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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 estate, excise, employment, and foreign tax issues correctly understand and follow technical guidance and information for interest rates and methods of computation.

These procedures are covered under the following authority:

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

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

Overall responsibility for the interest programs resides with OSI. OSI coordinates policy and procedures concerning administration of the interest programs.

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

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.

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.

In accordance with IRC 6601(a) and IRC 6611, the payment of interest is required on underpayments of tax and overpayments of tax, respectively, unless otherwise specified by law.

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.

Interest is statutory. It cannot be reduced or abated due to reasonable cause, nor can it be negotiated. See IRM 20.2.7, Abatement and Suspension of Debit Interest Overview, for situations in which interest can be lawfully reduced or abated.

The table below provides definitions of terms used throughout this IRM.

The table below provides acronyms and definitions used throughout this IRM.

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

If all or a portion of an assessment (deferred amount) is paid in installments, compute and assess interest as shown below.

If an extension of time to pay an estate tax deficiency assessment has been granted under IRC 6161(b)(2), compute interest on the entire balance due from the due date of the return to the date of payment using the normal interest rate.

If an extension of time to pay the tax shown on the return (deferred amount) has been granted under IRC 6161(a)(2) or IRC 6163:

If the time for payment of estate tax is extended under IRC 6166 and a deficiency is assessed after the estate has made one or more timely interest payments:

Refer to IRM 4.25.2, Campus Estate and Gift, for more information.

Death taxes paid to any state, the District of Columbia, or a foreign country, are allowed as a deduction or credit against federal estate tax owed for estates of citizens or residents of the United States. Death taxes include estate, inheritance, legacy, or succession tax. The tax must actually be paid to be taken as a deduction or credit. See IRC 2058 and IRC 2014.

This section explains the effect of the deduction and credit on interest computations.

Interest is computed based on the tax adjustment information shown on Form 1366, Tax Analysis Worksheet for Overassessments of Estate Tax Involving Restricted Interest.

The deduction allowed under IRC 2058 must be claimed within 4 years after the filing of the estate tax return, except if:

The credit allowed under IRC 2014 must be claimed within 4 years after the filing of the estate tax return, except if:

If the claim is timely filed, allow any refund of overpaid estate tax based on the IRC 2058 deduction or the IRC 2014 credit for taxes actually paid within the 4-year period, but do not allow interest on the refund.

If the executor or other person representing an estate recovers any state or foreign death tax claimed as a credit, that representative must, pursuant to Treas. Reg. 20.2016-1, notify the IRS within 30 days of the receipt of a refund by filing an amended return. If the IRS computes the amount of the redetermined federal estate tax (without regard to the statute of limitations provided in IRC 6501) it will be due upon notice and demand.

If an examination determination involves a combination of general adjustments and an adjustment of the deduction or credit claimed on the return for state death taxes under IRC 2058, or foreign death taxes under IRC 2014, the Examination function will flag the case file for the restricted interest examiner. The file will contain Form 1366, Tax Analysis Worksheet for Overassessments of Estate Tax Involving Restricted Interest.

Using Columns C and D of Form 1366, if a deficiency is shown in one column and an overassessment in the other, deduct the lesser amount from the greater amount to determine the net result.

In some instances, a redetermination is prepared after adjustments have been made to the amounts claimed as a state death tax deduction or foreign death tax credits and the resulting deficiencies or overassessments have been assessed or scheduled.

Pursuant to IRC 901, a taxpayer is entitled to a tax credit for creditable taxes paid to a foreign government. The foreign tax credit (FTC) alleviates U.S. taxpayers of the double tax burden imposed when the foreign source income is taxed by both the United States and the foreign country from which it is derived.

Depending on the taxpayer, FTC is claimed on either:

A taxpayer (either an individual or a corporation) computes its foreign tax credit under IRC 901 with respect to creditable foreign taxes that it pays or accrues during the taxable year. In addition, a domestic corporation may claim a foreign tax credit for such taxes that are paid or accrued directly or indirectly by a controlled foreign corporation in which the domestic corporation is a United States shareholder and that the domestic corporation is deemed to pay under IRC 960.

The individual or corporation must provide the following information:

Under prior law, foreign tax redeterminations were, with respect to foreign taxes paid or accrued by a foreign corporation deemed paid by a U.S. corporate shareholder under IRC 960 ( or IRC 902). The Tax Cuts and Jobs Act repealed IRC 902 effective for tax years of foreign corporations beginning after December 31, 2017 and, for tax years of U.S. shareholders of such foreign corporations in which such tax years of the foreign corporations end. While IRC 902 was repealed, deemed paid tax credits are still allowable for FTC purposes as provided by IRC 960. Generally, for foreign tax redeterminations with respect to pre-2018 tax years that occurred in tax years beginning after 2017, and affect foreign taxes deemed paid, amended returns must be filed. However, taxpayers may elect to account for redeterminations with respect to pre-2018 taxable years that occur in taxable years of foreign corporations ending with or within taxable years of their United States shareholders ending on or after November 2, 2020, by adjusting the foreign corporation¡¯s pools of post-1986 undistributed earnings and foreign income taxes for its last pre-2018 taxable year.

U.S. tax treaties allow a taxpayer to request a Mutual Agreement Procedure (MAP) if the taxpayer believes that it is, or will be, subject to taxation inconsistent with the treaty or coordination agreement. For additional information see:

The MAP articles of U.S. tax treaties and tax coordination agreements grant taxpayers the right to request the assistance of the appropriate competent authority specified in the treaty/agreement when a taxpayer believes that the actions of the United States or the applicable U.S. treaty partner/U.S. territory result or will result in the taxpayer being subject to taxation not in accordance with the applicable treaty/tax coordination agreement. This situation typically arises from U.S. or foreign-initiated adjustments resulting from an examination but can also arise from other U.S. or foreign-initiated actions, including when taxes are withheld by a withholding agent.

The U.S. competent authority¡¯s jurisdiction over competent authority issue(s) in a competent authority request begins when the U.S. competent authority accepts such competent authority request (in the case of competent authority request made to U.S. competent authority) or the U.S. competent authority is notified by the competent authority of a U.S. treaty partner/U.S. territory of a competent authority request. For related guidance on when Examination or the U.S. competent authority has control over a competent authority issue(s), see IRM 4.60.2, Mutual Agreement Procedures and Report Guidelines.

When the U.S. competent authority has jurisdiction over the related competent authority issue affecting a tax return, a TC 971 AC 080 is posted on the account on Master obÌåÓý. Activity Code (AC) 080 indicates the return(s) has an accepted, unresolved/open competent authority request associated with the U.S.

Where competent authority resolution is not reached between the United States and the U.S. treaty partner/U.S. territory, or when the taxpayer does not accept the terms of a tentative competent authority resolution, the U.S. competent authority concludes its review of the issues and returns jurisdiction over the issue(s) in the competent authority request to Examination accompanied by a disposition memorandum.

Taxpayers can carryback or carryover amounts by which the foreign taxes that they pay or accrue exceed the foreign tax credit limitation (¡°excess foreign taxes¡±). See IRC 904(c). However, taxpayers may not carryover or carryback excess foreign taxes that are deemed paid or accrued under IRC 960(d) (attributable to gross income inclusions of a domestic corporation or that otherwise relate to income included under IRC 951(1)(a)(A)).

Per IRC 6611(e) and IRC 6611(f)(4)(B), no interest will be paid on carryback refunds if issued within 45 days of the date the claim is received by the IRS. See paragraph (2) IRM 20.2.10.3.3.1, Computing Overpayment Interest on Excess Foreign Tax Carrybacks.

If an FTC carryover refund is claimed on the taxpayer¡¯s original return and refunded within the 45-day period, no interest will be paid as provided in IRC 6611(e)(1). If, however, the FTC carryover refund is claimed on an amendedreturn and refunded within the 45-day period, interest will be paid to the date the amended return was filed as provided in IRC 6611(e)(2).

If the erroneous application of a carryback under IRC 904(c) or IRC 907(f) results in a deficiency, that deficiency must generally be assessed within one year after the expiration of the period within which a deficiency may be assessed for the year of the excess taxes described in IRC 904(c) or IRC 907(f) which result in such carryback. See IRC 6501(i).

IRC 965 is a provision of the Tax Cuts and Jobs Act that requires certain taxpayers to pay a transition tax on the accumulated foreign earnings of certain specified foreign corporations as if those earnings had been repatriated to the United States. For this purpose, a specified foreign corporation is a foreign corporation that either is a controlled foreign corporation (within the meaning of IRC 957) or has one or more United States shareholders that is a domestic corporation. See IRM 3.14.2.6.5, IRC 965 Transition Tax Overview, for additional information.

IRC 965 inclusion period was December 1, 2017 through November 30, 2019. After November 30, 2019, no new IRC 965 inclusions can be made.

Taxpayers report 100 percent of the IRC 965 net tax liability, which is included in the total tax assessed and is part of the TC 150 amount. Taxpayers who report IRC 965 on their tax return will have a TC 971 with action code (AC) 114 on the appropriate tax module. TC 971 AC 114 represents the IRC 965 Total Tax Liability minus any amount that was deferred under IRC 965(i).

Interest on an underpayment of excise tax, unless otherwise provided, is charged from the due date of the return to the date the liability is paid in full.

Unless specifically stated otherwise, interest on the overpayment of excise tax is determined using the later of the:

In the case of a refund, overpayment interest is computed from the dates bulleted above TO the refund scheduled date, less the applicable back-off period of IRC 6611(b)(2) for computer-generated/systemic refunds. See IRM 20.2.4.8.1, Systemic Refunds.

In the case of an offset to an outstanding liability with a future effective date, interest is paid FROM the later of the dates bulleted above TO the due date of the liability the overpayment is applied against. No interest is paid on an offset applied against unpaid liabilities due on or before the bulleted FROM dates above. See IRM 20.2.4.7, Offsets.

In the case of an offset to an outstanding liability with a later effective date, interest is paid FROM the later of the dates bulleted above TO the due date of the liability the overpayment is applied against. No interest is paid on an offset applied against unpaid liabilities due on or before the bulleted FROM dates above. See IRM 20.2.4.7, Offsets.

For excise taxes applicable to corporate returns (e.g., fuel tax claims), the lower corporate and GATT (General Agreement on Tariffs and Trade) interest rates apply. Once the $10,000 threshold has been met for that module, then overpayment interest is computed at the GATT rate for all subsequent claims. See IRM 20.2.4.10, Special Overpayment Interest Rules for Corporations, for additional information, including calculation of the GATT threshold.

Many excise tax adjustments are statutorily made without interest. See IRM 4.24.22, Campus Procedures for Excise Taxes.

IRC 4261, Imposition of Tax, Chapter 33, Facilities and Services imposes excise taxes on certain facilities and services. IRC 4261, Chapter 33, includes taxes imposed under Subchapter B, Communications and Subchapter C, Transportation by Air. These excise taxes are often referred to as ¡°collected taxes.¡±

Ultimate Vendor Claims. An Ultimate Vendor claim is an interest-bearing fuel claim per IRC 6427. Claims by registered ultimate vendors of undyed diesel fuel, undyed kerosene, gasoline, aviation gasoline, and kerosene used in aviation (Form 720, Schedule C; Form 8849, Schedule 2) are paid with interest if the refund is not issued within 45 days of receipt (20 days for electronic claims) of a processible claim. No interest is paid when the 20-day or 45-day period is met per IRC 6427(i)(3)(B).

Generally, interest-bearing excise tax fuel claims, filed on Form 8849, Claim for Refund of Excise Taxes, are processed on the income tax module. However, MFT 40 is used to process fuel excise tax refunds, including some interest-bearing claims filed on Form 8849, such as Ultimate Vendor claims, when the refund can be issued systemically within the 20-day or 45-day interest-free period as Master obÌåÓý is not programmed to calculate interest on MFT 40. Requirements for Ultimate Vendor claims processed on MFT 40 include:

In some instances, MFT 40 is also used to process interest - bearing claims that are systemically processed. See IRM 4.24.22.4.5.1.1, MFT 40 Interest Bearing Claims Systemically Processed, for additional information.

Electronic Ultimate Vendor claims and claims (electronic or paper) which require a manual refund are processed on the tax module (MFT 02, 05, 06, or 34) for the related income tax return filed by the taxpayer. Ultimate Vendor claims may be received and processed prior to a return posting (TC 150). Electronic claims processed and issued as a systemic refund (TC 846) within 20 days of receipt must have allowable interest manually computed and entered with TC 770 for zero because Master obÌåÓý cannot systemically perform the interest calculation.

When the 20-day or 45-day interest-free period is missed, overpayment interest must be manually computed. Interest is generally computed from the later of the claim received date or date claim was received in processible form to the refund schedule date (less the back-off period of IRC 6611(b)(2), for computer-generated refunds. See IRM 20.2.4.8.1, Systemic Refunds. Because Master obÌåÓý does not calculate interest using the received date of a claim, interest must be manually computed and input with TC 770 when the interest-free period is missed.

Biodiesel Fuel Mixture, Alternative Fuel Mixture, and Sustainable Aviation Fuel Claims.IRC 6427(e)(1) and IRC 6427(e)(2) allow claims for certain fuel mixtures credits and the alternative fuel credit (Form 720, Schedule C; or Form 8849, Schedule 3). are used to claim these credits. These credits follow the same rules as claims by registered ultimate vendors described in paragraph (1) and in accordance with the above "If and Then" chart. See IRC 6427(i)(3)(B).

Taxpayers could request a credit or refund of the telephone excise tax on nontaxable service that was billed after February 28, 2003, and before August 1, 2006, only on their 2006 federal income tax returns. For this purpose, the 2006 income tax return meant the income tax return for calendar year 2006 or for the first taxable year including December 31, 2006. Details were covered by IRB 2006-25 (Notice 2006-50 ) and IRB 2007-5 (Notice 2007-11 ), which amplified, clarified, and modified IRB 2006-25. The refund statute was open for six years from July 26, 2006, to July 26, 2012.

IRC 6416(b) identifies certain payments as overpayments subject to credit or refund without interest These overpayments, as shown below, are generally claimed on Form 720, Quarterly Federal Excise Tax Return, Schedule C, or Form 8849, Claim for Refund of Excise Taxes, Schedule 6:

IRC 6420 provides for a payment (without interest) to the ultimate purchaser of gasoline, if the gasoline is used on a farm for farming purposes and the ultimate purchaser is an owner, tenant, or operator of a farm. The farm must be located in the U.S.

Annual excise tax claims are made on Form 8849, Claim for Refund of Excise Taxes, Schedule 6. The overpayment may alternatively be refunded or taken as an income tax credit as provided for in IRC 6420(g). Overpayment interest is not allowed for either the refund or the credit.

IRC 6421 provides for a payment (without interest) if gasoline is used in an off highway business use; in inter-city, local or school buses; or sold to any person for an exempt purpose. IRC 6427 provides for a payment (without interest) if a tax has been imposed on the sale of fuel and the purchaser uses the fuel for a nontaxable purpose or resells the fuel. Claims are made on Form 720, Schedule C, Form 720-X, Amended Quarterly Federal Excise Tax Return, Quarterly Federal Excise Tax Return, or Form 8849, Claim for Refund of Excise Taxes, Schedule 1. Depending on the type of taxpayer, the overpayment may be refunded or taken as an income tax credit as provided for in IRC 6421(i) or IRC 6427 (k).

Overpayment interest is not allowed on either type of credit.

If the claim amount needs to be offset for a balance due on another module, the credit transfer date will be the received date of the claim.

IRC 6419(b) identifies as an overpayment the tax on a wager that is laid off by the taxpayer (Form 8849, Claim for Refund of Excise Taxes, Schedule 6, or Form 730, Monthly Tax Return for Wagers, line 5). These overpayments are refunded without interest.

IRC 4132(b) identifies as an overpayment any tax on a vaccine that is returned to the manufacturer or destroyed (Form 720, Quarterly Federal). The tax shall be abated, credited or refunded without interest.

IRC 4483(d) exempts tax on the use of heavy highway vehicles used for 5,000 miles or less (7,500 for agricultural vehicles) Tax paid on is identified as an overpayment. The overpayment amount is reported as a credit on Line 5 of Form 2290, Heavy Highway Vehicle Use Tax Return. The amount on Line 5 cannot exceed the amount on Line 4, Total Tax. Any excess credit must be claimed as a refund on Form 8849, Claim for Refund of Excise Taxes, and Schedule 6 (Form 8849). (Form 2290, Heavy Highway Vehicle Use Tax Return, Line 5). The credit or refund of the tax is made without interest.

IRC 4662(d) identifies as an overpayment: any IRC 4661 tax paid on a taxable chemical that is used in the manufacture or production of any other substance that is a taxable chemical; and any tax paid on a taxable chemical that is used as (or used in the manufacture of) a qualified fuel, fertilizer, or animal feed substance. IRC 4662(e) exempts from the tax any taxable chemical that is exported or sold to a second purchaser for export. The credit or refund of the IRC 4661 tax is made without interest. The tax imposed by IRC 4661(a) expired after December 31, 1995 and was reinstated effective July 1, 2022, by section 80201 of the Infrastructure Investment and Jobs Act of 2021, Pub. L. 117-58, and is effective through 12/31/2031.

IRC 4682 identifies as an overpayment any tax paid on an ozone-depleting chemical that is under certain conditions, diverted or recovered as part of as part of a recycling process, used in further manufacturing, used as a feedstock, exported, or used as a propellant in a metered-dose inhaler (Form 720, Quarterly Federal Excise Tax Return, Schedule C, or Form 8849, Claim for Refund of Excise Taxes, Schedule 6). The credit or refund of the tax is made without interest.

IRC 4671(d)(2) applies to the tax imposed by IRC 4671(a) the refund and credit rules provided in IRC 4662(d)(2),(3), and (4) (related to certain uses of qualified fertilizer substances, qualified fuel substances, and qualified animal feed substances). The credit or refund of the IRC 4611 tax is made without interest.

IRC 4081 imposes a tax on removal, entry, or sale of certain types of fuel. Underpayment interest is computed from the return due date (RDD) on any second tax assessed to the account.

IRC 4081(e) provides for a refund of those taxes in certain cases. Claims for refund made under this Code section must be filed on Form 8849, Claim for Refund of Excise Taxes, Schedule 5. See IRM 4.24.22.4.5.5, Form 8849, Schedule 5, IRC Section 4081(e) Claims, for processing procedures.

An employer who has underreported and/or underpaid FICA tax, RRTA tax or income tax withholding, must correct the error on the form that corresponds to the return being corrected (e.g., if the original return filed was a Form 941, Employer¡¯s QUARTERLY Federal Tax Return, corrections are reported on Form 941-X, Adjusted Employer¡¯s QUARTERLY Federal Tax Return or Claim for Refund). See Exhibit 20.2.10-1, Which Form to obÌåÓý. The adjusted return on which the correction is shown must provide:

An error is ascertained when the employer has sufficient knowledge of the error to be able to correct it. See Treas. Reg. 31.6205-1(a)(4).

If all of the above information is provided and the adjustment is reported by the due date of the return for the return period in which the error is discovered (ascertained), input the adjustment with the appropriate blocking series, using a Transaction Code (TC) 298 or 308 and an interest computation date (INT-CMPTN-DT) equal to the received date of the adjusted return. If the underpayment is paid in full by the time the adjusted return is received ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô, no interest is due. If the underpayment is not paid in full by the time the adjusted return is received ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô, interest will be computed from the interest computation date and the failure to deposit (FTD) penalty may apply. See IRM 20.1.4.21.5 (7), Adjusted Returns (Forms 941-X, 943-X, 944-X, 945-X, and CT-1X). ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô

When an adjusted return is not received by the due date for filing the return for the return period in which the employer discovered the error, the adjustment is not considered to have been timely reported. In this instance, interest is due on the underpayment from the due date (without regard to an extension of time for filing) of the original return for the period in which the error occurred.

Once the following notices have been sent out to the taxpayer, any additional underpayment adjustments are not eligible for an interest-free period after the earlier of the following:

These same rules apply to adjustments made by IRS. If it is determined that the taxpayer is eligible for the interest-free provisions of IRC 6205(a)(2), then Form 3198, Special Handling Notice for Examination Case Processing, needs to be marked. TC 308 will be input using the agreement date as the interest computation date on the closing document. If the taxpayer full pays with the agreement, then there will be no additional interest due. See IRM 4.23.8.3, Interest-Free Adjustments - In General. Otherwise, interest will start on the agreement date for the unpaid amount until full paid. Failure to deposit penalty may also apply.

An underpayment interest suspension period based on IRC 6601(c), also known as an "870 waiver," does not apply to employment tax returns, including Schedule H. To prevent an erroneous interest suspension, an agreement date should not be entered on the closing document or Form 2859, Request for Quick or Prompt Assessment.

Combined annual wage reporting (CAWR) proposed assessments may result in an interest-free adjustment for FICA tax reported on Form 941.

After receipt of notice and demand for payment based on a CAWR assessment, no interest-free adjustment of such tax can be made by filing an adjusted return or by agreeing to the assessment by signing Form 2504, Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment (Employment Tax Adjustments Not Subject to IRC 7436).

For complete instructions on the input of CAWR assessments, see IRM 4.19.4, CAWR Reconciliation Balancing.

The interest-free provisions for adjustments on BMF employment taxes also cover errors of household employment taxes reported on IMF Form 1040 , Schedule H, Household Employment Taxes See IRM 21.6.4.4.8, Schedule H, Household Employment Taxes, for more information.

Underpayment adjustments are interest-free if reported by the due date of the return for the return period in which the error was discovered and payment is made by the time the adjusted return is received ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô.

If the corrected Form 1040 , Schedule H, Household Employment Taxes, is filed by the due date of the return for the period in which the error was discovered, but payment is not made by the time the corrected Form 1040 Schedule H is received ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô, interest is computed from the received date ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô of the corrected Form 1040 Schedule H. See IRM 20.2.10.5.5.1.

Employment tax regulations effective January 1, 2009, require payment of employment tax increases (including Form 1040 Schedule H) for income tax withheld and social security and Medicare taxes at the time the adjusted return or Form 1040 Schedule H, Household Employment Taxes, is filed (FUTA taxes are not affected). ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô

If the employer discovers the error before the return is filed, the employer has to report and pay the correct amount of tax with the return. THIS IS NOT AN ADJUSTMENT. If the employer does not report and pay the correct amount by the due date of the return, the error cannot later be corrected through an interest-free adjustment. Interest is computed from the normal due date (without regard to an extension of time for filing) of the original return for the tax period in which the error occurred.

If the employer discovers the error after the return is filed, the error can be corrected by reporting the additional amount due on an adjusted return for the period in which the error occurred. The adjusted return is made on the form that corresponds to the return being corrected. See Exhibit 20.2.10-1, Which Form to obÌåÓý.

If the adjusted return is filed timely (by the due date for filing the return for the return period in which the employer discovered the error), but payment is not made at the time of filing ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô, underpayment interest is computed on any unpaid amount from the received date ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô of the adjusted return until paid in full. Plus, the failure to deposit penalty may apply when payments are not made timely. If the correct interest computation date (INT-CMPTN-DT) is used with TC 298 or TC 308, Master obÌåÓý will correctly compute the interest unless underpayment interest on the module otherwise requires restriction. The interest computation date is the received date of the adjusted return for the period in which the error occurred. See IRM 20.2.10.5.1.

If the adjusted return is not filed by the due date for filing the return for the return period in which the error was discovered, underpayment interest is due on the underpayment from the due date of the original return for the period in which the error occurred.

Generally, the correction of an error may be made under the above procedures during an audit of the return, provided the employer corrects the error before notice and demand or Letter 3523 is issued. See Treas. Reg. 31.6205-1(a)(6).

Corrections on a return prepared under IRC 6020(b) do not typically qualify for an interest-free adjustment. Underpayment interest on this type of return is computed from the due date of the original return. IRC 6020(b) gives the IRS the authority to file a tax return for a business when it does not file a required return.

An original return that was previously not filed may qualify for the interest-free provisions of IRC 6205 if:

Rev. Rul. 99-40 (i.e., May/Sequa), as it relates to credit elects to determine interest start dates of unpaid installments or deposits, does not apply to employment taxes. See IRM 20.2.5.7, Revenue Ruling 99-40, Use of Money, for more information on Rev. Rul. 99-40. However, it does apply to refunds without interest because the IRS had the use of the taxpayer¡¯s money. This includes, but is not limited to, Form 941, Employer¡¯s QUARTERLY Federal Tax Return, Form 943, Employer¡¯s Annual Federal Tax Return for Agricultural Employees,, Form 944, Employer¡¯s ANNUAL Federal Tax Return, and Form 945, Annual Return of Withheld Federal Income Tax.

If no income tax or less than the correct amount of income tax is withheld and the error is discovered before the return is filed for the period in which the wages were paid, the employer shall report and pay the correct amount of tax required to be withheld on the return (this is not an adjustment). If the employer does not report and pay the correct amount of tax by the time the return is filed, the employer cannot later correct the error through an interest-free adjustment. Interest is computed from the due date of the original return for the period in which the error occurred.

If the under withholding of income tax is discovered after the return has been filed, the error can be corrected by reporting the additional amount due on an adjusted return (e.g., Form 941-X), for the return period in which the wages were paid. The adjusted return is eligible for interest-free treatment if:

If the adjustment is made on the form that corresponds to the return being corrected, see Exhibit 20.2.10-1.

If the employer discovers an error resulting in an underpayment of income tax withheld in the same calendar year in which the wages or compensation was paid, reports the underpayment by the due date of the return for the quarter in which the error is discovered, and all required tax is paid by the time the adjusted return is received ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô ¡Ô, NO INTEREST IS DUE on the underpayment. See Treas. Reg. 31.6205-1(c)(2).

If the over collection and overpayment is discovered after the return is filed, the employer (after repaying or reimbursing the employee) may correct the overpayment of both the employer and the employee's share of the FICA tax or RRTA tax by filing an adjusted return for the period in which the error occurred. The overpayment will be applied as a credit to the current tax period. The adjusted return must be filed before the expiration of the period of limitations as described in IRC 6511. This "adjustment" is made without interest. See IRM 20.2.10.5.6(6).

An error is discovered when the employer has sufficient knowledge of the error to be able to correct it. See Treas. Reg. 31.6413(a)-2(a)(4).

The adjusted return is made on the form that corresponds to the return being corrected. See Exhibit 20.2.10-1.

If the employer elects to file a "claim for refund" instead of an adjusted return and apply the credit to the current tax period, overpayment interest is allowed from the later of the following dates, to the refund schedule date minus any applicable back-off period. See IRM 20.2.4.8, Refunds.

When allowing overpayment interest on employment tax returns, take into consideration the special return due date rule. Form 941, Employer¡¯s Quarterly Federal Tax Return, Form 943, Employer's Annual Federal Tax Return for Agricultural Employees, Form 944, Employer's Annual Federal Tax Return, and Form 945, Annual Return of Withheld Federal Income Tax, may be filed on or before the 10th day of the second calendar month following the end of the tax period, if timely deposits are made in full payment of the amount of tax reported. See Treas. Reg. 31.6071(a)-1(a)(1). These returns should not be considered late filed.

To file a claim for refund of an overpayment of FICA or RRTA tax, the employer must repay or reimburse the employee's share of FICA or RRTA tax to the employee or secure the written consent of the employee for allowance of the refund or credit. However, if after reasonable efforts, the employer cannot locate the employee or the employee, once contacted, will not provide the requested consent, the employer is not required to repay or reimburse the employee. If the employer cannot locate the employee or if the employee, once contacted, will not provide the requested consent, the employer can file a claim only for the ±ð³¾±è±ô´Ç²â±ð°ù¡¯²õ share of FICA or RRTA taxes.

The claim for refund is made on the form that corresponds to the return being corrected (e.g., Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund). See Exhibit 20.2.10-1.

The regulations under IRC 6413 provide a 90-day rule under which an overpayment adjustment is not permitted if the adjusted return would be filed within 90 days of the expiration of the period of limitations. See Treas. Reg. 31.6413(a)-2(d)(2). The employer must choose the claim for refund option on the appropriate "X" form. See Exhibit 20.2.10-1.

If an employee worked for two or more employers during a year, the employee may have had too much FICA or Tier 1 RRTA tax withheld. The employee can claim the excess FICA or Tier 1 RRTA tax as a credit against the ±ð³¾±è±ô´Ç²â±ð±ð¡¯²õ income tax on Form 1040, U.S. Individual Income tax Return.

If any one employer withheld too much FICA or Tier 1 RRTA tax, see Treasury Regulation 31.6402(a)-2(b). If the employer does not adjust the over collection, the employee can file a claim for refund using Form 843, Claim for Refund and Request for Abatement. See IRM 21.7.2.4.4.4.1, Refund or Credit of Employer¡¯s Portion of FICA.

If a non-resident alien receives a refund of erroneously withheld FICA taxes (e.g., students arriving on F, J or M visas who may be exempt from paying FICA taxes), refer to IRM 21.8.1, IMF International Adjustments, IRM 21.8.2, BMF International Adjustments, or IRM 21.7.12 , Non-Master obÌåÓý (NMF) Adjustments. IRS is required to withhold taxes from the employer computed at the applicable treaty rate prior to issuing a refund to a non-resident alien. The net interest amount, if any, is refunded at the non-corporate rate. See IRM 21.8.2.7.3, Processing Employee Claims, for adjustment procedures, and IRM 21.8.2.7.4, Claims from Employer.

Although Form 843, Claim For Refund and Request for Abatement, continues to be used for other purposes (e.g., claims for interest and penalties), it can no longer be used by employers to claim refunds of employment taxes or Tier 1 RRTA.

The following COVID-19 related relief provisions allowed all employers to defer some deposits and payment of Social Security and Tier 1 Railroad Retirement Taxes otherwise due for 2020.

See IRM 21.7.2.7.6, COVID-19 Related Employment Tax Relief and Forms 941-XX, for detailed information.

The Trust Fund Recovery Penalty (TFRP) is a penalty assessed under IRC 6672 on any person required to collect, account for, and pay over taxes held in trust who willfully attempts to evade or defeat any such tax or the payment of such tax. See IRM 8.25.1, Trust Fund Recovery Penalty (TFRP) Overview and Authority, and IRM 5.19.14, Trust Fund Recovery Penalty (TFRP). The trust fund recovery penalty (TFRP) was created to encourage prompt payment of trust fund taxes (IRC 7501) and to ensure ultimate collection of such taxes from a secondary source in any event. This includes payment of employment taxes (income tax withholding, social security taxes, Medicare taxes, or railroad retirement taxes), or collected excise taxes. The employer or collector holds withholdings or collections in trust for the United States until they are paid (usually by making Federal tax deposits) regardless of whether any funds were placed in a segregated account or were simply part of a general account. See IRM 5.17.8.26, Trustee¡¯s Power to Avoid Preferences. This penalty is imposed when trust fund taxes cannot be immediately collected from the employer or collector. See IRC 6672. The following is suggested to make it clear that tracing rules don¡¯t apply; see Begier v. IRS, 496 U.S. 53 (1990).

The TFRP is assessed on MFT 55 and posts as a Transaction Code (TC) 240, Reference Number 618. Any abatements of this penalty will post to the module with a TC 241, Reference Number 618, and will carry the same 23C date as the TC 240.

Credits posting to the module with a TC 241, Reference Number 697 or 699 are based on actual payments made on a related account.

Payments may also be posted with TC 670, 680 or 70X.

Domestic corporations that employ U.S. citizens or residents in their foreign affiliates may enter into agreements under IRC 3121(l) whereby FICA coverage is extended to those citizens or residents. Under these agreements, the corporations pay the amounts equivalent to FICA taxes imposed by IRC 3101 and IRC 3111. Whether the amount is overpaid or underpaid, adjustments are without interest.

Special Rule for Overpayment Not "Adjusted" - A domestic corporation may file a claim for refund of any overpayment made under an agreement under IRC 3121(l). The law provides a special two-year limit from the date of the overpayment for claiming such a refund. The claim must be plainly marked "Claim under IRC 3121(l)" on the applicable amended form. See Exhibit 20.2.10-1. Adjustment documents for such overpayments should bear a similar notation.

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) provides an employee the right to elect to continue paying health care premiums to their employer when due to a "qualifying event" the employee has lost coverage under the ±ð³¾±è±ô´Ç²â±ð°ù¡¯²õ group health plan. A federal subsidy of 65% if the COBRA premium is available to assist in paying the premium for eligible individuals for up to 15 months. Employers are allowed a credit against their employment tax for the amount of premium assistance provided to the employee.

The American Recovery and Reinvestment Act of 2009 (ARRA 2009), as modified by subsequent legislation, provided premium assistance for COBRA continuation coverage for certain individuals and their families (referred to as assistance eligible individuals) who lost health plan coverage due to an involuntary termination of employment during the period beginning September 1, 2008 and ending May 31, 2010.

ARRA 2009 (Pub. L. 111-5) provided federal subsidy of 65% of the COBRA premium to assist in paying the premium for eligible individuals for up to 15 months. Employers are allowed a credit against their employment tax for the amount of premium assistance provided to the employee.

Section 9501 of the American Rescue Plan Act (ARP), (Pub. L. 117-2) provides a temporary 100 percent reduction in the premium otherwise payable by certain individuals and their families who elect COBRA continuation coverage through the Internal Revenue Code (Code), the Employee Retirement Income Security Act of 1974 (ERISA), or the Public Health Service Act (PHS Act) due to a loss of coverage as the result of a reduction in hours or an involuntary termination of employment between April 1, 2021 and September 30, 2021.

See IRM 21.7.2.7.3, COBRA Premium Assistance Credit - The American Rescue Plan Act of 2021 (ARP), for additional information.

HIRE (Hiring Incentives to Restore Employment Act of 2010) credit is no longer available (expired in 2011), consequently HIRE instructions have been removed from this IRM. See IRM 20.2.10.5.12.1 (08-01-2018 revision) for HIRE information.

In addition, see IRM 20.2.4.8.4, 180-Day Rule, for information regarding the interest-free processing period 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.

VOW to Hire Heroes Act of 2011 expanded the work opportunity tax credit (WOTC) to businesses that hire and pay wages to certain eligible unemployed veterans who began work on or after November 22, 2011, Section 261(g) of the VOW to Hire Heroes Act (P.L. 112-56). Qualified tax-exempt organizations (organizations described in IRC 501(c) and exempt from tax under IRC 501(a)) claim this credit against the employer portion of social security tax on wages paid to all employees during the one year period beginning on the day a qualified veteran begins working for the organization.

Subsequent legislation has extended the WOTC to include all targeted group members as well as qualified veterans who begin work for the organization on or before December 31, 2025.

Qualified tax-exempt organizations use Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans. The credit is reported on Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, to claim the work opportunity credit for qualified first-year wages paid to qualified veterans. The organization files Form 5884-C after it files its employment tax return for the employment tax period for which it is claiming the credit. Form 5884-C is filed separately from any other returns, and the credit cannot be claimed on an original or amended employment tax return or an adjusted employment tax return.

CRN 290 is used to adjust the WOTC claimed on Form 5884-C. Use a negative (-) when decreasing the credit. However, by law, this credit is NOT a refundable credit.

Overpayment interest: For purposes of calculating any applicable overpayment interest a CRN 290 credit is considered to be available as of the return due date for the tax period for which the Form 5884-C was filed.

Underpayment interest: The credit is applied against the employer's share of the social security tax liability using the first day of the tax period for which the Form 5884-C was filed. However, for purposes of calculating underpayment interest the credit is available on the normal return due date of the tax period for which the Form 5884-C was filed.

See IRM 21.7.2.5.15, Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, and Form 5884-D, Employee Retention Credit for Certain Tax-Exempt Organizations Affected by Qualified Disasters, for more information.Interest on