Limitations Periods, Interest on Underpayments and Overpayments, and Mitigation (Portfolio 627)

Description

The procedural aspects of the tax law are of overriding importance in many controversies, eclipsing or making moot substantive issues such as the allowance of deductions or credits, recognition or deferral of income, and methods of accounting. Limitations Periods, Interest on Underpayments and Overpayments, and Mitigation (627) is devoted, in part, to the statutes of limitations on assessment and collection. While the rules of general application are found in §§6501(a) and 6502, there are myriad special rules in §6501 and other Code sections. The complementary statutes of limitations on credits and refunds are also explained. Most of these statutes are found in §6511. They prescribe the various deadlines for filing claims as well as the limitations on the amount of credit or refund allowable.

Additionally, the Portfolio addresses the rules on interest payable to and by the IRS. Interest is generally payable to the IRS under §6601 on underpayments of tax from the last date prescribed for payment to the date of payment. Because of delays in collection and allowance of credits and refunds, the amount of interest payable can often exceed the amount of tax at issue. On overpayments of tax, interest is generally payable to the taxpayer under §6611 from the date of the overpayment until a date no more than 30 days before the date of the refund check. Where the overpayment is credited, interest stops on the due date of the amount against which the credit is taken. If the IRS fails to pay the correct amount of overpayment interest, the taxpayer can sue for the additional amount due. Global interest netting was made available by the enactment of §6621(d) in 1998.

To afford a measure of relief from the operation of the statutes of limitations and other rules of law preventing the correction of errors, Congress has enacted a series of rules — known as the mitigation provisions — which are also discussed in this Portfolio. Since enactment in 1938, the mitigation rules have been a source of confusion and controversy. The rules in §§1311-1314 permit an adjustment in income tax liability for the year of the error under certain conditions, to eliminate a double tax benefit or detriment. Lastly, the Portfolio includes an explanation of the rules in §6521, permitting mitigation for errors in applying the definitions of self-employment income and wages.

Table of Contents

I. Statutes of Limitations on Assessments and Collection of Tax
II. Statutes of Limitations on Credits and Refunds
III. Interest on Underpayments
IV. Interest on Overpayments
V. Mitigation of Limitations and Other Rules (Income Tax)
VI. Mitigation of Limitations for Self-Employment and Social Security Taxes