Penalty Suspension Period for Amended Returns

A recent revenue ruling describes the circumstances under which Sec. 6404(g) suspends interest and time-sensitive penalties, additions to tax and other amounts on an increased tax liability reported on an individual’s amended return.

Initial Return

The Service is required to suspend the accrual of interest and time-sensitive penalties under Sec. 6404(g) if it does not provide a notice specifically stating the amount and basis for the taxpayer’s liability within the notification period. The notification period is the 18-month period beginning after the later of the (1) return’s original due date (without extensions) or (2) date the taxpayer timely filed the return. The suspension begins on the expiration of the notification period and ends 21 days after the IRS provides notice (the suspension period); see Sec. 6404(g)(3).

Under Sec. 6404(g)(1), the suspension only applies to taxpayers who file a return “on or before the due date for the return (including extensions).” Under Sec. 6404(g)(2)(C), “any tax liability shown on the return” is excluded from the suspension provisions. “The return” is the timely filed original return.

Amended Return

An amended return (or other written notice to the Service of additional liability not listed on the original return) filed after the due date (including extensions) is not “the return” as described in Sec. 6404(g)(1) and (2)(C). Accordingly, interest and time-sensitive penalties are suspended for any tax shown on an amended return (or other written notice) only if the Service does not notify the taxpayer as described in Sec. 6404(g)(1), within the original notification period.

However, when a taxpayer files an amended return (or other written notice), the taxpayer knows the amount and the basis for the additional tax reported on it. Thus, the filing of the amended return (or other written notice) renders the Sec. 6404(g)(1) notice unnecessary.

Example 1: T, an individual, filed a 2002 return on April 15, 2003. Within 18 months, on Oct. 4, 2004, T filed an amended return that reported additional tax due for 2002. T filed the amended return before the Service notified him of the amount or the basis for the additional tax reported on the amended return. However, T did not pay the additional tax due with the amended return.

T’s amended return renders unnecessary a notice of the amount and the basis for the additional tax reported on the amended return before the termination of the notification period. Thus, Sec. 6404(g)(1) will not suspend interest and time- sensitive penalties for additional tax liability reported on the amended return. Interest and time-sensitive penalties will accrue on the additional tax liability from the original return’s due date.

Example 2: The facts are the same as in Example 1, except T filed the amended return on Nov. 26, 2004, more than 18 months after the return due date, and remitted payment with the amended return.

Here, the Service did not provide T with the notice required under Sec. 6404(g), by Oct. 14, 2004. Thus, Sec. 6404(g) suspends the imposition of interest and time-sensitive penalties from Oct. 15, 2004–Nov. 26, 2004, the date on which T filed the amended return and paid the additional tax due.

Example 3: The facts are the same as Example 2, except that T did not remit payment with the amended return.

Sec. 6404(g) suspends the imposition of interest and time-sensitive penalties from Oct. 15, 2004–Dec. 17, 2004, 21 days after T filed an amended return.

Conclusion

The suspension of the accrual of interest and time-sensitive penalties, additions to tax and other amounts begins 18 months and one day after the later of the (1) original return due date (without regard to extensions) or (2) date the individual timely filed the return. The suspension ends (1) on the date the amended return is filed if the taxpayer paid the additional tax due with the amended return; or (2) 21 days after the date the amended return is filed, if the individual did not pay the additional tax due with the amended return.

Rev. Rul. 2005-4, IRB 2005-4, 366