Final Regs Clarify Period for Interest on Overpayments

 [4830-01-U]

 ACTION: Final regulations.

 SUMMARY: This document amends section 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.

 The amendments apply to 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 N.W., Washington, D.C. 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 section 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, section 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, section 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 section 301.6611-1(h)(2)(v) of the prior regulations as obsolete. Likewise, the Service has treated section 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 section 301.6611-1 and section 301.6601-1 on Procedure and Administration. The proposed amendments revised section 301.6611-1 to reflect section 346 of TEFRA and section 714(n) of DEFRA, eliminated certain deadwood provisions, and reorganized section 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.

SECTION 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.