CCA 200851056: Penalty interest starts on the Monday, but only for a taxpayer who actually used the extra days

Plain-English summary

The most carefully built release in this batch, and the one that turns on the smallest fact: whether the taxpayer actually took the weekend.

The setting is a two-day question. A taxpayer obtains a valid six-month extension under section 6081, which moves the Form 1040 due date to October 15. October 15 falls on a Saturday, and section 7503 provides that where the last day for performing an act falls on a Saturday, Sunday or legal holiday, the act is timely if performed on the next business day. So the return goes in on Monday October 17, on time. An accuracy-related penalty is later assessed on the substance of that return. Interest on such a penalty begins, under section 6601(e)(2)(B)(i), on the date the return is required to be filed, including any extensions. Does that mean October 15 or October 17?

The answer is October 17, and the writer gives two grounds.

The first is coherence. The return is considered filed on October 17. The assessment period runs from that date, and the writer reads situation 3 of Rev. Rul. 2003-41 as establishing that the taxpayer could file a refund claim at any time on or before October 17 three years later. Every other clock in the system starts on the Monday, so it would be incongruous to have interest on a penalty running from a date two days before the return is treated as filed.

The second is textual, and it is stated with unusual precision about what it does not claim. Section 6601(e)(2)(B)(i) includes a parenthetical folding "any extensions" into the determination of when a return is required to be filed, so the question becomes whether section 7503 supplies an extension. The writer says it does, but only in a particular sense, and pauses to reject the broader reading in a long parenthetical: they do not believe section 7503 changes the due date. Situation 3 of the ruling, they say, shows a taxpayer who actually took advantage of the extra time, and the ruling itself confirms the due date is untouched by treating the taxes as deemed paid under section 6513(b)(1) on April 15. What section 7503 did there was let the lookback period of section 6511(b)(2)(A), three years plus any extensions, pick up the two extra days, so a refund claim filed on the Monday three years later could still reach tax deemed paid on the April 15 due date.

That distinction produces the rule the release ends on, which cuts both ways. A taxpayer who takes advantage of the additional time section 7503 allows has an extension, so the date the return is required to be filed for penalty interest purposes is the next day after the Saturday, Sunday or holiday. A taxpayer who does not take advantage of it, by filing early or by filing late, is outside section 7503 altogether, and the operative date reverts to the 15th, whether that is the original due date or the date extended under section 6081, even though the 15th fell on a weekend or a holiday. The provision is not a calendar rule that moves the deadline for everyone; it is a rule that rescues the person who uses it.

Two notes on the record. The index subject for this release reads "Interest on Interest and Penalties (1939 Code)", which is a label from the IRS classification scheme rather than a description of the document; the analysis is entirely under the current Code. And the revenue ruling is cited as the release cites it, "RR 2003-41", without a reporter reference. The citation-checking tool was unavailable in this session, so it was not independently confirmed here. Another section 6601 interest question from the same batch appears at 0851072.

This is a clean digital release rather than a scan, so no OCR correction was needed. Kept as released: the ellipsis inside the quoted statute; "ASED" unexpanded for the assessment statute expiration date; "RR 2003-41" as the short form; "October 17, Year 0" in reason 1 against "October 17th" elsewhere; "the three-year plus any extensions lookback period"; and the quotation marks the writer puts around "extension", "extended" and "required to be filed".

Ruling snapshot

• Question: Where an extended October 15 due date falls on a Saturday and the return is timely filed the following Monday, does interest on an accuracy-related penalty begin on the 15th or the 17th?
• Outcome: Advice given. Interest should run from October 17th, the day the return was filed. First, the return is considered filed that day and the assessment and refund clocks run from it, so interest starting two days earlier would be incongruous. Second, section 6601(e)(2)(B)(i) counts "any extensions", and a taxpayer who actually takes advantage of the additional time section 7503 allows has one. A taxpayer who does not take advantage of it, by filing early or late, falls outside section 7503, and the operative date is the 15th even if it falls on a weekend or holiday. The writer expressly does not accept that section 7503 changes the due date itself.
• Key authorities: IRC sections 6601(e)(2)(B)(i), 6081, 7503, 6511(b)(2)(A) and 6513(b)(1); situation 3 of Rev. Rul. 2003-41, not independently verified here.

Full text (IRS public release)

ID: CCA_2008101610383052 Number: 200851056
Office: -------------- Release Date: 12/19/2008

UILC: 6601.03-00

From: -----------------------
Sent: Thursday, October 16, 2008 10:38:31 AM
To: -----------------------
Cc: -----------------
Subject: Section 6601(e)(2)(B)

You have asked for our interpretation of section 6601(e)(2)(B) as to when interest should begin to run on an accuracy-related penalty for returns filed under the following circumstances: A valid six-month extension of time to file is obtained pursuant to section 6081, extending the Form 1040 due date until October 15th, Year 0. Because October 15th falls on a Saturday in Year 0, a return is timely filed on Monday October 17th, pursuant to section 7503. An accuracy-related penalty is assessed on the substance of that return and the question is whether interest on the penalty would begin to run from October 15th or October 17th, Year 0. Section 6601(e)(2)(B)(i) states, in relevant part, that interest on certain additions to tax "begins on the date on which the return...is required to be filed (including any extensions)." We believe that interest should run from October 17th, the day the return was filed.

We have two reasons for this conclusion:
1) The return would be considered filed on October 17, Year 0. The ASED would run from that date and as situation 3 of RR 2003-41 points out, the taxpayer could file a claim for refund at any time on or before October 17, Year 3. Thus, it would seem incongruous to have interest running on a penalty from a date two days prior to the date the return is considered filed.

2) Section 7503 as an "extension". As situation 3 of RR 2003-41 provides, section 7503 "extended" the due date to the following Monday when the taxpayer actually filed on that Monday. (We do not believe that section 7503 changes the due date. What situation 3 shows is a situation where the taxpayer actually takes advantage of the additional time provided by section 7503. The analysis of situation 3 does not state that section 7503 changes the due date for a return. Instead, it provides that section 7503 "extended the due date to Monday, April 17, 1995" as the taxpayer filed the return on that date. In fact the ruling states that the taxes were "deemed paid pursuant to section 6513(b)(1) on April 15, 1995. Thus, nothing about the due date changes.) Thus, when the refund claim was filed three years to the date from that Monday, the three-year plus any extensions lookback period of section 6511(b)(2)(A) picked up the two day "extension" provided by section 7503 so that the refund could include tax considered paid as of the return due date (which remained April 15th). Section 6601(e)(2)(B)(i) includes a parenthetical that includes any extensions into the determination of when the return is "required to be filed." Thus, a taxpayer that takes advantage of the additional time provided by section 7503 has an "extension" and thus the date a return is "required to be filed" for purposes of section 6601(e)(2)(B) would be the next day following the Saturday, Sunday, or legal holiday. If a taxpayer did not take advantage of the additional time provided by section 7503 (by either filing early or late) then section 7503 would not apply and the date the return is "required to be filed" for purposes of section 6601(e)(2)(B) would be the 15th (either original due date or extended due date under section 6081) even if the 15th fell on a weekend or a holiday.

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