nn ¶ 1635.013(12). Partial payment by cash-basis taxpayer.
Taxpayer who voluntarily remits partial payment when additional tax, penalty, and interest have been assessed, will have payment allocated accordingly: IRS will comply with specific directions sent with payment, and if taxpayer provides no directions, payment will be applied to tax, penalty, then interest for successive periods. Payments made according to offer in compromise or collateral agreement accepted under Code Sec. 7122 will be applied under terms of agreement. If offer in compromise or collateral agreement hasn't been accepted by IRS, payments will be applied according to tax, penalty, then interest for successive periods. Where payment is applied to interest, amount applied will be treated as interest paid in year payment was made for purposes of Code Sec. 163.
Rev. Proc. 2002-26, 2002-15 IRB 746, supsdg Rev. Rul. 73-305, 1973-2 CB 43, and Rev. Rul. 79-284, 1979-2 CB 83 (which had modified Rev. Rul. 73-305, 1973-2 CB 43), and which supsd Rev. Rul. 58-239, 1958-1 CB 94
Partial payment on tax deficiency, penalty, and interest tendered by cash-basis taxpayer with specific instructions as to its application will, as general rule, be applied in accordance with instructions. Where a payment is made without specific instructions, payment will be applied against tax, penalty, and interest, in that order, for earliest year.
Keith, James F. (1961) 35 TC 1130.
Partial payments by bankrupt were correctly applied to tax, penalty, and interest for first period before being applied to later periods. Debtor made no written designation for payment, and oral attempt was ineffective since not made with tender.
In re Mallory (1983, DC CO) 52 AFTR2d 83-5288, 83-1 USTC ¶9332.
Deduction allowed transferee for interest on tax liability of transferor corp. although taxes were not paid. Transferee designated payment to be for interest.
Marcus, Samuel (1964) TC Memo 1964-206, TC Memo ¶64206, remd pursuant to settlement agreement (CA2, 9/13/1965).
Deduction denied for amount deposited with IRS in tax year in connection with offer in compromise of tax, penalties, and interest. Offer wasn't accepted or applied against tax liability until following year.
Kisting, Joseph F., (1970) TC Memo 1970-249, TC Memo ¶70,249.
Deduction denied except for final year at issue. Taxpayer's instructions to apply levied assets to interest weren't timely and IRS was free to apply assets as it desired. Final year instructions were timely and entitled taxpayer to deduction.
Stone, Andrew L., (1984) TC Memo 1984-187, TC Memo ¶84187.
Taxpayer, whose settlement agreement with IRS resulted in overpayment for prior year, was entitled to deduct portion used by IRS to offset assessed interest for later years, but not portion used to offset underlying deficiencies or penalties for later years. Settlement agreement didn't specify how overpayments were to be allocated, and fact that IRS didn't follow its established rule for allocating overpayment didn't harm taxpayer: following rule wouldn't have resulted in larger deduction.
Eboli, Saverio, (1989) 93 TC 123.
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