CCA 1319017: Unassessed tax bars related underpayment interest

Plain-English summary

Chief Counsel Advice addresses whether the IRS may retain tax payments and assess related underpayment interest when the underlying tax was not timely assessed. The advice says the Service may retain payments made before the assessment statute expired, but may not assess additional interest on a liability that was never assessed. It applies the collection and interest periods in IRC §§ 6502 and 6601(g), and cites Treas. Reg. § 301.6601-1(f)(1).

Ruling snapshot

• Question: May the IRS assess and collect underpayment interest when the related tax was never timely assessed?
• Outcome: Advice given.
• Key authorities: IRC §§ 6501, 6502, and 6601; Treas. Reg. § 301.6601-1(f)(1); Rev. Rul. 85-67

Full text (IRS public release)

ID: CCA_2013041515271440 Number: 201319017
Release Date: 5/10/2013
Office: --------------
UILC: 6501.00-00, 6601.12-00

From: ---------------------
Sent: Monday, April 15, 2013 3:27:16 PM
To: ------------------------
Cc: -------------------------
Subject: RE: Interest on underpayment for a barred assessment.

We agree with the conclusions in your original memo and in your email below. Although the Service did
not assess the ---------------- for tax year -------, it can retain the tax payments made by the taxpayer prior
to the expiration of the ASED. See Rev. Rul. 85-67, 1985 C.B. 364. However, the Service cannot assess
additional interest on the tax liability that was never actually assessed. Section 6601(g) provides that
interest prescribed under 6601 on any tax may be assessed and collected at any time during the period
within which the tax to which such interest relates may be collected. Under section 6502, where a tax
assessment has been made within the requisite period of limitations, the Service may collect the tax by
levy or by a proceeding in court, but only if the levy is made or the proceeding begun within 10 years after
the assessment of the tax. In this case the Service is barred from assessing the ------- tax and the Service
must also be barred from assessing and collecting the related underpayment interest. See Treas. Reg.
301.6601-1(f)(1) (interest "may be assessed and collected at any time within the period of limitation on
collection after the assessment of the tax to which it relates"). See also Gingerich v. United States, 78
Fed. Cl. 164, 169 n. 4 ("Because the IRS may only collect tax for which a timely assessment is made, see
I.R.C. 6502(a), and interest may only be assessed while the assocaited tax may be collected, see I.R.C.
6601(g), and because the IRS did not timely assess tax here . . ., sections 6502 and 6601 do not provide
the government an avenue by which it could have assessed the related interest in these cases).

Finally, we agree that the counsel memo brought to your attention by the revenue agent is not relevant to
the issue in this case because it involves the reinstatement of a tax liability after an erroneous abatement,
due to a clerical error. No such abatement or clerical error occurred in this case.

If you have questions or would like to discuss, please feel free to contact me.

Thanks,

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