Interest-free period under Sec. 6601(c).

• Author: Keenan, John

Tax professionals are generally aware that a taxpayer must pay interest on any underpayment of tax. The IRS collects interest for the time the taxpayer has the use of the government's money, so interest generally accrues from the date the tax was to be paid until the taxpayer actually pays the tax. The underpayment interest rate charged to the taxpayer is equal to the federal short-term rate plus three percentage points (Sec. 6621(a)(2)). In the case of certain large corporate underpayments, a special "hot interest" rate equal to the federal short-term interest rate plus five percentage points applies (Sec. 6621(c)).

Although the federal short-term rate is currently low, underpayment interest can still accumulate to a significant dollar amount. Moreover, interest computations can be very complex, which can lead to errors in the amount of interest a taxpayer is charged. Therefore, tax professionals should review IRS interest computations to determine that the Service has used the correct interest rates, properly included all payments of tax, and charged interest for the correct period of time. As to

making sure the IRS has charged interest for the correct period of time, the Service recently provided some guidance on when underpayment interest is suspended under Sec. 6601(c).

Suspension of Underpayment Interest Under Sec. 6601(c)

Sec. 6601(a) provides generally that if a taxpayer does not pay an amount of tax on or before the date prescribed for payment, interest shall be paid for the period from the due date to the date of payment. Sec. 6601(c) provides that

in the case of a deficiency as defined by section 6211, if a waiver of restrictions under section 6213(d) on the assessment of the deficiency has been filed, and if notice and demand.., for payment of such deficiency is not made within 30 days after the filing of such waiver, interest shall not be imposed on such deficiency for the period beginning immediately after such 30th day and ending with the date of notice and demand. Interest is also not imposed during this period on any interest that may have previously accrued on the deficiency.

IRS Program Manager Technical Assistance

The IRS issued program manager technical assistance (PMTA 2009-003 (1/6/09)) in response to a question concerning the application of Sec. 6601(c) in the case of a taxpayer that closed a delinquent return filing investigation with the submission of a delinquent return, rather than the execution of a Form 870...