Amended return interest proposal.

• Position: Letter submitted to Representative Dan Rostenkowski in response to Bush Administration's 1993 Budget proposal

As an organization that represents corporate tax professionals, Tax Executives Institute has a deep and abiding concern for the administrability of the Internal Revenue Code and the overriding fairness of the Code's provisions affecting the enforcement, collection, and payment of taxes and interest. From this perspective the Institute is distressed that a proposal to restrict the payment of interest on refunds owed taxpayers has been included in President Bush's 1993 Budget and in the House Ways and Means Majority's substitute bill. We believe the proposal is both inequitable and at odds with recent strides Congress and the IRS have made toward safeguarding taxpayer rights. We urge Congress to abandon the proposal.

Under current law, the Internal Revenue Service is not required where the refund is paid within 45 days of the filing of the taxpayer's original return (or the due date of the return, whichever is later). This rule does not apply, however, to other types of taxes (employment, excise, and estate and gift taxes) and does not apply in respect of amended returns. A provision of the President's 1993 Budget would amend section 6611(e) of the Internal Revenue Code to extend the 45-day grace period to all types of taxes and to amended returns as well as claims for refunds. The Ways and Means substitute contains a somewhat different provision that would not only extend the 45-day grace period to all taxes, but also would preclude payment of any interest for periods preceding the date a claim for refund is filed.

Tax Executives Institute submits that limiting interest payable on amended tax returns and claims for refund under either proposal would violate basic tenets of taxpayer rights, skew the administration of the tax system in favor of the government, and thereby undermine taxpayer perceptions of equity and fairness in tax policy -- the foundation of a viable, voluntary self-assessment tax system.

Interest is a charge for the use, forbearance, or detention of money. That the IRS needs time to process a refund claim or an amended return is wholly irrelevant to whether the taxpayer should be paid interest since the government has had the use of the taxpayer's money. 1 The Code already provides that the running of interest stops 30 days before the refund check is issued (essentially to simplify the IRS's processing burden), so the simplificatio rationale for the proposal seems, at best, a makeweight.

TEI submits that although the 45-day...