax year. The function of Form 4466 is to enable corporate taxpayers to receive a refund of excessive estimated tax without having to wait until their tax return is filed. See IRM 3.17.79.3.11, Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax.

(2) Upon receiving Form 4466, the IRS has a period of 45 days to review the application, credit the amount of the overpayment against a liability (if a liability is present), and refund the remainder (if any) to the corporation. Even so, interest is not allowed on an overpayment initiated by the filing of Form 4466, unless the IRS fails to refund the amount within the 45-day period provided in IRC 6611(e). To determine whether the 45-day period of IRC 6611(e) has been met (see IRM 20.2.4.8.3.1, 45-Day Rule and All Original Tax Returns), add 45 days to the later of the following dates:

• The original return due date (determined without regard to any extension of time for filing the return).

• The original return received date (used when the return is received after the return due date, determined without regard to any extension of time for filing the return).

• The date the original return is received in processible form (Return Processible Date (RPD), or Correspondence Received Date (CRD) may be present).

(3) If the 45-day period of IRC 6611(e) is missed, interest is allowed from the overpayment availability date (as defined in IRM 20.2.4.4, Availability Dates for Overpayments, and IRM 20.2.4.4.1, Availability Dates for Overpayments - Payment and Credit Types) to the refund schedule date (less the applicable back-off period of IRC 6611(b)(2) for computer-generated/systemic refunds - IRM 20.2.4.8.1(3)). The received date of Form 4466 is not to be used for tolling the 45-day interest-free period.

(4) If all or part of the overpayment shown on Form 4466 is credited to a balance due on another tax module (or modules), debit the overpaid module with TC 820 and credit the balance due tax module with TC 700. The transaction date (TRANS-DT) for both the debit and credit sides of the transfer is the current date (date of input).

(5) The effect of offsetting all or part of a Form 4466 overpayment using the date the credit transfer is made may make available on the receiving module a credit that is dated prior to the return due date of the losing module. Nevertheless, if the credit on the receiving module is subsequently refunded or offset, it is considered to be available, for purposes of computing overpayment interest, with the same date that was used to apply it to the receiving module.

(1) Effective after December 31, 1994, the General Agreement on Tariffs and Trade (GATT) established a lower interest rate for large corporate overpayments. The GATT rate is one and a half points below the normal corporate interest rate for overpayments exceeding $10,000 for all business taxpayers with a corporate filing requirement. See IRM 20.2.4.10.2(2).

(2) Interest on overpayments for non-corporate BMF taxpayers is not subject to the GATT rate. See IRM 20.2.4.10(4).

(1) The GATT threshold consists of any and all overpayments that were previously offset, applied as a credit elect, or refunded (excluding overpayment interest on the offset or refund), regardless of when the offset, credit elect, or refund occurred.

• Interest allowed or accrued on any prior overpayment is excluded from consideration when determining the GATT threshold amount.

• Do not add overpayments from other tax periods or types of tax to determine whether the threshold amount is exceeded. The threshold is determined separately for each tax module of the same tax type.

(2) To determine if the threshold has been met:

1. Add all previous overpayments refunded, offset, or applied as a credit elect (excluding overpayment interest) for the tax module to the amount that you are currently processing.

2. If the total is less than or equal to the $10,000 threshold amount, then the overpayment being processed is subject to normal corporate overpayment interest rates.

3. If the total exceeds the $10,000 threshold, the excess amount represents the portion of the current overpayment that is subject to the lower GATT rate. Any difference between the current overpayment amount and the GATT overpayment amount is subject to corporate credit rates.

(3) Prior to January 1, 1999, only refunds (TC 840, TC 846) were considered by Master File to reduce the GATT threshold (excluding overpayment interest on refund). Overpayments offset to other modules (for example, TC 820, TC 826, TC 830, TC 836) did not reduce the threshold. Interest computations made prior to the programming change to Master File (effective January 1, 1999), which used this methodology, are to maintain their original character. For interest computations made after the programming change, any offsets or credit elect not previously considered must be counted when determining the threshold.

(1) The reduced GATT rate applies not only to the excess portion of an overpayment that exceeds $10,000, but also to the interest that accrued on the excess portion under pre-GATT law (Post-Counsel GATT computation).

1. Normal corporate overpayment interest is computed on the $10,000 from the overpayment availability date to the scheduled refund date or the offset date, and

2. Normal corporate overpayment interest on the excess amount (over $10,000) is computed from the overpayment availability date to December 31, 1994, then

3. Interest on that excess amount and on the related normal corporate overpayment interest accrued through December 31, 1994, is computed at the GATT rate to the scheduled refund date or the offset date. The total of the normal corporate overpayment interest and the interest at the GATT rate is the allowable interest on the refund or offset

(2) Prior to January 1, 1999, Master File programming computed GATT interest (Pre-Counsel GATT computation) as follows:

1. Normal overpayment interest was computed on the entire overpayment from the overpayment availability date to December 31, 1994.

2. Normal overpayment interest rates were used to compute interest on all interest accruals to December 31, 1994 and the $10,000 threshold amount to the refund or offset date.

3. GATT rates were applied only to the excess principal from January 1, 1995 to the refund schedule or offset date.

4. Under pre-counsel GATT, offsets and amounts applied as a "credit elect" were not considered in determining the GATT threshold amount.

   Note: An offset or credit elect not previously considered in determining the GATT threshold should be considered when a new overpayment is processed after post-counsel GATT was implemented.

5. Do not change or "correct" overpayment interest only because it was computed under pre or post-Counsel GATT computations before January 1998.

(3) The GATT rate affects annual and net rate interest computations.

• When netting the interest on a module in which overpayment interest was allowed at the lower GATT rate, underpayment interest is computed at the GATT rate during the applicable overlapping period. See IRM 20.2.14, Netting of Overpayment and Underpayment Interest, for specific netting instructions.

• The interest that was allowed on the overpayment subject to netting must be verified so that netting is performed using the appropriate interest rate(s).

• For netting purposes, use the pre or post-Counsel GATT computation in the same manner it was used on the original overpayment.

(4) The ACT/DMI software provides special transactions for use with modules involving GATT considerations. These transaction codes are TC 1003 (transaction type "Interest"), and TC 1004 (transaction type "Interest High"). These transactions allow ACT to properly handle interest and principal for GATT purposes (they are not necessary for modules not affected by GATT). The ACT/DMI software recognizes both TC 1003 and TC 1004 as interest, and will not apply a TC 1003 or TC 1004 amount to the GATT threshold. When entering tax module data on ACT/DMI, use the refund transaction from the transcript (TC 840 or TC 846) to show the refund of principal only. Use TC 1004 for the interest portion if any of the refund interest was computed at the normal corporate, "High" rate (or interest on the first $10,000 of principal if the refund was issued before January 1, 1995). A TC 1003 may be used if the refund interest is entirely computed at the GATT rate.