Most taxpayers are aware that if they do not timely file and pay their taxes, the IRS charges penalty and interest on the delinquent taxes. However, in a similar manner, the IRS may be liable to a taxpayer when the IRS does not timely pay a refund.
Interest. Interest to taxpayers is governed by IRC § 6611. This section requires the IRS to pay interest on a tax refund as follows:
- Refunds. Interest is due on overpayments of tax to the IRS if the refund is not paid within 30 days of the tax overpayment.[1] However, this rule is subject to numerous exceptions discussed below.
- Late Tax Returns. Notwithstanding a right to interest and a refund, if the taxpayer files his or her tax return late, there is no interest paid for any date before the date on which the return is filed.[2]
- Refunds within 45 days of Return. The IRS is not liable to pay interest on refunds if the IRS pays the refund within 45 days of the due date of the tax return. If the return is filed after the due date, no interest is permitted if the refund is paid within 45 days.[3]
- Refund Claim. In some cases, the taxpayer may wish to file a refund claim against the IRS. A refund claim is often initiated by the filing of an IRS form 1040X. I will discuss refund claims in another article. But if the taxpayer files a refund claim, the IRS is not liable for interest on the refund if the IRS pays the refund within 45 days of the refund claim being filed.[4]
- IRS Initiated Adjustments. If the IRS itself initiates adjustments to the tax return that results in a refund, the IRS may subtract 45 days from the number of days in which it is required to pay interest on an overpayment.[5]
Penalties. The IRS has many penalties which it can impose upon a taxpayer, including penalties for failure to file, failure to pay, negligence, fraud and many others. However, there is no corresponding penalty the taxpayer can assert against the IRS. In the case of IRS penalties, what is good for the goose (the IRS) is not good for the gander (the taxpayer).
Please consult a tax professional to determine if you may be entitled to interest from the IRS.
Jared M. Le Fevre is a Partner in the Tax, Trusts and Estates Practice Group of Crowley Fleck PLLP. Mr. Le Fevre represents taxpayers before the IRS, IRS Independent Office of Appeals, Tax Court, Federal District Court and state tax agencies throughout Montana, Wyoming, North Dakota, Idaho, and Utah. Mr. Le Fevre is involved in federal and state and local tax audits, appeals, and tax resolution throughout these western states. Mr. Le Fevre also advises clients on the tax effects of business and real estate transactions.
[1] IRC § 6611(b)(2).
[2] IRC § 6611(b)3).
[3] IRC § 6611(e)(1).
[4] IRC § 6611A(e)(2).
[5] IRC § 6611A(e)(3).