When must the IRS pay interest on refunds?

• Author: Urban, Michael A.

Under Sec. 6611 (a), a taxpayer is generally entitled to receive interest on a tax overpayment. Sec. 6611(e), however, provides that no interest is allowed on any overpayment refunded within 45 days after the return's unextended due date or, in the case of a return filed after that date, within 45 days after filing the return. The question arises--does the date the refund is "allowed" or the refund check's date determine whether the IRS has issued a refund within the 45-day period?

Background

Sec. 6611(e) was enacted in 1954 and amended in 1966 to cover returns filed after the original due date. In GCM 39772, the provision was described as "essentially an administrative rule designed to provide a grace period for the Service to process a refund, and a certain incentive to do so quickly." GCM 39772 also correctly notes that the applicability of Sec. 6611(e) "depends solely on the timing of a specific governmental action--the making of a refund--not on any factor within a taxpayer's control."

Although Sec. 6611(e) seems to be quite straightforward, there is a surprising lack of guidance (and, thus, clarity) on exactly what the IRS has to do within 45 days to avail itself of the interest-free period provided by Congress. The simple answer is that the Service has to refund the overpayment to the taxpayer. The question remains, however, as to when a refund actually takes place.

Refund Date

The two logical possibilities for determining the refund date are the (1) refund check's date and (2) the date on which the refund is "scheduled," within the meaning of Sec. 6407. That provision states, "[t]he date on which the Secretary first authorizes the scheduling of an overassessment ... shall be considered as the date of allowance of refund or credit in respect of such tax." No definitive authority exists on which date is correct; however, based on existing guidance (discussed below), the better answer appears to be that the check date determines when an overpayment has been refunded for Sec. 6611 (e) purposes.

Existing Authority

In GCM 39772, the IRS Chief Counsel needed to decide when an overpayment claimed on an original return was refunded, to determine when interest on a subsequently determined deficiency for the same tax year began to run. It concluded, "the check date is the appropriate date because it is the payment, not the allowance, of the refund that should govern interest accrual." GCM 39772 goes on to...