Tax News

CCH (cch.taxgroup.com) reports:

  An IRS Appeals officer did not abuse his discretion in denying the application of Code Sec. 6621(d) interest netting in calculating additions to tax for negligence against an individual taxpayer under former Code Sec. 6653(a)(2). Although the addition to tax is calculated based on Code Sec. 6601 underpayment interest, and Code Sec. 6601 references Code Sec. 6621 in determining the underpayment rate, the underpayment rate, not the netted underpayment and overpayment rate, is used to calculate the addition to tax.

  Even if the entire Code Sec. 6621 is considered,
Code Sec. 6621(d) does not apply a zero interest rate but, rather, provides that the net rate of interest would be zero on equivalent underpayments and overpayments. Thus, the underpayment interest rate used to calculate the addition to tax does not itself become zero. Moreover, Code Sec. 6621(d) does not refer to amounts that are not interest, such as penalties or additions to tax.

  In addition, the IRS did not abuse its discretion by not offsetting the taxpayer's outstanding overpayments and underpayments, and properly applied the interest netting by decreasing the underpayment interest to equal the interest paid to the taxpayer on refunds for the overlapping period. Generally, the IRS has discretion whether to apply overpayments to delinquencies or to refund them. Also, the IRS would not generally use Code Sec. 6621(d) to eliminate interest rate imbalances if the differing rates had been eliminated through crediting because of a refund or tax payment. In this case, the IRS issued a refund to the taxpayer and paid him taxable interest on overpayments at the same rate at which the taxpayer was charged interest on equal amounts of underpayments during the same periods. Because the IRS sent a refund for the overpayments, with interest, and agreed that Code Sec. 6621(d) interest netting applied, the interest rate imbalances had been eliminated. Thus, the interest netting could be properly applied without offsetting the taxpayer's outstanding overpayments and underpayments.

T.I. Lincir, TC Memo. 2009-153, Dec. 57,871(M)

Other References:

 
Code Sec. 6330

  CCH Reference - 2009FED ¶38,184.60

 
Code Sec. 6621

  CCH Reference - 2009FED ¶39,455.38

  Tax Research Consultant

  CCH Reference - TRC PENALTY: 9,056.05
CCH Reference - TRC IRS: 51,056.25