Chief Counsel Addresses Overpayment Interest Start Date When Filing Status Changes

(Parker Tax Publishing June 2021)

The Office of Chief Counsel issued guidance explaining how the start date is determined for calculating overpayment interest on a refund when spouses change their filing status for a particular tax year (1) from a joint return to a separate return, or (2) from a separate return to a joint return. Such changes in return filing status may occur if the taxpayers were not legally married during the tax year, or when one taxpayer did not consent to filing a joint return, or when a joint return contains a forged signature. PMTA 2021-3.

Background

Code Sec. 6611(a) provides that interest is paid upon any overpayment of tax at the overpayment rate established under Code Sec. 6621. Under Code Sec. 6611(b)(1) and (2), interest starts to accrue as of the date the overpayment arises. If a return is filed after the last date prescribed for filing, determined with regard to extensions, Code Sec. 6611(b)(3) provides that interest is not payable or allowable for any period before the filing of the return. Further, for purposes of Code Sec. 6611(b)(3), a return is not deemed to be filed until it is filed in "processible form."

Under Code Sec. 6611(e)(1), no interest is payable on an overpayment if the overpayment is refunded within 45 days of the later of the: (1) return due date (determined without regard to any extension of time for filing); (2) return received date; or (3) date the return was received in processible form.

Under Code Sec. 6013(b)(3) and Code Sec. 6611(g), for late-filing taxpayers, overpayment interest begins to accrue no earlier than the date the IRS received their processible return. In order to be processible, the return must contain the taxpayer's name, address and tax identification number, the taxpayer's signature and sufficient required information (whether on the return or on required attachments) to permit the mathematical verification of tax liability shown on the return.

PMTA 2021-3

The Office of Chief Counsel issued PMTA 2021-3 to provide guidance on the calculation of overpayment interest when there is a change in the filing status of a return for a particular year. Taxpayers who file an income tax return claiming a married filing jointly status may file a superseding return claiming a filing status of single, married filing separately, or head of household on or before the due date of their originally filed married filing jointly return. If a taxpayer changes filing status from married filing jointly or married filing separately to single or head of household, the taxpayer must be eligible to claim that different status.

When the filing status of married filing jointly or married filing separately is invalid or incorrect, taxpayers may refile their returns claiming the filing status for which they are eligible; i.e., single or head of household, at any time. Such situations can arise if the taxpayers were not legally married during the tax year, one taxpayer did not consent to file a joint return, or the joint return contained a forged signature. The amount of overpayment interest due to a taxpayer can be affected when a return is filed and claims a filing status that is different than a previously filed tax return for the same year. This may occur when a taxpayer who files a return claiming the filing status of married filing jointly files a superseding return claiming a filing status of married filing separately, single, or head of household on or before the due date of the originally filed married filing jointly return. Similarly, it could occur where taxpayers file separate returns for a tax year and subsequently file as married filing jointly.

Example: John and Carol timely filed a joint tax return, Form 1040, for the 2018 tax year on April 15, 2019, on which John was listed as the primary taxpayer. The couple then filed separate returns for the 2018 tax year that reflected an overpayment. Each return was received by the IRS on December 4, 2019. The couple supplied the IRS with court documents on December 28, 2019, proving the marriage was not valid for the 2018 tax year. For John and Carol, if each of the separate returns received by the IRS on December 4, 2019 contained information that satisfied the Code Sec. 6611(g)(2) requirements for a processible return, the filing date of those returns is December 4, 2019. Accordingly, overpayment interest would start no earlier than December 4, 2019. However, if the information needed to satisfy the Code Sec. 6611(g)(2) requirements was not received by the IRS until December 28, 2019, the filing date for each separate return would be December 28, 2019, and overpayment interest would start no earlier than December 28, 2019.

Example: David and Bonnie filed a joint tax return, Form 1040, for the 2018 tax year that reflected an overpayment. The joint tax return was received on January 10, 2020; however, information needed to process the joint return was not supplied to the IRS until January 25, 2020. Previously, David and Bonnie had filed separate returns for the 2018 tax year on November 14, 2019 and April 15, 2019, respectively. In this situation, the joint return was both received and processible on January 25, 2020. Thus, overpayment interest starts no earlier than January 25, 2020. If the IRS pays the refund within 45 days after the joint return was filed (i.e., January 25, 2020), then no overpayment interest is allowable.

For a discussion of the calculation of interest on underpayments and overpayments of tax, see Parker Tax ¶261,510.

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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