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
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
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
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).
Iowa Admin. Code r. 701-10.115