In emailed advice (Chief Counsel Email 201520010) the IRS concluded that the agency had the authority to abate interest and penalties in a situation where the penalties and interest had been paid and an amended return was filed after the date on which the statute of limitations for claiming a refund of taxes on the year in question had expired.
In this situation the taxpayer had previously paid interest and penalties based on tax shown the taxpayer’s original return, paying them monthly to the IRS.
The taxpayer later discovered the tax for that year had been significantly overstated on the return and the IRS agrees that the proper tax due should have been the amount shown on the amended return—but that amendment was filed after the expiration of the statute for claiming a refund of taxes.
The memo was meant to address the question of whether the IRS could abate and refund any portion of the penalties in this case. IRC §6404(a)(1) provides:
(a) General rule
The Secretary is authorized to abate the unpaid portion of the assessment of any tax or any liability in respect thereof, which--
(1) is excessive in amount...
While the penalties would be excessive in amount, the question was whether the amounts that had been paid within the prior two year period could be abated (with the payment refunded) when the underlying refund of tax claim had not been submitted within the statute for filing such a claim.
The memo concludes the IRS can still abate the excess interest and penalties, noting that “[w]hile the statute specifies ‘unpaid’ assessments, Counsel’s view is that IRC section 6404(a)(1) is permissive and that the IRS is not prohibited from abating the paid portion of assessments.”
The email holds “[t]he amended return should be treated as a claim for refund for the penalties and interest paid in the two years prior to the date the amended return was filed, to the extent those amounts exceed what the taxpayer actually owed.”