TAX NEWS - January 2010
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Requests for return of excess deposits and related interest
The notice clarifies that a taxpayer is entitled to Section 6603 interest at the rate provided in Section 6603(d)(4) on a deposit that is returned, but only to the extent the deposit is attributable to a disputable tax. A taxpayer is not entitled to interest under Section 6603 or Section 6611 on the amount of deposit that exceeds the disputable tax.
Generally, Section 6603(a) provides that a taxpayer may make a deposit with the Service for payment of income, gift, estate, and other taxes. Section 6603(c) provides that the Service will return to the taxpayer any amount of a deposit that the taxpayer requests in writing, unless the amount has previously been used to pay tax or the Service determines that collection of tax is in jeopardy. Section 6603(d) authorizes the payment of interest on a deposit that is returned to the taxpayer to the extent that the deposit is attributable to a disputable tax. Disputable tax is defined in Section 6603(d)(2) as taxpayer's reasonable estimate of the maximum amount of tax attributable to disputable items. The notice in its two examples concludes that the amount of the disputable tax is the amount of the proposed deficiency set forth in the 30-day letter. The same rule would also apply to a deficiency set forth in a notice of deficiency.
The notice further provides that when a Section 6603 deposit is used to satisfy an assessment, the remittance is treated as a payment. However, the legal character of the entire deposit is not changed to a payment. Instead, the excess amount of the deposit retains its character as a Section 6603 deposit and is not subject to interest under Section 6611. However, to the extent the excess deposit is attributable to a disputable tax, it would still earn Section 6603 interest.
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