Interest Assessed on Amended Return For ERC Credit Received Through Partnership

[cctaxquest]

• I filed an amended return for the 2020 tax year during 2023 and just received a letter from the IRS stating that $500 of interest is owed related to the filing of the amended return
• I received an amended partnership K-1 in 2023 related to the partnership receiving ERC funds related to the 2020 tax year.
• The ERC received by the partnership increased the income for the partnership, which was reflected on the amended 2020 K-1 
• I owed and paid the additional tax on the amended 2020 personal tax return
• Is the interest charge correct / accurate to pay? 

[ThomasM125 · Accepted solution]

The interest due would be correct. The tax is technically paid late, as it applies to a previous year. In such a situation, interest is charged to compensate for the time value of money. However, you should have received interest income on the employee retention credit since it applied to a previous period also. Furthermore, that interest income was probably more than the  interest expense you are being charged for, as the credit was likely more than the tax on the additional income that resulted from amending your previous year income tax returns. So, you have to pay the interest but you probably received more than that in interest income.