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Deposits and Advance Payments: Rules and Strategies to Protect Your Options
Thomas Cryan, Deloitte Tax LLP John Keenan, Deloitte Tax LLP Randy Bessinger, Deloitte Tax LLP August 31, 2011
Agenda
Introduction Deposits and advance payments Options to reduce interest accrual Question & answer
Overview Deposits
IRC 6603 Rev. Proc. 2005-18 (superseded Rev. Proc. 84-58)
Implemented IRC 6603 Establishes procedures to make, withdraw, or identify deposits to suspend the running of interest on potential underpayments Provides for interest on the deposit returned to the taxpayer to the extent the deposit is attributable to a disputable tax Enables taxpayers to limit exposure to underpayment interest in a tax dispute without surrendering access to funds for an indefinite term in a non-interest bearing account
Poll question #1
Have you made a deposit under 6603?
Yes No Not applicable
Interest on deposits
Interest will be paid on returned deposits at the short-term Federal rate provided for in IRC 6621(b) but only on the portion of the deposit attributable to a disputable tax
Interest will be paid from the date of deposit to a date not more than 30 days preceding the date of the check
To the extent that a taxpayers calculation of a disputable tax exceeds the amount proposed as a deficiency in a 30-day letter issued to the taxpayer, or the taxpayer desired to remit a deposit prior to receiving a 30-day letter, the taxpayer must provide a written statement to the Service identifying and describing the amount of the disputable tax at the time the deposit is remitted
Interest on an assessed tax liability will be suspended on the date the deposit is received by the IRS
Statement Identifying the Amount of and Basis for the Disputable Tax
Taxpayers relying on the proposed deficiency in a 30-day letter may provide a copy of that letter with the deposit in lieu of a written statement
However, if the taxpayers calculation exceeds the proposed deficiency in the 30-day letter or the taxpayer wants to remit a deposit prior to receiving a 30-day letter, additional information must be included in the written statement
Poll question #2
For those taxpayers who made 6603 deposits, which of the following did you deposit? An amount equal to that shown on the 30-day letter An amount less than that shown on the 30-day letter An amount greater than that shown on the 30-day letter Not Applicable
Statement Identifying the Amount of and Basis for the Disputable Tax
The statement must also include:
The taxpayers calculation A description of the item for which the taxpayer has a reasonable basis for the treatment of the item on its return, and for which the taxpayer reasonably believes that the IRS also has a reasonable basis for disallowing the taxpayers treatment of the item The basis for the taxpayers belief that it has a reasonable basis for the tax treatment and that the IRS also has a reasonable basis for disallowing the taxpayers treatment of the item
Withdrawal of Deposits
Deposits may be withdrawn at any time before the IRS uses the deposit as a payment of tax
A written statement to withdraw the deposit should be sent to the office where the deposit was remitted The statement must include:
The date(s) and amount(s) of the original deposit(s); The type(s) of tax to which the deposit was intended to be applied; The tax year(s) to which the deposit was intended to be applied
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Poll question #3
Has the Internal Revenue Service returned to you a Section 6603 deposit attributable to a disputable tax and paid interest on the deposit? Yes No Not Applicable
Emphasize why taxpayer has reasonable basis for the tax treatment of an item
Use IRS published guidance or Form 5701 to explain why IRS has reasonable basis for disallowing the taxpayers treatment of the item
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Strategies for Making a Partial Advance Payment after Issuance of 30-Day Letter
No requirement to identify items in dispute and basis for taxpayers belief with regard to taxpayers treatment of an item and IRS disallowance of an item
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Strategies for Making a Full Advance Payment after Issuance of 30-Day Letter
Eliminates future accrual of any interest Eliminates ability to petition Tax Court
Accelerates ability to file refund claim and bring suit in District Court or Court of Federal Claims
Prevents Appeals Officer from speculating on taxpayers view of issues
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Strategies for Making a Full Advance Payment after Issuance of 90-Day Letter
Eliminates future accrual of any interest Hot interest accrues from 31st day after issuance of 30-day letter to advance payment Allows taxpayer to petition Tax Court Allows taxpayer to file refund claim and bring suit in District Court or Court of Federal Claims
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Completion of Examination
If the taxpayer executes a waiver of restrictions on assessment and collection or agrees to the full amount of the deficiency, the deposit will be treated as a payment of tax as of the date of assessment.
Interest on any underpayment will accrue from the due date of the original return (without regard to an extension) to the date the deposit was made by the taxpayer.
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Completion of Examination
If the taxpayer does not execute a waiver of restrictions on assessment and collection and agree to the full amount of the proposed deficiency, a 90-day letter will be issued
Taxpayer may file a petition with the Tax Court and request, before the expiration of the 90 or 150-day period, that the deposit continue to be treated as a deposit during the Tax Court proceedings
Failure to make such a request will allow IRS to convert the deposit to an advance payment
Taxpayer may decide to not file a petition with the Tax Court but the deposit will be treated as a payment of tax upon expiration of the 90 or 150-day period during which assessment is stayed
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Poll question #4
A taxpayer who makes a 6603 deposit will be precluded from petitioning the Tax Court. True False Not Applicable
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Contact info
Tom Cryan tcryan@deloitte.com +1 202 378 5238 John Keenan jkeenan@deloitte.com +1 202 879 5605 Randy Bessinger rbessinger@deloitte.com +1 816 802 7219
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