To avoid leaving money on the table, taxpayers also should be aware of other common errors by the IRS. These are some example of areas where the law is settled and not in dispute but the IRS frequently makes mistakes:
- Applying the complicated rules governing whether and when to use the higher “hot interest” rate for underpayments.
- Using consistent effective dates for funds transferred from one year to another.
- Suspending underpayment interest when the taxpayer pays the amount due timely or the IRS fails to make notice and demand timely.
- Suspending underpayment interest during periods for which the IRS previously refunded overpayments without paying interest.
- Using the correct dates for manual refunds.
- Accruing interest on penalties from the due date of the return as extended, rather than the original due date.
You can find more about these, and other interest computation issues, in our 2005 article "Computing Interest on Overpayments and Underpayments: How Difficult Can It Be? Very!" and our chart of Pending Interest Cases. If you have any questions, please contact one of us or any of the other Tax lawyers at Thompson & Knight.