IRS Revenue Procedure
2002-26

 Code Secs. 163, 6601, 7122



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26 CFR 601.105: Examination of returns and claims for refund, credit or
abatement; determination of correct tax liability.
(Also Part I, sections 163, 6601, 7122; 1.163-9T, 301.6601-1, 301.7122-1)


REV. PROC. 2002-26

SECTION 1. PURPOSE

The purpose of this revenue procedure is to update and restate the
Internal Revenue Service's position regarding the application, by the
Service, of a partial payment of tax, penalty, and interest for one or
more taxable periods. This revenue procedure supersedes Rev. Rul. 73-304
(1973-2 C.B. 42); Rev. Rul. 73-305 (1973-2 C.B. 43); and Rev. Rul. 79-284
(1979-2 C.B. 83).


SECTION 2. SCOPE

This revenue procedure applies to all taxes under the Internal Revenue
Code, except alcohol, tobacco, and firearms taxes and the harbor
maintenance tax. For purposes of this revenue procedure, the term
"penalty" includes any additional amount, addition to tax, or assessable
penalty.


SECTION 3. PROCEDURE

.01 If additional taxes, penalty, and interest for one or more taxable
periods have been assessed against a taxpayer (or have been mutually
agreed to as to the amount and liability but are unassessed) at the time
the taxpayer voluntarily tenders a partial payment that is accepted by the
Service and the taxpayer provides specific written directions as to the
application of the payment, the Service will apply the payment in
accordance with those directions.

.02 If additional taxes, penalty, and interest for one or more taxable
periods have been assessed against a taxpayer (or have been mutually
agreed to as to the amount and liability but are unassessed) at the time
the taxpayer voluntarily tenders a partial payment that is accepted by the
Service and the taxpayer does not provide specific written directions as
to the application of payment, the Service will apply the payment to
periods in the order of priority that the Service determines will serve
its best interest. The payment will be applied to satisfy the liability
for successive periods in descending order of priority until the payment
is absorbed. If the amount applied to a period is less than the liability
for the period, the amount will be applied to tax, penalty, and interest,
in that order, until the amount is absorbed.

.03 Payments made pursuant to the terms of offers in compromise (or
offers in compromise and collateral agreements) that have been accepted by
the Government in compromise of outstanding tax liabilities, in accordance
with section 7122 of the Internal Revenue Code, will be applied as
follows:

(1) If an offer in compromise and collateral agreement have been
accepted by the Government in compromise of an outstanding liability and
the offer in compromise and collateral agreement provide for the
allocation of payments made pursuant thereto, payments made pursuant to
the agreements will be applied by the Service in accordance with the terms
of the agreements.

(2) In all other cases, the Service will apply payments, whether paid
in installments or in a lump sum and whether paid pursuant to the offer or
a collateral agreement, to periods in the order of priority that the
Service determines will serve its best interest. The payment will be
applied to satisfy the liability for successive periods in descending
order of priority until the payment is absorbed. If the amount applied to
a period is less than the liability for the period, the amount will be
applied to tax, penalty, and interest, in that order, until the amount is
absorbed.


.04 If any part of a payment is applied to interest under the rules set
forth in this revenue procedure, the amount applied to interest is treated
for purposes of section 163 of the Code as interest paid in the year in
which the payment is made. Under section 163, interest paid or accrued in
a taxable year may be deducted in calculating taxable income for the year
except to the extent such interest is personal interest as defined in
section 163(h) and section 1.163-9T(b)(2) of the Income Tax Regulations or
is otherwise disallowed under applicable provisions of the Internal
Revenue Code and Income Tax Regulations.


SECTION 4. EFFECT ON OTHER DOCUMENTS

Rev. Rul. 73-304, Rev. Rul. 73-305, and Rev. Rul. 79-284 are hereby
superseded.


SECTION 5. DRAFTING INFORMATION

The principal author of this revenue procedure is Inga Plucinski of the
Office of Associate Chief Counsel (Procedure and Administration),
Administrative Provisions and Judicial Practice. For further information
regarding this revenue procedure, contact Emly Berndt at (202) 622-4940
(not a toll-free call).

<<END RULING>>


 

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