Page 121 - TaxAdviser_2022

TAX CLINIC

IRS returns deposits or refunds advance excess of $10,000). Thus, taxpayers re- not count as a payment, and the taxpayer
payments, there are differences. When ceive more interest from the IRS on the can still go to the Tax Court (Baral, 528
the IRS returns a deposit, the taxpayer refund of advance payments than on the U.S. 431, 439 n.2 (2000)).
is entitled to interest from the IRS return of deposits. The chart, “Distinctions Between
only to the extent the deposit relates Third, if a taxpayer makes an ad- Deposits and Advance Payments,”
to a “disputable tax” (Sec. 6603(d)(1)). vance payment before the issuance of below, summarizes some of the key
If the IRS owes interest, the interest a statutory notice of deficiency, it can- distinctions between deposits and ad-
rate is the federal short-term rate (Sec. not petition the U.S. Tax Court for a vance payments.
6603(d)(4)). When the IRS refunds an redetermination; the U.S. Tax Court is
advance payment, the taxpayer is en- a prepayment jurisdiction. If a taxpayer Recent developments
titled to interest regardless of whether it pays a deficiency in full before a notice Although Sec. 6603 and Rev. Proc.
relates to a “disputable tax” (Sec. 6611). of deficiency is issued, the Tax Court 2005-18 have reduced the amount of
Under Sec. 6621(a)(1), the interest rate lacks jurisdiction (Bendheim, 214 F.2d litigation on what constitutes a deposit
is the federal short-term rate plus 3 26 (2d Cir. 1954)). However, if a tax- or advance payment, the issue still oc-
percentage points (2 percentage points payer makes a payment after the notice casionally arises. Last year, the Fifth
if the taxpayer is a corporation or 0.5 of deficiency is mailed, the Tax Court Circuit considered whether a credit-elect
percentage point if the taxpayer is a retains jurisdiction (Sec. 6213(b)(4)). A overpayment constituted an advance
corporation and the overpayment is in “deposit,” regardless of when made, does payment and the Tax Court considered

Distinctions between deposits and advance payments

Deposit Advance payment

Does it stop interest from Yes Yes
running on underpayments and
penalties on date IRS receives the
remittance?

Can the taxpayer get the Yes Only if the taxpayer files a refund
remittance back? claim that the IRS grants or the
taxpayer wins in refund suit
Is there a time limit on when the No (just as long as it is before the Yes, generally the later of two
taxpayer can ask for the IRS applies the deposit to the tax) years of making advance
remittance back? payment or three years of tax
return being filed, subject to
numerous exceptions
Does the taxpayer receive Yes, if it is a disputable amount Yes
interest if the remittance is
returned/refunded?

What is the interest rate on the Federal short-term rate Federal short-term rate plus 3%
return/refund? (2% if corporation or 0.5% if
corporation and overpayment in
excess of $10,000)

Can the taxpayer still go to Tax Yes No, if made before the notice
Court? of deficiency

12 March 2022 The Tax Adviser