Clarification of Period During Which Interest Is Allowed With Respect to Certain Overpayments

DEPARTMENT OF THE TREASURY

26 CFR Part 301

[TD 8524]

RIN 1545-A079

Clarification of Period During Which Interest Is Allowed With

Respect to Certain Overpayments

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document amends Sec. 301.6611-1 on Procedure and

Administration. The amendments clarify the period during which interest

is allowed on overpayments credited against a taxpayer's liability for

interest and certain additions to the tax. The amendments are necessary

as a result of changes to the law made by the Tax Equity and Fiscal

Responsibility Act of 1982 and the Deficit Reduction Act of 1984. The

amendments affect all taxpayers that have overpayments credited against

underpayments.

DATES: These regulations are effective March 3, 1994. These regulations

are applicable for credits made on or after August 25, 1992.

FOR FURTHER INFORMATION CONTACT: Forest Boone of the Office of

Assistant Chief Counsel (Income Tax & Accounting), Internal Revenue

Service, 1111 Constitution Avenue NW., Washington, DC 20224 (Attention:

CC:IT&A:Br06) or telephone 202-622-4960 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document amends the regulations on Procedure and

Administration (26 CFR part 301) under section 6611 of the Internal

Revenue Code (Code) to clarify the period during which interest is

allowed on overpayments that are credited against a taxpayer's

liability for interest and certain additions to the tax. These

amendments conform the regulations to section 344 of the Tax Equity and

Fiscal Responsibility Act of 1982 (TEFRA) (Pub. L. 97-248, 96 Stat.

635), and section 158 of the Deficit Reduction Act of 1984 (DEFRA)

(Pub. L. 98-369, 98 Stat. 696).

On August 25, 1992, the IRS published in the Federal Register a

Notice of Proposed Rulemaking (57 FR 38457). The IRS did not receive

any comment letters in response to that notice nor was a public hearing

requested. The proposed regulations are adopted in this Treasury

decision.

Explanation of Provisions

Interest on Overpayments That Are Credited Against Interest on

Underpayments

Section 6611(a) of the Code provides that interest shall be allowed

and paid on any overpayment in respect of any internal revenue tax at

the overpayment rate established under section 6621. Under section

6402(a), the Secretary may credit any overpayment (including any

interest allowed thereon) against any liability imposed under the Code

on the taxpayer. Under section 6611(b)(1), interest is allowed on an

overpayment that is so credited from the date of the overpayment to the

due date of the taxpayer's liability against which the overpayment is

credited. For purposes of this interest computation, specific due dates

are provided in Sec. 301.6611-1(h).

Generally, section 6601(f) provides that once an overpayment is

credited to satisfy a taxpayer's liability, interest no longer accrues

on that liability. Section 344 of TEFRA added section 6622 of the Code,

which requires interest imposed by the Code to be compounded daily. The

effect of section 6601(f) on the compounding requirement of section

6622 is that once an overpayment is credited to satisfy the taxpayer's

liability for interest, that credit cuts off any further compounding of

that interest (i.e., interest no longer accrues on the taxpayer's

interest liability against which the credit has been made).

Similarly, it is appropriate that no interest liability to the

taxpayer accrues on the overpayment once the overpayment is credited to

satisfy the taxpayer's liability for interest. Thus, Sec. 301.6611-

1(h)(2)(v) is amended to clarify that interest does not continue to

accrue on any portion of an overpayment that is credited against the

taxpayer's liability for interest.

Interest on Overpayments That Are Credited Against Certain Additions to

the Tax

Prior to DEFRA, interest only accrued on additions to the tax from

the date of notice and demand, and then only if not paid within 10 days

from the date of notice and demand. In section 158 of DEFRA, Congress

added section 6601(e)(2)(B) to the Code, which requires taxpayers to

pay interest on certain additions to tax from the due date of the

relevant return (including any extensions) until the addition to the

tax is paid. The number of additions to the tax that bear interest from

the due date of the return was increased by Congress in 1988 and again

in 1989. Thus, Sec. 301.6611-1(h)(2)(vi) is amended to clarify that no

interest is allowed on any portion of an overpayment that is credited

against certain additions to the tax for any period after the due date

of the return (including extensions) to which the addition to the tax

relates.

Prior Regulations Obsolete

These regulations are effective for credits made on or after August

25, 1992. It should be noted that, since the enactment of section 6622

of the Code in TEFRA, the IRS has treated Sec. 301.6611-1(h)(2)(v) of

the prior regulations as obsolete. Likewise, the Service has treated

Sec. 301.6611-1(h)(2)(vi) of the prior regulations as obsolete with

respect to certain additions to the tax since the enactment of section

6601(e)(2)(B) in DEFRA. Thus, the IRS has computed and is currently

computing interest in a fashion consistent with these amendments.

Effect on Other Documents

On October 9, 1984, the IRS published in the Federal Register (49

FR 39566 [LR-280-82, 1984-2 C.B. 860]) proposed amendments to

Sec. 301.6611-1 and Sec. 301.6601-1 on Procedure and Administration.

The proposed amendments revised Sec. 301.6611-1 to reflect section 346

of TEFRA and section 714(n) of DEFRA, eliminated certain deadwood

provisions, and reorganized Sec. 301.6611-1. The proposed amendments

did not, however, include revisions to take into account section 344 of

TEFRA or section 158 of DEFRA because those sections were beyond the

scope of that regulation project. The proposed amendments have not been

adopted as final regulations. If the proposed amendments are adopted as

final regulations, their rules (and, to the extent necessary, their

effective dates) will be modified to be consistent with these

regulations.

Special Analyses

It has been determined that this Treasury decision is not a

significant regulatory action as defined in EO 12866. Therefore, a

regulatory assessment is not required. It also has been determined that

section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)

and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to

these regulations, and, therefore, a Regulatory Flexibility Analysis is

not required. Pursuant to section 7805(f) of the Internal Revenue Code,

the notice of proposed rulemaking preceding these regulations was

submitted to the Small Business Administration for comment on its

impact on small business.

Drafting Information

The principal author of these regulations is Forest Boone of the

Office of Assistant Chief Counsel (Income Tax & Accounting). However,

other personnel from the IRS and Treasury Department participated in

their development.

List of Subjects 26 CFR Part 301

Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income

taxes, Penalties, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

Paragraph 1. The authority citation for part 301 continues to read

in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 301.6611-1 is amended by:

a. Revising paragraphs (h)(2)(v) and (h)(2)(vi) as set forth below.

b. Adding paragraph (k) to read as set forth below.

Sec. 301.6611-1 Interest on overpayments.

* * * * *

(h) * * *

(2) * * *

(v) Interest. In the case of a credit against interest that accrues

for any period ending prior to January 1, 1983, the due date is the

earlier of the date of assessment of such interest or December 31,

1982. In the case of a credit against interest that accrues for any

period beginning on or after December 31, 1982, such interest is due as

it economically accrues on a daily basis, rather than when it is

assessed.

(vi) Additional amount, addition to the tax, or assessable penalty.

In the case of a credit against an additional amount, addition to the

tax, or assessable penalty, the due date is the earlier of the date of

assessment or the date from which such amount would bear interest if

not satisfied by payment or credit.

* * * * *

(k) Effective date. Paragraphs (h)(2)(v) and (h)(2)(vi) of this

section are effective for credits made on or after August 25, 1992.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved: February 3, 1994.

Leslie Samuels,

Assistant Secretary of the Treasury.

[FR Doc. 94-4780 Filed 3-2-94; 8:45 am]

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