Unless otherwise provided by law, interest is mandatory. Interest is paid (charged) on underpayments and interest is paid (allowed) on overpayments. The Office of Servicewide Interest provides policy, training materials, interest tools, validation and support of systemic interest routines, and manual interest procedures for computing overpayment interest and underpayment interest. The abatement and suspension of underpayment interest is authorized by the Internal Revenue Code. Reasonable cause is never the basis for abating interest.

These procedures are covered under the following authority:

IRM 20.2.7 provides servicewide policy for the administration of abatement and suspension of underpayment interest.

All reference materials involving abatement and suspension of underpayment interest must be consistent with the procedures in the IRM and must receive approval from the Office of Servicewide Interest (OSI) prior to distribution.

Overall responsibility for the interest programs resides with OSI. OSI coordinates policy and procedures concerning the administration of the interest programs.

All actions are to be done in accordance with the Taxpayer Bill of Rights as listed in IRC 7803(a)(3).

Nearly every function in the IRS has a role in proper interest administration. It is essential that each function conduct its operations with an emphasis on mitigating risk of inaccurate interest computations. Appropriate reviews should be conducted to ensure interest accuracy, consistency, and fairness.

To promote the goals of accuracy, consistency, and fairness in the interest program, the Complex Interest Quality Measurement System (CIQMS) Staff, a section within OSI, conducts reviews of interest computations, and forwards its findings to program partners/stakeholders. OSI also prepare reports of significant interest issues, such as corrections to computer programing that affect taxpayers.

Refer to Exhibit IRM 20.2.1-2, Definitions of Terms for interest related terms.

For additional information, such as the latest interest news, job aids, interest tool updates, training material, list of interest analysts, and so on, see the Servicewide Interest Virtual Library.

IRC 6404(d) grants authority to the IRS to abate assessed interest due to a "mathematical error" on a return prepared by an IRS employee while preparing income tax returns in his or her official capacity or as a voluntary income tax assistance (VITA) volunteer. The taxpayer will receive a notice of math error with the corrected tax increase amount. Payment of the additional tax is not due until 30 days after the date of the math error notice. If the corrected tax is not paid within 30 days from the date of the "math error" notice, then interest starts to accrue from the 30th day after the notice and demand date or the return due date, whichever is later.

A "math error" can be in addition, subtraction, multiplication, or division of items on the prepared return, or there is an item entry inconsistent with another entry on the return. For the definition of mathematical error, see IRC 6213(g)(2).

A math error and amended return require two separate adjustments regardless of whether the 45-day interest free period is met. Math error adjustment is made without an amended claims date (AMD-CLMS-DT) and an amended return is made with an AMD-CLMS-DT if applicable. See IRM 21.5.4.5.3, Processing Responses to Math Error Notices.

Under IRC 6014, certain taxpayers may file a timely return not showing the tax on the return and "elect" to have the IRS compute the tax for the filed return. Since the IRS is computing the tax, the taxpayer cannot satisfy his liability at the time of filing. IRC 6151(b) provides that the amount determined by the Secretary as payable is due within 30 days after the mailing of CP 51-A showing the IRS computed tax. If the taxpayer does not fully pay the IRS computed tax within 30 days of the date of the notice and demand, interest starts to accrue from 30 days after the notice and demand date or the return due date, whichever is later. IRC 6151(b) interest exception applies only to the original tax, transaction code (TC) 150, but not on subsequent liabilities.

In the 30DAYNOT-CD> field on a transcript of account (CC TXMODA), a "4" indicator is a return prepared by an IRS employee in the course of his or her duty, and a "1" indicator is the IRS computed tax. Error Codes in the 500 and 600 series will also be generated on all Non-Compute returns.

The following criteria must be met for an interest abatement request to qualify for unreasonable error or delay under IRC 6404(e)(1):

The following chart is a summary of the examples used in Treasury Regulation 301.6404-2(c) to further define a ministerial act and a managerial act. For purposes of the examples, no significant aspect of any error or delay is the fault of the taxpayer, and the IRS has contacted the taxpayer in writing with respect to the deficiency or payment.

Authority delegated to certain individuals to authorize the abatement of interest from an unreasonable error or delay caused by the IRS in the performance of a ministerial or managerial act is found in IRM 1.2.2.14.1, Delegation Order 20-1, (Rev. 2, formerly DO-228, (Rev. 3), Abatement of Interest. The delegation order provides certain managers the authority to disallow interest abatement requests. Interest abatement coordinators may issue the notice of final determination on interest abatement requests that are automatically disallowed by law.

Prior to July 31, 1996, IRC 6404(e)(1) addressed only interest abatement requests due to ministerial acts. A taxpayer’s case misplaced during an examination did not qualify for interest relief under IRC 6404(e)(1) because it was a managerial act.

For tax years beginning after July 31, 1996, IRC 6404(e)(1) was amended to include both ministerial and managerial acts and redefined "the IRS error or delay" to be unreasonable.

Use the appropriate letter to communicate the result of the interest abatement determination with the taxpayer. If the determination is to disallow the request, use a disallowance letter with appeal rights. Letter 3010 (Letter 3010-C), Full Disallowance of Interest Abatement Request or Letter 3022 (Letter 3022-C), Disallow Partial Interest Abatement Request are available for use.

If the taxpayer does not agree or appeal the initial disallowance determination, issue a notice of final determination by certified mail, or registered mail for an international address. Interest abatement coordinators (IACs) should use Letter 2392 (Letter 3180-C), Full Disallowance for Abatement of Interest-Final Determination, or Letter 2391 (Letter 3181-C), Partial Disallowance for Abatement of Interest - Final Determination.

For full allowance of taxpayer’s interest abatement request, use Letter 3023 (Letter 3023-C), Interest Abatement Request Allowed in Full.

Delegation Order 30-6 (formerly known as Delegation Order 231 (Rev. 4)) was consolidated with Delegation Order 20-1 (Rev. 1) as Delegation Order 20-1 (Rev. 2), signed October 25, 2012, and is in IRM 1.2.2.14.1.

Authority delegated to certain IRS employees to abate interest on erroneous refunds of $50,000 or less is in paragraphs 14 through 16 of Delegation Order 20-1 (Rev. 2).

Section 903 of the American Jobs Creation Act of 2004 (AJCA) eliminated IRC 6404(g) interest suspension for interest accruing after October 3, 2004, on listed transactions and undisclosed reportable transactions. The following year, section 303(a) of the Gulf Opportunity Zone Act (GOZA) included an off-Code provision that retroactively repealed interest suspension for the same group of taxpayers, including interest accruing on or before October 3, 2004. Retroactive repeal of IRC 6404(g) interest suspension under GOZA will not apply if the taxpayer qualified for one of the following exceptions:

The following two "if and then" tables will help determine whether IRC 6404(g) is applicable. Table 1 explains the IRC 6404(g) interest suspension rules for taxpayers who participated in listed transactions (as defined in IRC 6707A(c)). Table 2 explains the IRC 6404(g) interest suspension rules for taxpayers who participated in undisclosed reportable transactions (as defined in IRC 6664(d)(3)(A)) and transactions referred to as neither transactions, which are defined as "not a listed or undisclosed transaction" .

Interest suspension under IRC 6404(g) does not apply to the following situations:

A gross misstatement is defined as follows:

The IRS has 36 months (or 18 months effective for tax years ending on or before November 25, 2007) to notify the taxpayer of an additional liability and the basis for the liability, during which time interest continues to accrue. The 36 months (or 18 months) starts on the later of these dates:

When determining which notification period to use (36 months or 18 months), add 18 months to the return due date or the date on which the return is filed, whichever is later, of the tax year with the deficiency, and then follow the instructions in either (a) or (b):

The following "if and then" table explains how to identify the beginning day of the 36 months (or 18 months) period.

After determining the notification period (36 or 18 months), the next step is to identify the end date of the notification period. At the suggestion of Chief Counsel, the "months" in the 36 (or 18) month notification period is calculated as "36 (or 18) months minus 1 day."

The "interest suspension period" is the length of time the IRS must suspend interest for untimely notifying the taxpayer of an additional liability. Interest, penalties, additions to tax, and additional amounts shown on the proposed changes report (or amended returns provided to the IRS before December 21, 2005) are suspended starting the day after the 36-month (or 18-month) period end date.

The IRC 6404(g) interest suspension period ends 21 calendar days after the "6404(g) notice" date or the received date of the amended return/correspondence (provided to the IRS before December 21, 2005). Interest resumes the 22nd day after the 6404(g) notice date. Here are examples of interest suspension periods:

A notice for IRC 6404(g) purposes must be in writing and specifically state the amount of the proposed liability and the basis for the liability. The notice must provide the taxpayer with sufficient information to identify which items of income, deduction, loss, or credit the IRS proposes to adjust, and the reason for that adjustment. See Treas. Reg. 301.6404-4(a)(7), Suspension of interest and certain penalties when the Internal Revenue Service does not timely contact the taxpayer.. The notice requirement applies separately to each item or adjustment. An adequate IRC 6404(g) notice provided within the prescribed time period (18 or 36 months) prevents the suspension of interest only on those items or adjustments described in that notice.

In general, the following list describes the documents that are considered adequate notice for purposes of IRC 6404(g):

For the proposed changes report, an explanation of each item of adjustment using one of the following methods provides adequate notice:

Interest is systemically computed when there is only one IRC 6404(g) notice date and the module is not otherwise blocked from systemic calculation. The example below illustrates the systemic IRC 6404(g) interest suspension routine.

Master File and IDRS cannot correctly compute underpayment interest with an IRC 6404(g) interest suspension when there is more than one TC 29X or TC 30X adjustment on the module. A TC 290 or TC 300 for a zero amount, with an accompanying penalty adjustment or change in refundable credits, is considered an adjustment. Interest must be manually computed and input in these instances. If not, the adjustment will unpost with Unpostable Code 155, Reason Code 1 (reactivated 07/01/2009).

A 6404(g) Recovery Project (identified with TC 971 AC 199) was conducted to allow the IRC 6404(g) interest suspension on amended return (Rev. Rul. 2005-4) adjustments (not AUR or Exam) that posted to Master File on or before January 7, 2005. Due to the impacted volume of cases, an interest program was developed to systemically compute the correct amount of interest due. Systemic computation of interest for the 6404(g) Recovery Project followed the above computations, with one exception:

Technically, the return due date or return filed date, whichever is later, is the start of the 36–month (or 18–month) notification period. In order to bring about consistent IRC 6404(g) interest computations throughout IRS, a decision was made to use the date shown in the return received date field of CC TXMODA (or CC IMFOLT) as the start of the 36-month (or 18-month) notification period. The field is visual and the date, once entered, is set. Most of the time, the field contains the return due date or filed date rather than the received date of the return. Master File and IDRS use the date in this field for its IRC 6404(g) systemic interest routine. When manually computing and updating interest on the module, use the later of the return due date or return filed date as shown on the return.

Interest suspension on listed transactions and undisclosed reportable transactions ended on 10/03/2004 under section 903 of the American Jobs Creation Act of 2004, so the accrual of interest on these cases resumed on 10/04/2004. Examiners must correctly flag the portion of the liability attributed to undisclosed reportable/listed transactions on Form 3198 before sending the cases to Centralized Case Processing to close.

Prior to July 2015, reversals of certain tax credits included on either the examination changes report or on the IRC 6601(c) waiver form, (for example, Form 870) required manual computation and updating of interest with TC 340. Rebate credits (for example, economic stimulus, recovery rebate) are an exception to the manual interest computation because those credits were reversed using the same transaction date as originally allowed. Thus, rebate credits do not receive an IRC 6601(c) interest suspension period. Manual interest updates are no longer required for adjustments posted in July 2015 and later.

The IRC 6601(c) interest suspension period applies only to the tax, credit reversals, penalties, and interest related to the TC 30X (or TC 29X for AUR) assessment. The example below shows the effect of a suspension period on an interest computation.

The reallocation of payments and credits for purposes of computing an interest suspension is a methodology no longer supported by the IRS. If a previous interest suspension amount was computed using the reallocation method, that adjustment should not be changed to the current method, but current and any future computations should be computed using the following method. Below are some scenarios of how to handle a payment allocation when an interest suspension period applies to an underpayment interest adjustment. When computing an interest suspension, for example, for IRC 6404(g) or IRC 6601(c) (also known as the 870 waiver), do not reallocate payments that have been previously used to pay assessed penalty and or interest for another assessment.

When calculating the IRC 6601(c) interest suspension amount, consider only the pertinent tax liability (including adjustments to refundable credits), and any related penalties, payments, and or credits associated with the filed waiver (for example, Form 4549, Form 870, and so on.). Also consider all module conditions at the time of calculation, and the proper application of all interest related laws, revenue rulings, revenue procedures, and so on. This includes all currently available credits that will be used to offset into the module to help pay this assessment.

Check CC SUMRY, IMFOLI or BMFOLI to make sure there are no pending credits that will be offset into the module. Also, a taxpayer's payment that is meant for tax liabilities for different tax years may post to only one module. Carefully analyze the case file to determine the taxpayer's intent as it relates to payments on the module when computing interest involving an 870 waiver.

After the interest suspension amount is determined, it is then used in the running module balance, suspending interest on that amount starting from 30 days after the filed waiver date and ending on the earlier of the date full paid or the notice and demand date (23C date). It is important to remember to stop the suspension on the date the liability becomes full paid in case there are later adjustments. Also, if there is an underpayment event that occurs in the middle of the suspension period, the suspension will stop and start again with the increased balance.

Another way to compute the IRC 6601(c) interest suspension amount is to perform two separate interest computations with and without the adjustment and related transactions that are entitled to the interest suspension period. Stop both computations on the interest suspension period start date. Then, take the interest difference between the two computations and add all of the waiver related adjustments to arrive at the actual interest suspension amount. This second method is how Master File determines the interest suspension amount.

When computing the interest suspension amount, prior overpayment interest-free suspension periods should be considered. For example, refunds received without interest. See IRM 20.2.5.7, Revenue Ruling 99-40, Use of Money, for Rev. Rul. 99–40 adjustments. If there is a credit on the module due to an overpayment or abatement of tax, then it should also be used in the interest suspension computation amount for a subsequent assessment.

If the original interest suspension amount was properly determined at the initial calculation, subsequent module activity should not alter the interest suspension amount. Once the interest suspension amount has been determined, it should not be changed unless an error has been identified.

A subsequent TC 291/301 to reduce the tax does not change the interest suspension amount previously computed.

Since payments are applied to liabilities in effective date order, undesignated payments may be applied to certain penalties before tax.

A copy of how the interest suspension amounts were determined should be included with the interest computation that is attached to the input document and case file, especially when there are multiple suspension periods.

Agreed cases closed by Exam via a Form 906, Closing Agreement on Final Determination Covering Specific Matters, do not receive an interest suspension period under IRC 6601(c) (often referred as the "870 waiver suspension" ). The form by itself does not constitute a waiver. See IRM 8.13.1, Processing Closing Agreements in Appeals, for more information on interest and waivers on closing agreements.

The "period of time" to disregard for the purpose of performing certain acts because of service in a combat zone (CZ) starts when an individual enters a CZ and ends 180 days after exit from the CZ. Time in a combat zone includes all continuous time spent in a hospital outside the U.S., and up to 5 continuous years spent in a hospital inside the U.S., due to injuries sustained while in a combat zone. If a taxpayer enters or exits a CZ during a 'period of time' to perform certain acts, the CZ suspension period is extended that many more days in order to perform these acts. Certain acts may include, but are not limited to, the filing of a tax return, filing of a claim for refund, or petitioning the Tax Court.

With regard to return due dates (RDDs), this date may be further extended per Rev. Rul. 76-425. If a taxpayer is in a CZ during any given tax year, disregarded time can be extended for any part of the missed filing season period. The extension is calculated with consideration for the date of entry, the date of exit, and the tax filing season.

The following four scenarios provide guidance when determining the number of days to disregard (or exclude) when determining return due dates (RDDs) for the purpose of computing underpayment interest on a CZ individual income tax module.

The Master File and IDRS programs can correctly compute and suspend interest (and penalties) on combat zone (CZ) accounts if there is one CZ period, or in the case of multiple CZ periods, if the taxpayer reenters the CZ outside of the disregarded period. For example:

Where there are multiple in and out CZ periods and the taxpayer reentered the CZ within the disregarded period, Master File and IDRS cannot correctly compute interest. Therefore, manually compute interest and use TC 340 to assess interest on the module. For information on the use of TC 340, refer to IRM 20.2.5.6.2, Manual Computations, or non-restricting TC 340, refer to IRM 20.2.5.6.3, Non-Restricting Transaction Code (TC) 340. In this instance, where the taxpayer reentered the CZ within the disregarded period, the CZ period is considered as one continuous period starting from the first CZ entry date up through the last CZ exit date.

Pursuant to IRC 7508(b)(2), all 45-day interest-free processing under IRC 6611(e), will not apply to overpayments that originate from combat zone (CZ) tax modules, provided the original tax return is timely filed (determined by taking into account IRC 7508 provisions). Including the 45-day interest-free periods for the following:

Do not enter an amended claims date (AMD-CLMS-DT) on a timely filed return with a CZ indicator. An amended claims date would trigger the 45-day back-off rule causing less overpayment interest to be paid on the refund. For all overpayment interest rules, see IRM 20.2.4, Overpayment Interest.

Do not enter a Priority Code 3 for an IRS-initiated adjustment on command codes AMCLS or ADJ54 when the CZ indicator is present. A Priority Code 3 will also trigger the 45-day back-off rule, which rule does not apply to timely filed combat zone tax returns.

IRC 7508(c) entitles the spouse of a service person to the same postponement acts: an extension of time for filing and paying taxes. Other than a spouse of a service person from the Vietnam conflict, this rule does not apply to the spouse of a service person for any taxable year beginning more than two years after the date designated as the termination date of combat.

IRC 7508(d) provides that the period of service in a CZ includes the period during which a person is missing in action. For more information on CZ, see IRM 5.1.7.9, Accounts of Taxpayers Who Serve in a Combat Zone; IRM 5.19.1.5.11, Killed in Terrorist Action (KITA), Killed in Action (KIA), and Astronauts Killed in the Line of Duty; and Pub 3, Armed Forces' Tax Guide.

For a taxpayer meeting IRC 7508A criteria, suspend interest during the declared disaster period for which the IRS has granted a postponement of time to pay. The disaster period interest suspension should only apply to tax returns having an original return due date that falls within the disaster period. For disasters occurring before January 1, 2015, the interest suspension period applies to tax returns having an original or extended return due date that falls within the disaster period. Effective for disasters occurring on or after January 1, 2015, only those tax returns having an original return due date that falls within the disaster period qualify for interest suspension. IDRS and Master File will calculate the interest suspension automatically, so long as there are no conditions preventing systemic interest calculation on the tax module. Provided below are examples to help determine if a taxpayer qualifies for an IRC 7508A interest suspension.

For disasters occurring prior to January 2015, an affected taxpayer with an extension of time to file date that falls within the disaster period was granted interest relief.

A taxpayer affected by a disaster who receives a bill for interest or penalties accruing during the disaster (or postponement) period should contact the IRS to request an abatement of interest or an abatement of penalties. Tax years with pre-existing liabilities that are due before or after a disaster period do not qualify for disaster interest relief under IRC 7508A.

For more information on declared disaster cases, refer to IRM 25.16.1, Program Guidelines.

A taxpayer request for abatement of unpaid income, estate, or gift taxes is prohibited by IRC 6404(b). The taxpayer must make full payment and file an amended return to claim a refund.

When a request for abatement of unpaid interest is received, review the taxpayer's request for completeness before forwarding the claim to another employee or function for processing. Full payment is not required on an interest abatement request.

The request should close as follows:

Post interest accruals to the module before the input of an interest abatement. When a written protest is received because of a disallowed interest abatement request, forward the protest along with the disallowed case file to Appeals for reconsideration.

Use Letter 3477 (Letter 3477-C), Interest Suspension, to communicate IRS decisions on any IRC 6404(g) matter. IRC 6404(g) is not an interest abatement, but it is an interest suspension provision, and it is not eligible for judicial review in Tax Court or appeal rights.

The following "if and then" table provides instructions for the input of an IRC 6404(e)(1) interest abatement request on IDRS:

If the interest abatement request is allowed (in part or in full), abate the portion of interest accruing from the date the unreasonable error (or unreasonable delay) occurred up to the date the unreasonable error (or delay) was corrected.

The employee who reviews the interest abatement request and makes the decision to allow the request must furnish the start and end dates of the ministerial or managerial act(s) to the interest computation function. For more information on disallowed interest abatement procedures, see IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns.