Valid overpayment credit creates a later payment date

Plain-English summary

Chief Counsel advised that when an overpayment is credited against another tax liability, section 7422(d) treats the credit as a payment for refund-suit purposes. Section 6407 dates that credit when the IRS first authorizes scheduling the overassessment, so the payment occurs when the overpayment is approved and moved to the other liability, not when the taxpayer originally remitted the money. A valid credit therefore gives the receiving tax module a later, refreshed lookback period under section 6511(b). The advice distinguished an erroneous credit, which the cited Ninth Circuit case appeared to treat as void and therefore unable to refresh the lookback period. It also noted that an election to apply an overpayment to next year's estimated tax is governed by the separate timing rule in section 6513(d).

Ruling snapshot

• Question: When is an overpayment credited to another tax liability treated as paid for refund and limitations purposes?
• Outcome: advice given
• Key authorities: IRC §§ 6402(a), 6407, 6511(b), 6513(d), 7422(d)

Full text (IRS public release)

ID:        CCA_2017081714173257
UILC:      7422.00-00, 6407.00-00, 6511.01-
           00
Number: 201739013
Release Date: 9/29/2017
From:
Sent: Friday, July 21, 2017 9:01 AM
To:
Cc:
Bcc:
Subject: 7422 question


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It’s a good question. I thought it has an easy answer, but it’s come up three times in the
last few weeks. I think the way it works is as follows: you start with section 7422(d) (as
you indicate in your e-mail), which provides that the credit of an overpayment is deemed
to be the “payment” for refund suit purposes. Then, take a look at section 6407, which
provides the date on which a credit is deemed made (it’s the date on which the
Secretary first authorizes the scheduling of the overassessment). Accordingly, I agree
that the “payments” applied to ------- and ------- were made when the ------- return was
processed and the --------overpayment was approved (note that there was no “refund”
approved, but rather an “overpayment” – a refund only results from an overpayment
after all of section 6402 is applied).

I do not know if you are asking this question because of a potential refund suit involving
------- and/or -------, or, conversely, if you are still dealing with -------. The advice I gave
recently (and with which I still maintain) is that the “payments” made on the ------- and
------- modules do indeed have a “refreshed” lookback period for purposes of section
6511(b). But I am not sure if that is your question. In other words, if the taxpayer sues
for refund of an overpayment in the ------- module, the date of payment would not be the
date on which the money was actually remitted to the Service with respect to the -------
liability, but, rather would be the later date on which money was moved from one pocket
to the other.

I skimmed the 9th Circuit case (Reynoso) and it seems to address the situation when the
Service erroneously credits money. I think it says that the erroneous “credit” is
essentially void, meaning there is no “refreshed” lookback period. So I am not sure how
its applicable to your situation.
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Here is the GL-1 discussion (with my new placeholder comment). I think it is not
complete and likely needs revisions to make this all clearer, so be on the lookout for the
next version.

            A.                            Credit of an Overpayment.
                   1. A tax is considered paid when an overpayment of one tax is credited against
                   an unpaid liability for another type of tax. Section 6402(a). A tax is also
                   considered paid when an overpayment in one year is credited against a deficiency
                   in tax for a different tax year. Section 6513(d).

                   2. Where an overpayment in one year is credited to a deficiency for another year,
                   the date of payment is the date the Service credits the overpayment against the
                   deficiency, and the two-year-from-payment period begins to run on that
                   date. Section 7422(d).

                   3. Where a taxpayer, reporting an overpayment for a tax year (the first year),
                   elects to credit the overpayment to estimated tax for the next tax year (the second
                   year), the amount credited constitutes a payment for the second year and is
                   considered paid on the filing date for the second year’s return. The overpayment
                   ceases to exist for the first year and the taxpayer can only file a claim for refund
                   with respect to payment in the second year, not the first year. Section 6513(d).

FYI, I will be out of the office for the next two weeks. I hope this answers your
question(s), but, if not, we might need to loop in another attorney. Accordingly, I am
cc’ing some managers (both to make them aware of my advice and also to provide
further assistance if needed).


Regards!

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