Returns That Omit Estimated Tax Payments Are Not In Processible Form for Purposes of Triggering Overpayment Interest

(Parker Tax Publishing March 2024)

The Office of Chief Counsel advised that an individual income tax return that does not include the estimated tax payments made for the tax year is not "in processible form" for purposes of Code Sec. 6611(g)(2). As a result, such a return is not treated as filed, and because Code Sec. 6611(e)(1) provides that no interest is allowed on an overpayment if it is refunded within 45 days after the return is filed if it is filed after the due date, the return will not be in processible form for purposes of the 45-day period until the taxpayer provides information regarding the estimated tax payments. PMTA 2024-1.

Background

The Taxpayer Advocate Service asked the IRS Office of Servicewide Interest to implement a policy of paying interest on an overpayment reported on an individual income tax return that does not include the estimated tax payments made for the tax year if the overpayment is not refunded within 45 days after the return due date or within 45 days after the return is filed, if it is filed after the due date. As a result of that request, the Office of Servicewide Interest asked the Office of Chief Counsel whether such a return is in processible form under Code Sec. 6611(g)(2).

Under Code Sec. 6611, interest is allowed on overpayments of tax, with certain exceptions. Code Sec. 6611(b)(3) provides that when a return is filed late, no interest will be allowed or paid for any day before the date on which the return is filed. Further, Code Sec. 6611(e)(1) provides that no interest shall be allowed on an overpayment of tax if it is refunded within 45 days after the last day prescribed for filing the return for the tax (determined without regard to any extension of time for filing the return) or, in the case of a return filed after such last date, if it is refunded within 45 days after the date the return is filed.

Code Sec. 6611(g)(1) provides that a return is not treated as filed for purposes of Code Sec. 6611(b)(3) and (e) until it is filed "in processible form." Under Code Sec. 6611(g)(2), a return is in processible form if: (1) it is filed on a permitted form; and (2) it contains the taxpayer's name, address, and identifying number; the required 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."

As recognized by the Federal Circuit in Deutsche Bank AG v. U.S. 742 F.3d 1378 (Fed. Cir. 2014), "tax liability" in Code Sec. 6611(g)(2) "means underpayment or overpayment, and payments made by the taxpayer ... are relevant to the mathematical verification of tax liability." As explained by the Federal Circuit, Congress used the term "tax liability" in Code Sec. 6611(g)(2) "to encompass both overpayments and underpayments and intended that a processible return contain sufficient required information to permit the mathematical verification of the existence and amount of overpayment or underpayment." Since an overpayment arises when tax payments exceed the tax imposed by the Code, "the amount of overpayment . . . cannot be determined without calculating the amount of tax payments already made by the taxpayer."

Analysis

Individual taxpayers are required to report their estimated tax payments for the tax year on their income tax returns. The estimated tax payments are used to determine the taxpayer's total payments, which are, in turn, used to determine whether there is an overpayment or underpayment, and the amount thereof. Therefore, the Chief Counsel's Office advised that the amount of estimated tax payments, is required information which is necessary to permit the mathematical verification of the existence and amount of an overpayment or underpayment. According to the Chief Counsel's Office, if the amount of estimated tax payments made for the tax year is missing from a return, the return does not contain sufficient required information to mathematically verify the overpayment (or underpayment) reported on the return, and the return is not in processible form under Code Sec. 6611(g)(2).

Under Code Sec. 6611(g)(1), a return is not treated as filed for overpayment interest purposes until it is filed in processible form. Since a return that does not include estimated tax payments is not in processible form, it is not considered filed for purposes of Code Sec. 6611(b)(3) and (e). Under Code Sec. 6611(b)(3), no overpayment interest is allowed prior to a return being filed in processible form. Under Code Sec. 6611(e)(1), no interest is allowed on an overpayment if it is refunded within 45 days after the return due date or within 45 days after the return is filed, if it is filed after the due date.

The Chief Counsel's Office advised that the return will not be in processible form for purposes of the 45-day period under Code Sec. 6611(e)(1) until the taxpayer provides information regarding the estimated tax payments either in response to Letter 12C, Individual Return Incomplete for Processing: Forms 1040 & 1040-SR, or otherwise. Consequently, interest is only allowable on an overpayment reported on the return if the overpayment is not refunded within 45 days of the IRS receiving information from the taxpayer regarding the estimated tax payments for the tax year. According to the Chief Counsel's Office, if the information is not provided until after the return due date, the return will be treated as late filed for overpayment interest purposes.

For a discussion 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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