Ezel / IRS Rulings / 1302036
Chief Counsel Advice 1302036 Released January 11, 2013 Advice

Overstated withholding can produce a penalty underpayment without a deficiency

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This page covers one taxpayer's ruling from 2013, which can't be cited as precedent. Ask about your situation and see what the current Code and IRS guidance say, with citations.

Currency note: this determination was released in 2013
Statutory amendments, regulation changes, court decisions, or later IRS guidance may have changed the analysis since then. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, threshold, or position mentioned here.
Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It resolved one taxpayer's situation on its specific facts, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.
About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.
View official IRS release (PDF)

Plain-English summary

Chief Counsel advice explained that overstated withholding can create an underpayment subject to the accuracy-related or fraud penalties under sections 6662 or 6663 even when there is no deficiency. The advice distinguishes deficiencies, which are calculated without regard to section 31 credits, from underpayments. In its example, a reported tax of $3,000 and overstated withholding credits of $8,000 produce an $8,000 underpayment under the cited regulation.

Ruling snapshot

  • Question: Can overstated withholding credits create an underpayment subject to penalties even without a deficiency?
  • Outcome: Advice given
  • Key authorities: IRC §§ 31, 6662, 6663, and 6664; Treas. Reg. § 1.6664-2

Full text (IRS public release)

ID: CCA_2012110717165371 Number: 201302036
Release Date: 1/11/2013
Office: -------------
UILC: 6664.01-00

From: -----------------------
Sent: Wednesday, November 07, 2012 5:16:58 PM
To: ------------------
Cc: ------------------
Subject: Overstated Withholding and Penalties

--------------asked me to respond to your question.
Under §1.6664-2(c)(1)(i), overstated withholding may result in an underpayment subject
to section 6662 or 6663, even without a deficiency. There may not be a deficiency
because, unlike underpayments, deficiencies are determined without regard to section
31 credits. Using facts from your example:
W ("Amount of income tax imposed") = 3,000 (per 1.6664-2(b))
X ("Amount shown as the tax by the tax payer on his return") = 3,000 (the amount
shown as the tax by the taxpayer on his return) - (8,000 "the amounts shown by the
taxpayer on his return as credits for tax withheld under section 31" - 0 "the amounts
actually withheld")= -5,000 per 1.6664-2(c)(1)
Y ("Amounts not so shown previously assessed") = none per 1.6664-2(d)
Z ("the amount of rebates made") = none per 1.6664-2(e)
Underpayment = 3,000 - (-5,000 + 0 - 0) =$8,000
Please contact me if you have any further questions.

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