§6603 Deposits Made to Suspend Running of Interest on Potential Underpayments, Etc.

Summary

You can give the Secretary a cash deposit to cover taxes that have not yet been assessed under subtitle A or B or chapters 41, 42, 43, or 44. The Secretary will tell you how to make the deposit. If the deposit is later used to pay tax, the tax counts as paid on the day you made the deposit for interest on underpayments (section 6601). If you ask in writing, the Secretary must return any unused part of the deposit unless collecting the tax is in jeopardy. If a deposit is returned, it is treated for overpayment interest (section 6611) only for the part that covers “disputable tax.” Disputable tax is the taxpayer’s reasonable estimate, made when depositing, of the maximum tax from disputable items. For someone with a 30-day letter, that estimate must be at least the proposed deficiency in the letter. A disputable item is an income/gain/loss/deduction/credit where the taxpayer reasonably thinks both their position and the IRS’s possible disallowance each have a reasonable basis. Interest on returned deposits uses the Federal short-term rate under section 6621(b), compounded daily. Unless you tell the IRS otherwise, deposits are used in the order you made them and returned on a last-in, first-out basis.