Advice on offsetting tax overpayments against other liabilities

Plain-English summary

Chief Counsel’s office advised that a taxpayer does not need a statutory overpayment under § 6401(a) to have an overpayment for a tax year. The Service may examine the entire return to determine the correct liability, even when additional liability can no longer be assessed. The separate question is whether an overpayment for one year may be offset against a liability for another year under § 6402(a). The advice states that an offset is available only against a liability that has been assessed or is shown on a statutory notice of deficiency. If no other outstanding assessed liability exists, the overpayment must be refunded.

Ruling snapshot

• Question: When may the Service offset a taxpayer’s overpayment for one year against a liability for another year?
• Outcome: Advice given.
• Key authorities: IRC §§ 6401(a), 6402(a), and 6501; Lewis v. Reynolds; Rev. Rul. 85-67; Rev. Rul. 2007-51; Rev. Rul. 2007-52.

Full text (IRS public release)

ID: CCA_2013040910220947 Number: 201316020
Release Date: 4/19/2013
Office: --------------
UILC: 6402.00-00

From: ----------------------
Sent: Tuesday, April 09, 2013 10:22:26 AM
To: ----------------------
Cc: -------------------
Subject: FW: Overpayment question - nondocketed case

My reviewer concurs in my response below. Sorry it has taken me so long to get back to you. Another
question that came up was when the 6-year statute of limitations applicable for substantial omission of
income is applicable. If you have questions about the 6-year statute under section 6501 you can contact
-----------------------.

Regarding your overpayment question, we think you are confusing "overpayment" with "offset" under
section 6402(a). A taxpayer does not have to have a section 6401(a) statutory overpayment to have an
overpayment. Lewis v. Reynolds and Rev. Rul. 85-67 address overpayment for a particular tax year.
The GL School training materials chapter on refunds has a good discussion of Lewis v. Reynolds and
overpayments. While Lewis v. Reynolds uses the term "offset", it is talking about whether there is an
overpayment of tax for a particular tax year. The entire return can be examined to determine the correct
liability even where additional liability cannot be assessed. Under Rev Rul 85-67, expiration of the
assessment statute does not preclude the Service from keeping payments received within the
assessment statute; there is no section 6401(a) overpayment.

Your question is whether the overpayment for one year can be offset against the liability for another year,
not whether there is an overpayment. The authority to offset an overpayment against other tax liabilities
is under section 6402(a). Section 6402(a) allows offset of an overpayment against a tax "liability" of the
same taxpayer entitled to the overpayment. While "liability" is not specifically defined, it the Service's
long-standing position that offset is available only against a liability which has been assessed or is shown
on a statutory notice of deficiency. See, e.g., IRS CCA 200217005 (no offset against unagreed, proposed
deficiency without a stat notice). See also Rev. Rul. 2007-51 (can offset against liability shown on
statutory notice of deficiency); Rev. Rul. 2007-52 (can offset against liability shown on a bankruptcy proof
of claim).

If there is a (timely) overpayment under section 6402(a), unless there is another outstanding (assessed)
liability against which it can be offset, it must be refunded to the taxpayer.

Let me know if you have any further questions.