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To stop the accrual of interest on both tax and

amount you may owe. The IRS will not mail you a notice of

TIP

interest, you must make a deposit or payment for

deficiency and you will not have the right to take your case

both the tax and interest that has accrued as of

to the Tax Court.

the date of deposit or payment.

If you do not agree to the full amount of the deficiency

after the examination, the IRS will mail you a notice of

deficiency. Your deposit will be applied against the pro-

Payment or Deposit

posed deficiency unless you write to the IRS before the

end of the 90-day or 150-day period stating that you still

Deposits differ from payments in two ways:

want the money to be treated as a deposit. You will still

have the right to take your case to the Tax Court.

1. You can have all or part of your deposit returned to

you without filing for a refund. However, if you re-

quest and receive your deposit and the IRS later

Installment Agreement Request

assesses a deficiency for that period and type of tax,

interest will be figured as if the funds were never on

You can request a monthly installment plan if you cannot

deposit. Also, your deposit will not be returned if one

pay the full amount you owe. To be valid, your request

of the following situations applies:

must be approved by the IRS. However, if you owe

$10,000 or less in tax and you meet certain other criteria,

a. The IRS assesses a tax liability.

the IRS must accept your request.

b. The IRS determines, that by returning the deposit,

Before you request an installment agreement,

it may not be able to collect a future deficiency.

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you should consider other less costly alterna-

tives, such as a bank loan. You will continue to be

c. The IRS determines that the deposit should be

charged interest and penalties on the amount you owe until

applied against another tax liability.

it is paid in full. There is also a $43 fee if your installment

agreement is approved.

2. Deposits do not earn interest. No interest will be

included when a deposit is returned to you.

For more information about installment agreements,

see Form 9465, Installment Agreement Request.

Notice not mailed. If you send money before the IRS

Interest Netting

mails you a notice of deficiency, you can ask the IRS to

treat it as a deposit. You must make your request in writing.

If you owe interest to the IRS on an underpayment for the

If, after being notified of a proposed liability but before

same period the IRS owes you interest on an overpay-

the IRS mails you a notice of deficiency, you send an

ment, the IRS will figure interest on the underpayment and

amount large enough to cover the proposed liability, it will

overpayment at the same interest rate (up to the amount of

be considered a payment unless you request in writing that

the overpayment). As a result, the net rate is zero for that

it be treated as a deposit.

period.

If the amount you send is at least as much as the

proposed liability and you do not request that it be treated

as a deposit, the IRS will not send you a notice of defi-

Abatement of Interest

ciency. If you do not receive a notice of deficiency, you

Due to Error or Delay by the IRS

cannot take your case to the Tax Court. See Tax Court,

later under Appeal Rights.

The IRS may abate (reduce) the amount of interest you

owe if the interest is due to an unreasonable error or delay

Notice mailed. If, after the IRS mails the notice of defi-

by an IRS officer or employee in performing a ministerial or

ciency, you send money without written instructions, it will

managerial act (discussed later). Only the amount of inter-

be treated as a payment. You will still be able to petition the

est on income, estate, gift, generation-skipping, and cer-

Tax Court.

tain excise taxes can be reduced.

If you send money after receiving a notice of deficiency

The amount of interest will not be reduced if you or

and you have specified in writing that it is a “deposit in the

anyone related to you contributed significantly to the error

nature of a cash bond,” the IRS will treat it as a deposit if

or delay. Also, the interest will be reduced only if the error

you send it before either:

or delay happened after the IRS contacted you in writing

•

The close of the 90-day or 150-day period for filing a

about the deficiency or payment on which the interest is

petition with the Tax Court to appeal the deficiency,

based. An audit notification letter is such a contact.

The IRS cannot reduce the amount of interest due to a

•

general administrative decision, such as a decision on how

The date the Tax Court decision is final, if you have

to organize the processing of tax returns.

filed a petition.

Ministerial act. This is a procedural or mechanical act,

not involving the exercise of judgment or discretion, during

Using a Deposit To Pay the Tax

the processing of a case after all prerequisites (for exam-

If you agree with the examiner’s proposed changes after

ple, conferences and review by supervisors) have taken

the examination, your deposit will be applied against any

place. A decision concerning the proper application of

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Publication 556 (Rev. August 2005) - Examination Of Returns, Appeal Rights,and Claims For Refund Page 6

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