Limitations period bars excess-interest refund suit

Plain-English summary

The IRS had paid an excessive refund of overpayment interest, and the taxpayer would not repay it voluntarily. No same-tax, same-period offset was available, leaving an erroneous-refund suit as the government's only collection method. Chief Counsel explained that the usual ten-year collection period does not govern excess overpayment interest and that section 6532(b) instead requires suit within two years of the refund. Because that period had expired and there was no apparent fraud or material misrepresentation to trigger the five-year period, the government could not sue to recover the payment.

Ruling snapshot

• Question: Could the government still sue to recover an excessive refund of overpayment interest after more than two years?
• Outcome: Advice given, the recovery suit was time-barred
• Key authorities: IRC §§ 6502(a), 6532(b), 6601(g)

Full text (IRS public release)

ID: CCA_2015072408550911 [Third Party Communication:

UILC: 6532.00-00, 6532.01-00 Date of Communication: Month DD, YYYY]

Number: 201535016
Release Date: 8/28/2015
From:
Sent: Friday, July 24, 2015 8:55:10 AM
To:
Cc:
Bcc:
Subject: RE: assistance/coordination of excessive refund interest and SOL - -----------------------

------,

After our discussion last week, I spoke with ------------- about the 10 year period that
someone --------------mentioned to you. We think that they may have been referring to
the collections period in section 6502. Section 6502(a) generally provides that when an
assessment of tax has been timely made, tax may be collected within 10 years after
assessment of the tax. Section 6601(g) provides that interest under section 6601 on any
tax can be collected at any time during the period within which the tax to which such
interest relates may be collected. However, section 6601 governs interest on
underpayments and nonpayments of tax, but it does not apply to an excess refund of
overpayment interest.

In a situation involving an excessive refund of overpayment interest, such as the one
you described in this case, the Service could collect the excessive refund by (1)
voluntary payment, (2) offset of the same type of tax from the same tax period, or (3)
filing suit to recover the erroneous refund. Per section 6532(b), a suit to recover an
erroneous refund must be instituted within 2 years after making the refund. You
mentioned that the taxpayer is unwilling to make a voluntary payment and that there are
no offsets available, which means a suit for an excess refund would be the only option
for the government to collect the excess refund. However, this suit would need to be
instituted within 2 years of when the refund was made, or within 5 years if it appears
that any part of the refund was induced by fraud or misrepresentation of a material
fact. If the refund was made on ------------------------, the 2 year period has
expired. Because it does not appear there was any fraud or misrepresentation on the
part of the taxpayer, the 5-year period does not apply. Thus, the government may not
institute a suit to recover the erroneously paid overpayment interest.

Please let us know if you have further questions.

Thanks,