How does the IRS treat an overpayment once the refund is issued?

The correct understanding of how the IRS treats an overpayment once the refund is issued is that interest on the overpayment stops at the refund date. This means that once the IRS processes the refund and issues it to the taxpayer, the calculation period for interest stops. The IRS does not continue to accrue additional interest on the overpayment after the refund check has been issued, which clarifies the procedure involving overpayments and refunds.

It is essential to note that any interest that may have accrued up to the point of refund issuance is typically included in the refund amount. However, this is the last point at which interest is calculated. Taxpayers will not see any further interest applied beyond the date they received their refund, emphasizing the importance of understanding how IRS procedures function when overpayments occur.