David Chesler wrote:
- quote -

By IRS rules, your 2006 withholding was credited to you not
when it was withheld during the 2006 tax year, but with an
effective date of 04/15/2007. If the 2006 overpayment had
been applied to the 2005 liability, you would have been on
the hook for interest from 04/15/2006 to 04/15/2007. Since
you paid the 2005 tax bill in the Spring of 2007, you
realized approximately the same net result.

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Apparently I underpaid my taxes for 2005 by not reporting a capital
gain. (My fomer employer closed out my ESOP either because I was laid
off or because they were taken over or both. I'd thought that amount
was included in my severance and thus in my W-2 but it wasn't.) I
paid the additional tax; no penalty was assessed.

IRS also billed me for interest. I've never paid estimated taxes.
Presumably I owed the Treasury these extra taxes from around April 15,
2006 (when I filed) to spring 2007 (when they billed me.) But I
received a refund (too large by this amount) in 2006, and a large
refund in 2007. When I filed 2006 I asked that more than enough of my
refund to cover the underpayment be held back for future taxes,
because I didn't want to have more of the Treasury's money than I
ought to.

Once we came up with a number (IRS first assumed short-term with zero
basis) I learned that the "hold on to my refund for next year" can't
be applied to past years, so I paid the bill under separate cover, and
requested the unpaid refund back (just doing my part to keep the
economy stimulated) and they sent it to me.

It seems to me that there was very little time that I owed anything
to the US Treasury. Even though I got too large a refund around May
2006, by then I'd been over-withheld for 2006 wages; by some time well
before the end of 2006 until I filed in April 2007, and continung
until they processed the refund request, the amount I was owed was
more than the underpayment.

I know IRS doesn't pay interest on over-withholding that is later
refunded.

Do they ever offset unerpayments with over-withholding payments for
interest purposes? I've asked them to recalculate the interest and
find it wasn't owed. The first answer letter addressed a totally
different issue; the second letter said they can't forgive and waive
interest.

What are the right words to say "You calculated interest but I didn't
owe any interest because in net I didn't owe you any money at all."
Does that argument hold at all by IRS accounting rules?

--
- David Chesler <chesler[at]post.harvard.eduFree Cory Maye

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >