Returned tax deposit does not suspend interest on a later deficiency

Plain-English summary

Chief Counsel advised that a remittance held as a section 6603 deposit does not suspend underpayment interest for the time it was held if the IRS returns it at the taxpayer's written request and later assesses a deficiency for the same period and tax. Because the facts indicated that a deficiency remained to be assessed, the taxpayer could receive deposit credit only for the portion that was not returned. If the taxpayer had designated any returned portion for a disputable tax, section 6603(d) entitled the taxpayer to overpayment interest on that returned amount. The applicable rate was the federal short-term rate under section 6621(b), compounded daily. The advice relied on sections 6.03, 7, and 8 of Revenue Procedure 2005-18.

Ruling snapshot

• Question: What interest and credit rules apply when part of a section 6603 deposit is returned before a later deficiency assessment?
• Outcome: Advice given on underpayment-interest suspension, retained-deposit credit, and overpayment interest.
• Key authorities: IRC §§ 6603(d) and 6621(b); Rev. Proc. 2005-18

Full text (IRS public release)

ID:        CCA_2019051007105204
UILC:      6603.00-00

Number: 201922029
Release Date: 5/31/2019
From:
Sent: Friday, May 10, 2019 7:10:52 AM
To:
Cc:
Bcc:
Subject: RE: My question


Hi ----,

Thanks for providing the additional facts. Based on what you’ve told me, I think that
Rev. Proc. 2005-18 answers your question. Section 8 of that Rev. Proc. says that if a
remittance that is held as a deposit is returned at the taxpayer’s written request, with or
without interest, and a deficiency is later assessed for that period and type of tax, the
running of interest will not be suspended during the period for which the remittance
was held as a deposit.

I believe your statement that the total adjustment to the --------- is going to be --------------
------------------means that there is a deficiency to assess. This means you should only
give the taxpayer credit for the ------------------portion of the deposit from ------------ if the
other ------------------of the deposit is returned. If the taxpayer identified any or part of the
deposit as being for a disputable tax, the taxpayer is entitled to overpayment interest on
the returned deposit under section 6603(d). The interest rate is the federal short-term
rate determined under section 6621(b), compounded daily. See section 6603(d)(4) and
Rev. Proc. 2005-18, section 6.03 and section 7. I am attaching the Rev Proc in case
you need it.

If you have any other questions related to this case, please let me know.

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