- 20.2.1.1 Introduction
- 20.2.1.2 Overview
- 20.2.1.3 Administrative
- 20.2.1.4 Taxpayer Communication
- 20.2.1.5 Taxpayer Advocate Service
- 20.2.1.6 Terminology
- Exhibit 20.2.1-1 IRM Part Numbers by Process
- Exhibit 20.2.1-2 Definition of Terms
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This Internal Revenue Manual (IRM) contains information specific to interest computations for all areas of the Service. Instructions for case processing unique to a business operating division can be found in the IRM for the specific business function(s).
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Certain exhibits are located at the end of each section and are numbered according to the chapter.
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The Internal Revenue Service (IRS) administers the Internal Revenue laws, including laws that govern the computation and payment of interest.
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The Director, Small Business/Self-Employed, Exam Policy, Servicewide Interest Program (SE:S:E:EP:SI), has the overall responsibility for coordinating and approving updates to this IRM.
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This multi-functional IRM provides instructions for computing interest and applies to all functional areas and Business Operating Divisions, as well as Appeals, Taxpayer Advocate, and Criminal Investigation.
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Policy Statements that relate to interest are found in the IRM Policies of the Internal Revenue Service.
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Procedures in IRM 20.2, Interest, refer to the Law Enforcement Manual (LEM) 20.2, Interest, where needed.
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This section provides administrative guidelines.
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Campus Directors are authorized to perform all administrative actions on all interest cases including restricted interest conditions, except those:
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involving suits for refund filed by taxpayers in which a credit (overpayment) is determined by a court, or
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requiring review by the Joint Committee on Internal Revenue Taxation.
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All reference materials involving interest must be consistent with the procedures in this IRM and must be approved by management in SB/SE, Examination, Exam Policy, Servicewide Interest Program (SE:S:E:EP:SI).
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To maintain the accuracy of IRM 20.2 Interest, send corrections, change requests and inquiries to the Servicewide Interest Program (SIP) via the Servicewide Electronic Research Program (SERP) Feedback System. The SERP Staff submits the SERP Feedback requests to the appropriate IRM/Content Owner(s) for consideration of the requested IRM procedural change. This process of submitting feedback to the SIP is easy to use and provides continuous tracking that allows viewing the status of any feedback inquiries. SERP Feedback may be used by all areas of the Service to report issues that must be addressed by Headquarters offices. Follow guidelines contained in IRM 21.1.2.2.2 to submit feedback issues.
Note:
Before you submit questions regarding interpretation of IRM instructions via the SERP Feedback Form, please consult your lead or manager for assistance.
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When it is necessary to seek Counsel advice on an issue, the request needs to be shared with the Servicewide Interest Program as it is being forwarded to Chief Counsel. The request may also be sent through the SIP for submission of the request to Chief Counsel. This action ensures the SIP staff stays abreast of emerging issues that impact interest computation and provide for distribution of that information to all area offices and campuses.
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Employee Suggestions should continue to be sent through the Suggestion Program for consideration.
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Other forms that may be used to contact the Servicewide Interest Program are:
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Systems Production Evaluation Report: Use Form 5715 (also in electronic version) to report systemic programming and operational problems that need immediate attention (work stoppage situations only). See IRM 3.0.273.3.2.
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Procedures/Systems Change Request: Use Form 5391 to request a change or improvement to the interest IRM, Interest Program, IDRS or Master File processing system (non-work stoppage). See IRM 3.0.273.1.
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Editorial Change Request: Use Form 9345 to report either typographical or printing errors. Form 9345 is not controlled upon receipt and will not receive a written response. See IRM 3.0.273.3.5.
Note:
Do not report operational problems or defects on this form.
Ask an AnalystQuestions are entered on the Servicewide Interest Web Site ( http://sbse.we.irs.gov/opi ). Responses are posted to the web site as well as to the individual posting the question. Taxpayer or tax module specific inquiries or requests on how to compute interest should not be submitted to the site.
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Use the following materials to help understand this IRM:
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IRM Part Number and Business Processes List See Exhibit 20.2.1-1.which lists "Part" numbers of each IRM that is referenced throughout this IRM chapter.
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Definition of Terms, See Exhibit 20.2.1-2 which defines the terms used throughout this IRM chapter.
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Use the Penalty and Interest Notice and Explanation (PINEX) or a legible print from Command Code COMPAD or the Automated Computation Tool (ACT/DMI) to provide a taxpayer an explanation of credit or debit interest related to a tax module. See IRC section 6631 and IRM 20.2.8.3. See IRM 20.2.3 for PINEX instructions and IRM 20.2.6, Methods of Computing Interest. Remove the taxpayer SSN, except for the last four digits, prior to mailing any correspondence per OMB Memorandum M-07-16.
If And Then A taxpayer inquires about computer generated interest by telephone, You are unable to match the interest by using CC INTSTD, COMPA, or ACT, Prepare e-Form 4442 (Electronic Refund) and send to an interest specialist within your campus.
A taxpayer inquires about manual computation of interest,
You are unable to match the interest assessed,
Obtain the original source document that outlines how the interest was computed. Verify it and provide a copy of this information to the taxpayer, or send to a FORT manager at the Memphis or Ogden campus.
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If during a taxpayer contact, it appears there may be a hardship situation and you are unable to provide relief within 24 hours, complete Form 911, Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order), and refer the taxpayer to the Taxpayer Advocate Service (TAS). See IRM Part 13 or IRM 21.1.3.18 for more information.
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The terminology used in this handbook is described in this section. See Exhibit 20.2.1-2.
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The statutory requirements for calculating interest on underpayments and overpayments are contained in IRC sections 6601 and 6611. The payment of interest on underpayments and overpayments under these provisions is mandatory unless specifically prohibited by law.
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The two types of interest are:
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Credit Interest (overpayment) – Interest paid to the taxpayer by the IRS on an overpayment of tax, and
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Debit Interest (underpayment) – Interest charged to the taxpayer when tax, penalty, addition to tax, or interest is owed to the government.
Note:
Different interest rates may apply to underpayments and overpayments. After December 31, 1999 the interest rates for non-corporate taxpayers became equal for both underpayments and overpayments, while they are still different for corporate taxpayers.
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The term "simple interest" refers to interest that is computed only on the principal amount owed. Simple interest accrued on overpayments and underpayments of tax and penalties before January 1, 1983.
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The term "compound interest" refers to interest that accrues on both the principal amount and on any interest charged on the principal (i.e., interest on interest).
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The IRS is required to compound interest daily, effective January 1, 1983.
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When it is necessary to manually compute interest, use Command Code (CC) COMPA or the Automated Computational Tool (ACT/DMI).
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The term "normal interest" refers to interest that is computed without regard to any restrictions.
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On an underpayment, normal interest is computed from the date the liability is due and unpaid to the date paid.
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On an overpayment, normal interest is computed from the availability date of the overpayment to the date provided within IRC section 6611, depending on whether the amount is credited (offset) or refunded.
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Generally, it is not necessary to manually compute and adjust normal interest. Master File programming will compute normal interest based on debits and credits posted to the tax module.
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The term "restricted interest" refers to any interest that is computed from other than the normal interest start and stop dates.
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The rules that govern restricted interest are more complex than those for normal interest. The variables of time and rate may differ.
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In many instances, Master File programming cannot compute restricted interest. Because of this, you must manually compute and adjust interest when Master File limitations prevent systemic generation of interest.
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The term "annual interest netting" refers to a method of computing interest which equalizes the difference between credit and debit interest rates within a single tax module during periods of mutual indebtedness (e.g., if a taxpayer received a refund with interest and it is later determined that an underpayment exists in that module during the same time period, the debit and credit interest rates will be netted or equalized within that tax module during the overlapping period). It is not necessary to manually compute interest to make an annual netting adjustment, if there is no reason to otherwise manually compute and restrict interest.
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The term "Net Rate Interest Netting" refers to the method of computing interest to equalize/eliminate the interest rate differential between overpayments and underpayments (for the same taxpayer for the same or different types of tax). The overlapping debit and credit interest computation periods occur between different tax modules on equivalent amounts. See IRM 20.2.14 for instructions on making net rate interest adjustments.
Note:
Modules requiring net rate interest adjustments are always restricted from systemic computation and require a manual calculation of interest. Use the Automated Computational Tool (ACT/DMI), since IDRS interest computation command codes are not suited to perform net rate calculations.
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The debit interest rate is applied under the authority of IRC section 6621 during the time period between when the payment of tax, penalty and/or interest become due and when they are paid.
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The credit interest rate is applied under the authority of IRC section 6611 during the time period from the credit availability date to the date an overpayment is either refunded (with the applicable back- off period) or offset.
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The interest rates are determined quarterly. Although interest rates are determined quarterly, they can change or remain the same from quarter to quarter.
| IRM REFERENCE LIST | |
|---|---|
| IRM | TITLE |
| Part 1 | Organization, Finance and Management |
| Part 2 | Information Technology |
| Part 3 | Submission Processing |
| Part 4 | Examining Process |
| Part 5 | Collecting Process |
| Part 6 | Human Resources Management |
| Part 7 | Rulings and Agreements |
| Part 8 | Appeals |
| Part 9 | Criminal Investigation |
| Part 10 | Security, Privacy and Assurance |
| Part 11 | Communications and Liaison |
| Part 13 | Taxpayer Advocate Service |
| Part 20 | Penalty and Interest |
| Part 21 | Customer Account Services |
| Part 22 | Taxpayer Education and Assistance |
| Part 25` | Special Topics |
| Part 30 | Chief Counsel Directives Manual - Administrative |
| Part 31 | Chief Counsel Directives Manual - Guiding Principles |
| Part 32 | Chief counsel Directives Manual - Published Guidance and Other Guidance to Taxpayers |
| Part 33 | Chief Counsel Directives Manual - Legal Advice |
| Part 34 | Chief Counsel Directives Manual - Litigation in District Court, Bankruptcy Court, Court of Federal Claims, and State Court |
| Part 35 | Chief Counsel Directives Manual - Tax Court Litigation |
| Part 36 | Chief Counsel Directives Manual - Appellate Litigation and Actions on Decision |
| Part 37 | Chief Counsel Directives Manual - Disclosure |
| Part 38 | Chief Counsel Directives Manual - Criminal Tax |
| Part 39 | Chief Counsel Directives Manual - General Legal Services |
| LEM | Law Enforcement Manuals |
| DEFINITION OF TERMS |
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| ABATED INTEREST — The portion of the interest liability on a given module or account which has been reversed. |
| ACCRUED INTEREST — The unassessed portion of the total interest liability on a specified module or account at any given date. It is the difference between interest assessed and total interest due. |
| ADDITIONS TO THE TAX — Amounts imposed and added to the tax based on a specified percentage of the tax. These additions are commonly referred to as penalties. |
| ADVANCE PAYMENT — A payment made prior to assessment of a determined, pending, or proposed liability. |
| ALLOWABLE INTEREST — Interest (provided by law) which is allowed on an overpayment. Also known as overpayment or credit interest. |
| ANNUAL INTEREST NETTING — Method of computing interest which equalizes the rate difference between credit and debit interest within a single tax module during periods of mutual indebtedness. |
| ASED — Assessment Statute Expiration Date. The date established by law by which the Service must assess any tax due for a given tax period. |
| ASSESSED INTEREST — The portion of the interest liability on a given module or account which has been recorded to a given assessment date (23C Date). |
| ASSESSMENT DATE (23C DATE) — The date that a taxpayer's liability for tax, penalty, and applicable interest is recorded. It is also the date that the notice and demand for payment of that amount is issued to the taxpayer. |
| AVAILABILITY DATE OF CREDIT — The date an amount becomes available to credit against an outstanding IiabiIity or refund to the taxpayer. |
| CARRYBACK — The application of a net operating loss, net capital loss, and certain unused non-refundable tax credits to taxable years preceding the year in which the excess amount is generated. (See Exhibit 20.2.1-2 Losing Module and Gaining Module). |
| CARRYBACK YEAR — The year to which a net operating loss, net capital loss, or certain other unused non-refundable tax credits is carried. |
| CARRYFORWARD — A carryover of unused net operating loss, net capital loss, or other unused non-refundable tax credits to years following the tax year in which the excess amount is generated. |
| CASH BOND —Payment to stop interest on tax only, but taxpayer does not agree with a deficiency notice (taxpayer retains appeal rights). After 10/22/2004, the cash bond terminology is obsolete and IRC section 6603 deposits are used to stop the running of debit interest on disputed tax liabilities. |
| CLAIM — A request by a taxpayer to reduce a liability owed through crediting of an overpayment for refund of an amount paid, for interest netting, or to request an abatement. A claim may be formal or informal. |
| COMPOUND INTEREST — Interest computed on interest already assessed or accrued. Compound interest applies to interest accruing after December 31, 1982. |
| CREDIT INTEREST — Interest on an overpayment allowed under IRC section 6611. Also known as overpayment or allowable interest. |
| CREDIT INTEREST RULES — The rules that define how credit interest is computed on overpayments. |
| CSED — Collection Statute Expiration Date. The date established by law by which the Service must collect any amount due from a taxpayer for a given tax period. Interest can be assessed to the CSED date. |
| CYCLE — One week's processing at a Campus, Martinsburg, or Tennessee Computing Center. There are 52 cycles in a year. |
| DEBIT INTEREST — Interest charged when the taxpayer owes a liability to the government. Also known as deficiency or underpayment interest. |
| DEBIT INTEREST RULES — The rules that define how debit interest is computed on underpayments under IRC section 6601. |
| DEFICIENCY — The amount by which the tax imposed by Subtitle A or B, or chapter 41, 42, 43, or 44 exceeds the excess of the sum of the amount shown as the tax on a return filed by a taxpayer, plus any amounts previously assessed (or collected without assessment) as a deficiency over the amount of rebates made. (See Exhibit 20.2.1-2 Rebate). |
| DESIGNATED PAYMENT — A payment designated by a taxpayer to be applied to a particular tax, penalty, or interest liability. These payments are identified by TC 640, 680, or 690. |
| DESIGNATED PAYMENT CODES (DPC) — A two digit code which identifies a payment designated by a taxpayer for a type of tax. See Document 6209, IRS Processing Codes and Information, for a listing of specific Designated Payment Codes. |
| DIFFERENTIAL INTEREST RATES — The rate difference between debit and credit interest rates. Differential interest rates began on January 1, 1987 and ended only for individual taxpayers on December 31, 1999. |
| DUE DATE — The date a liability is due. |
| EFFECTIVE DATE — Generally, the date a transaction (either debit or credit) posts to a taxpayer's module. The effective date for beginning a computation of debit or credit interest may be different than the posted transaction date. |
| ERRONEOUS REFUND — A refund to which a taxpayer is not entitled under IRC section 6532(b), 6602 and 7405. |
EXTENDED RETURN
DUE DATE — The date for which an extension of time to file a
return has been granted. The extended return due date affects the date interest
begins on certain penalties.
Note:May also refer to a return due date extended by certain provisions such as for combat zone participants or taxpayers affected by a disaster declaration. |
| FREEZE — An instruction applied to a Master File tax account or module that restricts normal computer actions. |
| GAINING MODULE — The module to which a credit is applied (See Exhibit 20.2.1-2. Losing Module). |
| GATT (General Agreement on Tariffs and Trade)— Interest rate legislation effective after December 31, 1994 for large corporate overpayments exceeding $10,000. The GATT rate is one and a half points below the corporate credit interest rate. See IRM 20.2.4.9. |
| INSTALLMENT PRIVILEGE — The right, as provided in the Internal Revenue Code (IRC), to pay a liability in installments. |
| INTEREST — Generally, the amount computed on an underpayment or overpayment of tax for the time a taxpayer has use of the government's money or for the time the government has use of a taxpayer's money. It is known as underpayment (debit) interest when a taxpayer owes the government and overpayment (credit) interest when the government owes a taxpayer. IRC section 6601 and 6611 provide the rules for computing interest on underpayments and overpayments. |
| INTEREST ABATEMENT — The reduction of all or part of previously assessed interest. |
| INTEREST DUE — Total interest due on a module, which includes all assessed and accrued interest less interest paid. |
| INTEREST-FREE PERIOD ON OVERPAYMENTS — Period of time during which credit interest is not allowed (payable). |
| INTEREST-FREE PERIOD ON UNDERPAYMENTS — Period of time during which debit interest is not computed (charged). |
| IRC SECTION 6603 DEPOSIT—Similar to a cash bond in that it is used to stop the running of interest on an underpayment. However, a taxpayer must specify the "disputable tax" and pay the tax amount shown on a 30-Day Letter. If overpaid, a taxpayer can receive credit interest at a reduced rate (short term rate). |
| IRS COMPUTED FORM — A partially completed form submitted by the taxpayer, asking the IRS to figure the tax. |
| LIABILITY — The amount owed on a tax module or tax account. |
| LOSS YEAR—As it pertains to carrybacks, is the taxable year in which the loss arises per IRC 6611(f)(4)(B)(ii). (See Exhibit 20.2.1-2 Carryback). |
| LOSING MODULE — The module from which a credit originates before being moved to a liability module (See Exhibit 20.2.1-2 Gaining Module). |
| MANAGERIAL ACT — An administrative act that occurs during the processing of a taxpayer's audit examination involving the temporary or permanent loss of records or the exercise of judgment or discretion relating to management of personnel. A decision concerning the proper application of federal tax law (or other federal or state law) is not a managerial act. Further, interest attributable to a general administrative decision, such as the IRS's decision on how to organize the processing of tax returns or its delay in implementing an improved computer system, cannot be abated. |
| MINISTERIAL ACT — A procedural or mechanical act that does not involve the exercise of judgement or discretion, that occurs during the processing of a taxpayer's audit examination after all prerequisites to the act, such as conferences and review by supervisors have taken place. A decision concerning the proper application of federal tax law (or other federal or state law) is not a ministerial act. |
| MODULE — All information contained on the Master File for a specific type of tax for one tax period for one taxpayer. A module is a portion of a Master File tax account. |
| NET RATE INTEREST NETTING — The interest computation method to equalize/eliminate the interest rate differential between equal amounts of overpayments and underpayments during overlapping interest computation periods. |
| NON-MASTER FILE — A manual accounting system which processes documents, returns, or adjustments that cannot be posted to the Individual or Business Master File. |
| NORMAL INTEREST — Debit or credit Interest that is not restricted. |
| NOTICE DATE — The date a notice (bill) for payment is issued to a taxpayer. |
| OFFER-IN-COMPROMISE (OIC) — An offer is an agreement between a taxpayer and the government to settle a tax liability for payment of less than the full amount. |
| OFFSET — The transfer of an available credit from one type of tax or tax period to an outstanding liability of another/same type of tax or another tax period. |
| OUTSTANDING BALANCE — The unpaid amount of overpayment or underpayment existing in a module. On IDRS or Master File transcripts, a hyphen (-) following the figure indicates a credit balance while a figure standing alone will indicate a debit balance. |
| OUTSTANDING LIABILITY — Total amount of unpaid tax, penalties, and interest due. |
| OVERPAYMENT — Any payment in excess of the total liability including tax, penalties, and interest for a specific type of tax and taxable period. |
| PAYMENT DATE — The received date of a payment. |
| REBATE — The amount of an abatement, credit, refund or other payment made on the grounds that the tax imposed by subtitle A or B, or chapter 41, 42, 43, or 44 was less than the excess of the amount shown as the tax on a return filed by a taxpayer plus amounts previously assessed (or collected without assessment) as a deficiency over the rebates previously made (See Exhibit 20.2.1-2 Deficiency). |
| RECOMPUTATION — The computation of interest after all transactions with monetary amounts are sorted in effective date sequence. |
| REFUND — An overpayment, plus any credit interest, which is issued to the taxpayer. |
| RESTRICTED INTEREST — Interest computed from other than the normal start and stop dates. Interest may be restricted because it is prohibited or limited to specific time periods by law or when conditions exist in which the computer cannot systemically calculate the interest. |
| RETURN DUE DATE (RDD) — The required date by law that a return must be filed (with regard to extensions). |
| RETURN RECEIVED DATE — The received date of a timely filed return (including extensions) or the date that a late filed return is received by the Service. |
| RSED — Refund Statute Expiration Date. The date established by law that a taxpayer must file a claim for credit or refund for a given tax period. |
| RUNNING MODULE BALANCE — The balance of tax, penalty and interest, occurring as monetary amounts are sorted in effective date sequence. |
| SCHEDULE DATE — The date on which an overpayment is certified for refund. |
| SIMPLE INTEREST — Interest computed on a principal amount only. The Service computed simple interest prior to January 1, 1983. |
| SUBSEQUENT PAYMENT — A payment (TC 670) made after a return is filed or in response to a subsequent liability. |
| SUBSTITUTE FOR RETURN (SFR) — A return prepared by the Service under the authority of IRC section 6020(b), using information from third party sources because the taxpayer did not file a return. |
| TAXPAYER DELINQUENT ACCOUNT (TDA) — A computer generated print out stating that a taxpayer's balance due account or module has reached delinquent status. They are received systemically via the Integrated Collection System (ICS) in a revenue officer's inventory. |
| WAIVER — A document (usually a Form 870) signed by a taxpayer certifying proposed overassessments as correct or consents to the assessment and collection of a proposed deficiency. |
| WAIVER DATE — The date a waiver is effective. This is also referred to as the "870 date" or "agreement date" . |