Iowa Administrative Code › Agency 701 - Revenue Department › Title I - Administration › Chapter 10 - Interest, Penalty, Exceptions to Penalty, and Jeopardy Assessments › Rule 701-10.115 - Application of Payments to Penalty, Interest, and Then Tax Due for Payments Made on or After January 1, 1995, Unless Otherwise Designated by the Taxpayer

Current through Register Vol. 47, No. 3, July 24, 2024
The department will not reapply prior payments made by the
				  taxpayer to penalty or interest determined to be due after the date of those
				  prior payments. However, the department will apply payments to penalty and
				  interest which were due at the time the payment was made.
Example (a) - Delinquent
				  Return
a. Tax due is
				$1,000.
b. Return filed two months
				late.
c. $1,000 paid with the
				return.
d. The department bills the
				additional tax in the third month after the due date. The taxpayer pays the
				assessment in the third month.
The computation of additional tax is shown below:
Tax
$1,000.00
Penalty
100.00 (10% failure to file penalty)
Interest
14.00
(2 months interest)
Total
$1,114.00
Less payment
1,000.00
Additional tax due
$ 114.00
Interest
.80
(1 month interest)
Total due
$ 114.80
Two years after the due date, the Internal Revenue Service
				  conducts an audit and increases the taxpayer's taxable income. The department
				  redetermines the taxpayer's liability 26 months after the due date as
				  follows:
Tax as redetermined by the department
$1,100.00
Less paid with return
1,000.00
Additional tax
$ 100.00
Penalty
10.00 (10% failure to file penalty)
Interest
18.20
(26 months interest)
Total due
$ 128.20
Example (b) - Timely Filed No
				  Remit
a. Tax due is
				$1,000.
b. Return timely
				filed.
c. $0 paid.
The calculation for the total amount due five months after
				  the due date is shown below:
Tax
$1,000.00
Penalty
50.00 (5% failure to pay penalty)
Interest
35.00
(5 months interest)
Total due
$1,085.00
The department bills the additional tax in the fifth month
				  after the due date and the taxpayer pays the additional amount in the eighth
				  month after the due date. The payment is applied as follows:
Tax
$1,000.00
Penalty
50.00 (5% failure to pay penalty)
Interest
56.00
(8 months interest)
Total due
$1,106.00
Amount paid
$1,085.00
Balance tax due $21.00 subject to interest until paid.
The balance due was not paid.
Three years after the due date the taxpayer forwards a copy
				  of an Internal Revenue Service audit which increases the taxpayer's income to
				  the department. The department recomputes the taxpayer's liability as
				  follows:
Tax as redetermined by the department $1,200.00
Less paid per prior audit 979.00
Balance due $221.00 (includes the balance due of $21)
Penalty 10.00 (5% failure to pay penalty on $200, the
$21.00 already bears penalty)
Interest 54.52 (36 months interest on $200 and 28
months interest on $21)
Total due $ 285.52
(1)
Refunds.
In those
				instances where an audit reduced the amount of tax, penalty, and interest due
				over the amount paid, the department will reapply payments so that amount
				refunded is tax on which interest will accrue as set forth in the Iowa
				Code.
(2)
Partial payments
				made after notices of assessments are issued.
Where partial payments
				are made after a notice of assessment is issued, the department will reapply
				payments to penalty, interest, and then to tax due until the entire assessed
				amount is paid. See
Ashland Oil Inc. v. Iowa Department of Revenue and
				Finance,
452 N.W.2d 162 (Iowa 1990). If penalty, interest, and tax are
				due and owing for more than one tax period, any payment must be applied first
				to the penalty, then the interest, then the tax for the oldest tax period, then
				to the penalty, interest, and tax to the next oldest tax period, and so on
				until the payment is exhausted.
Where there are both agreed- and unagreed-to items as a
				  result of an examination, the taxpayer and the department may agree to apply
				  payments to the penalty, interest, and then to tax due on the agreed-to items
				  of the examination when all of the penalty, interest, and tax on the agreed-to
				  items are paid. In these instances, subsequent payments will not be applied to
				  penalty and interest accrued on the agreed-to items of the examination.
This rule is intended to implement Iowa Code section
				  422.25(4).