March 15, 2011: IRS Issues Guidance on Interest-Free Rule for Overpayments Due to Chapter 3 and FATCA Withholding
On March 15, 2011, the IRS provided guidance to the field on the 180-day Interest-free Rule for overpayments resulting from Chapter 3 and 4 withholding (SBSE-20-0311-0572).
In 2010, the HIRE Act, added IRC Sec. 6611(e)(4) to increase the interest-free period from 45 days to 180 days on any overpayment resulting from tax deducted and withheld under Chapter 3 (withholding of tax on nonresident aliens and foreign corporations) or Chapter 4 (FATCA) of the Internal Revenue Code. The HIRE Act also substituted "180 days" for "45 days" each place it appears in IRC 6611(e)(1) for purposes of refunds of taxes withheld under Chapter 3 and/or Chapter 4, refunds after return is filed; IRC 6611(e)(2), refunds after claim for credit or refund; and IRC 6611(e)(3), IRS-initiated adjustments. The effective date for amended section IRC 6611(e)(4) applies to:
- Refunds on original returns with due dates (determined without regard to extensions) after March 18, 2010.
- Refunds after claims for credit or refund on amended returns and claims filed after March 18, 2010 (regardless of the taxable period to which such refund relates).
- IRS-initiated adjustments resulting in refunds and/or credits of an overpayment or interest after March 18, 2010 (regardless of the taxable period to which such refund relates).
NOTE: In practice, the effective date of IRC 6611(e)(4) for overpayments originating from FATCA adjustments will not take place until after December 31, 2012, the date payments under IRC 1471 through IRC 1474 of Chapter 4 are recognized as being made.
Although not yet published on the IRS website, the Interim Procedural Update (IRM 220.127.116.11.6) should be available shortly.