CCA 1236026: Advice permits crediting an overpayment against proposed deficiencies

Plain-English summary

Chief Counsel advice addressed whether a taxpayer's overpayment could be applied to specified periods with proposed, but not yet assessed, tax deficiencies. The advice concludes that the request may be honored because the proposed liabilities were identified with sufficient specificity. It relies on the Service's authority under IRC § 6402 to credit overpayments against any internal revenue tax liability and on procedures allowing advance payments of proposed deficiencies. The advice recommends applying the requested amounts as of the overpayment date. It also states that the Service may assess the advanced payments under IRC § 6213(b)(3).

Ruling snapshot

• Question: May a taxpayer's overpayment be credited against specified proposed deficiencies before assessment?
• Outcome: Advice
• Key authorities: IRC §§ 6213, 6402, and 6603; Treas. Reg. § 301.6213-1(b)(3); Rev. Ruls. 2007-51 and 2007-52

Full text (IRS public release)

       Office of Chief Counsel
       Internal Revenue Service
       Memorandum
       Number: 201236026
       Release Date: 9/7/2012
       CC:PA:01:BGDusenberry                  [Third Party Communication:
       POSTS-121874-12                        Date of Communication: <Month> DD, YYYY]

UILC: 6213.07-03

date: May 30, 2012

 to:   Doris Kenwright
       program manager
       (              )
       Attn: Rose Kincade

from: Associate Chief Counsel
(Procedure & Administration)

subject: Application of Overpayment Requested on Original Return

       This Chief Counsel Advice responds to your request for assistance. This advice may
       not be used or cited as precedent.


       LEGEND

       Legend:

       A      ------------------
       Year 1          -------
       Year 2          -------
       Year 3          -------
       Year 4          -------

       Amount A        ----------------
       Amount B        -----
       Amount C        -----------------
       Amount D        -----------------
       Amount E        -----------------
       Amount F        -----------------
       Amount G        -------------------
       Amount H        --------------

POSTS-121874-12 2

Amount M ---------------
Amount N ----------------
Amount P ----------------
Amount Q ---------------
Amount R ---------------

Date 1 ------------------------
Date 2 --------------------------
Date 3 ------------------------
Date 4 ----------------------

ISSUE

Whether taxpayer’s request to apply an overpayment to particular periods may be
honored.

CONCLUSION

Taxpayer’s request may be honored.

FACTS

 Taxpayer A is the subject of a Notice of Proposed Deficiency dated September 8,

2005, asserting adjustments to tax and section 6662 penalties as follows:

Year Amount Penalty
1 A B
2 C D
3 E F
4 G H

Taxpayer appears to have filed a protest and the years appear to be pending in
Appeals. The amounts of the proposed deficiencies have not been assessed.

In 2011, taxpayer filed its 2010 tax return pursuant to an extension on Date 1, reporting
it was due a refund of Amount M. In correspondence dated Date 2 and Date 3, and on
its 2010 return filed on Date 1, taxpayer requested the Service apply the 2010
overpayment as an “advance payment” of the Year 2 and Year 3 proposed deficiencies
and requested the Service credit the payment as of Date 4, the due date of its 2010
return. The Service declined to honor this request, and the funds were returned to the
taxpayer. Taxpayer subsequently returned the funds to the Service and repeated its
request that the refund be applied as an advance payment of the Year 2 and Year 3
proposed deficiencies, with a credit date of Date 4.
POSTS-121874-12 3

Taxpayer continues to request that Amount M be allocated among the Year 2 and Year
3 tax and interest liabilities as follows. It requests we apply Amount N million to the tax
and Amount P to the interest for Year 2. It further requests we apply Amount Q to the
tax and Amount R to the interest for Year 3. Applying these amounts as requested
would not discharge either of the proposed liabilities for Years 2 or 3.

LAW AND ANALYSIS

Section 6402 provides that the Service may credit overpayments against “any liability”
the taxpayer has for an internal revenue tax. The authority is not limited to credits
against assessed liabilities. The Service has taken the position that it will make such
credits in situations where the amount of the unassessed liability has been determined
with specificity, such as by a notice of deficiency or a proof of claim in bankruptcy. Rev.
Rul. 2007-51, 2007-2 C.B. 573; Rev. Rul. 2007-52, 2007-2 C.B. 575. Here, the
taxpayer’s request that the overpayment amounts be treated as advance payments
against tax liabilities for Years 2 and 3, provides sufficient specificity for the Service to
make the requested credits.

Even prior to the enactment of section 6603, Service practice permitted taxpayers to
make an advance payment of a proposed deficiency. Reg. Section 301.6213-1(b)(3)
provides, in pertinent part, that if “any payment is made before the mailing of a notice of
deficiency, the … director of the regional service center is not prohibited by section
6213(a) from assessing such amount, and such amount may be assessed if such action
is deemed to be proper.” Language explicitly implementing this regulatory language
appeared in Rev. Proc. 63-11, 1963-1 C.B. 497, and was carried forward into Rev. Proc.
84-58, 1984-2 C.B. 501. When Rev. Proc. 2005-18, 2005-1 C.B. 798, was
promulgated, it focused on the legislative changes made to the cash bond deposit
procedure, and neglected to mention that no changes were intended to the advance
payment procedures.

Since the Service Center had the discretion to apply the overpayment as requested by
the taxpayer, at the time the overpayment arose, we recommend you now allocate the
amounts as requested by the taxpayer as of the date of the overpayment, Date 1. The
Service may assess the amounts of the advanced payments pursuant to section
6213(b)(3).

This writing may contain privileged information. Any unauthorized disclosure of this
writing may undermine our ability to protect the privileged information. If disclosure is
determined to be necessary, please contact this office for our views.

Please call (202) 622-4910 if you have any further questions.