IRS Issues Guidance as to Interest on Overpayments and Subsequently Determined Deficiencies.

• Author: Fiore, Nicholas J.

Situation 1. X Corporation files its Federal income tax returns on a calendaryear basis. For 1995, X made timely estimated tax payments of $100x. On March 15, 1996, X filed Form 7004, Application for Automatic Extension of Time to File Corporation Income Tax Return, and received a 6-month extension; X paid $120x with the request for extension. On Sept. 15, 1996, X filed Form 1120, U.S. Corporation Income Tax Return, for its 1996 estimated tax. The $1 Ox overpayment is deemed to arise on March 15, 1996. X's required estimated tax for 1996 was $100x. To avoid the addition to tax for underpayment of estimated tax for 1996, X was required to make payments of $25x each on April 15, 1996, June 15, 1996, Sept. 15, 1996 and Dec. 15, 1996. X timely made the required $25x payments in April and June. On September 15, X made a payment of $15x. In 1998, the IRS examined X's 1995 return and determined that X's correct 1995 tax was $215x, resulting in a $5x deficiency.

Situation 2. The facts are the same as in Situation I, except that X paid $23x on April 15,1996 and $14x on June 15, 1996, instead of the required payments of $25x on each of these dates.

Situation 3. A, an individual, files Federal income tax returns on a calendar-year basis. In 1995, A made timely estimated tax payments of $100x. On April 15, 1996, A filed Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, and received a 4-month extension. On Aug. 15, 1996, A filed Form 1040 for 1995, showing tax due of $80x, and requested a refund of the $20x overpayment. The overpayment is deemed to arise on April 15, 1996. The refund was made within 45 days of the date the timely return was filed, by a check dated Sept. 14, 1996. In 1998, the Service examined A's 1995 return and determined that the correct tax was $85x, resulting in a deficiency of $5x.

Situation 4. The facts are the same as in Situation 3, except that A's correct tax liability was $105x, resulting in a deficiency of $25x.

Analysis

Sec. 6601(a) provides that, if any amount of tax is not paid on or before the last date prescribed for payment, interest will be paid on the amount from such last date to the date paid. Sec. 6151(a) provides, in general, that the date prescribed for payment is the time fixed for filing the return, determined without regard to any extension of time for filing. Sec. 6601(b)(1) provides that, for determining interest on underpayments, the "last date prescribed for...