Section 7508A(c) Provides Exception to Limitation on Interest on Overpayments

(Parker Tax Publishing March 2020)

The Office of Chief Counsel advised that Code Sec. 7508A(c) provides an exception to the limitation of interest on overpayments as provided for in Code Sec. 6611(b)(3) and Code Sec. 6611(e). According to the Chief Counsel's Office, because Code Sec. 7508A(c) incorporates a special rule for overpayments in Code Sec. 7508(b), neither the late return rule of Code Sec. 6611(b)(3) nor the 45-day rule of Code Sec. 6611(e) applies when a taxpayer qualifies for relief under Code Sec. 7508A. PMTA 2020-4.

Background

Generally, under Code Sec. 6611, interest is paid on any overpayment of tax from the date of overpayment to the refund date, subject to two relevant limitations. First, Code Sec. 6611(b)(3) disallows the payment of interest on an overpayment for the period during which a return is late, taking into account any extensions. Second, Code Sec. 6611(e) disallows the payment of interest on an overpayment if the refund is paid within 45 days after either the original due date for filing or, in the case of a return filed after the original due date, the date the return was filed.

Code Sec. 7508 and Code Sec. 7508A provide relief to qualifying taxpayers from certain deadlines imposed by the Code for performing certain acts, including filing a return. Those provisions do so by allowing the IRS to provide that a certain period of time should be disregarded in determining whether a return was filed on time.

Relief under Code Sec. 7508(a) is available to those who have served in combat zones. In addition to providing relief from the deadline to file in Code Sec. 7508(a), Code Sec. 7508(b) also provides for more favorable overpayment interest rules in two ways. Code Sec. 7508(b)(1) states that the period disregarded in Code Sec. 7508(a) is not disregarded for purposes of calculating the amount of interest to be paid on any overpayment. And Code Sec. 7508(b)(2) provides that the limitations on payment of interest on overpayments found in Code Sec. 6611(b)(3) and Code Sec. 6611(e) do not apply to a taxpayer who qualifies for relief under Code Sec. 7508 as long as a return is filed on time (determined after the application of the disregarded period in Code Sec. 7508(a)).

Code Sec. 7508A relief is available to those affected by a Presidentially declared disaster or terroristic or military actions. Similar to Code Sec. 7508(a), Code Sec. 7508A(a) allows the IRS to disregard a certain time period when determining whether a taxpayer filed on time, among other actions. And similar to Code Sec. 7508(b), Code Sec. 7508A(c) provides for special treatment of interest on overpayments by simply stating, "[t]he rules of section 7508(b) shall apply for purposes of this section."

Chief Counsel's Advice in PMTA 2020-4

At the end of February, the Office of Chief Counsel issued PMTA 2020-4. In PMTA 2020-4, the Chief Counsel's Office advised that a plain reading of the text of Code Sec. 7508A(c) requires the provisions of Code Sec. 7508(b) to be applied to those who qualify for relief under Code Sec. 7508A in the same manner as they apply to those who qualify for relief under Code Sec. 7508. Nothing in the text, structure, or legislative history of Code Sec. 7508A contradicts the plain meaning of Code Sec. 7508A(c), the Chief Counsel's Office said. As a result, the two limitations on overpayment interest in Code Sec. 6611(b)(3) and Code Sec. 6611(e) do not apply to those who qualify for relief under Code Sec. 7508A. And, the Chief Counsel's Office stated, the period for which interest is calculated on an overpayment should include the period disregarded in Code Sec. 7508A(a) in determining whether the return was filed on time. PMTA 2020-4 uses the following example to illustrate its point.

Example: An individual lives in a county affected by a Presidentially declared natural disaster that began on April 1, 2018. Pursuant to Code Sec. 7508A(a), the IRS announces that one year will be disregarded for purposes of determining, among other things, whether a return was timely filed for tax year 2017. Specifically, individual taxpayers who live in the county are granted additional time to file an individual tax return for tax year 2017 until April 15, 2019. An individual taxpayer who was affected by the disaster files its 2017 return on April 15, 2019, one year after the original deadline. The taxpayer made payments through withholding during 2017, which were deemed paid on April 15, 2018, and resulted in an overpayment for tax year 2017 as of that date. The IRS pays a refund on May 15, 2019, 30 days after the return was filed. The IRS will pay interest on the overpayment. The 45-day rule of Code Sec. 6611(e) does not bar the payment of interest even though the refund was paid in 30 days. Also, the late return rule of Code Sec. 6611(b)(3) does not limit the time period for which overpayment interest will be calculated even though the return was filed after the original due date and without extension. Interest will be calculated from the date of overpayment (April 15, 2018) until the refund date on May 15, 2019. This includes the one year period that was disregarded for purposes of determining whether the return was timely filed.

For a discussion of interest on underpayments and overpayments of tax, see Parker Tax ¶261,510. For a discussion of Code Sec. 7508A and the tax-related relief available to those affected by a Presidentially declared disaster or terroristic or military actions, see Parker Tax ¶250,125.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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