Overpayments credited to estimated tax.

• Author: Blattner, Dave

Tax practitioners often overlook a review of Rev. Rul. 88-98 when their clients have an overpayment that can be credited to the following year's estimated taxes. This ruling discussed the computation dates for interest due on subsequently determined deficiencies when the taxpayer's original return reflected an overpayment. The overpayment on the original return was either refunded without interest (i.e., processed within 45 days) or was credited to estimated tax installments for the next year. The ruling provided that, if the taxpayer applies the overpayment to the September 15 estimated tax installment on the following tax year and a subsequent deficiency is assessed on the overpayment year, deficiency interest will not scare to accrue until September 15 on the portion of the deficiency equal to or less than the overpayment, The subsequent deficiency could be the result of an examination or an amended return filed with a tax increase.

While the IRS has lose several decisions on this issue (e.g., May Department Stores Company, Ct. Fed. Cls. (11/4/96), and Kimberly-Clark Tissue Company, DC Pa. (3/18/97), and has acquiesced to the May Department Stores decision, the Service has not changed its position requiring that taxpayers attach a statement to their returns to elect that their overpayments be applied to an estimated tax installment other than the first installment. If the taxpayer does not designate the installment to which the overpayment should be applied, the IRS credits the overpayment to the first estimated tax installment.

In May Department Stores and Kimberly-Clark, even though the taxpayers had not attached statements electing that their overpayments be credited to the third installment period on the original...