The IRS has announced that the agency will be paying interest on refunds due to the filing deadline delay this year.[1] The statement on the IRS site provided that “[i]nterest on individual 2019 refunds reflected on returns filed by July 15, 2020 will generally be paid from April 15, 2020 until the date of the refund.”

The reason the IRS is paying this interest is found in IRC §7508A, a provision that we’ve discussed before in the COVID-19 pandemic.  This provision sets the rules under which the IRS can delay various due dates during a Presidentially declared disaster.  IRC §7508A(c) provides:

(c) Special rules for overpayments

The rules of section 7508(b) shall apply for purposes of this section.

IRC §7508 provides special rules for extra time for performing certain acts for taxpayers in a combat zone. IRC §7508A borrows these rules for treatment of an overpayment of taxes.  IRC §7508(b)(1) provides that “[s]ubsection (a) shall not apply for purposes of determining the amount of interest on any overpayment of tax.”  IRC §7508(a) is the provision that provides for the delay in payment for those in a combat zone.  Thus, by extension, the government is now on the hook for interest during the period after the original due date until the taxpayer files the return under the relief provisions of IRC §7508A (that is, by July 15, 2020).

IRC §7508(b)(2) provides that “if an individual is entitled to the benefits of subsection (a) with respect to any return and such return is timely filed (determined after the application of such subsection), subsections (b)(3) and (e) of section 6611 shall not apply.” 

• IRC §6611(b)(3) is the rule that provides that interest on an overpayment does not begin to run until the date a return is first filed.  Since we don’t apply this rule, interest will begin running on the overpayment before the date the return is filed.

• IRC §6611(e)(1) provides the rule that no interest will be paid if the refund is paid within 45 days of the last date prescribed for filing the return.  Again, this is barred by IRC §7508(b)(3), so the interest begins running immediately on April 15.[2]

The IRS statement notes that “[i]nterest payments may be received separately from the refund.”

The rates in question per the IRS statement are:

• 5% per year, compounded daily, for the period through June 30, 2020; and

• 3% per year, compounded daily, for the period from July 1, 2020 through September 30, 2020.

[1] “IRS statement on interest payments,” IRS website, June 24, 2020, https://www.irs.gov/newsroom/irs-statement-on-interest-payments (retrieved June 24, 2020)

[2] The analysis above was contained in series of tweets from Richard Rubin of the Wall Street Journal posted on June 24, 2020 found at https://twitter.com/RichardRubinDC/status/1275893063215349761?s=20 (retrieved June 24, 2020).  Richard gives credit to Bob Probasco of the Texas A&M Law School for leading him through this analysis.