A. Income tax payments received by the Comptroller shall be applied as follows:
(1) Payments accompanying timely filed returns shall be applied to the tax liability for the period covered by the return;
(2) Payments accompanying late filed returns shall be applied to the tax liability for the period covered by the return, and then to any penalty and interest assessed by the Comptroller;
(3) All other payments shall be applied to the earliest delinquent tax year in the following manner:
(a) First to any penalty,
(b) Second to accrued interest, and
(c) Third to the unpaid tax.
B. A refund of income tax due a taxpayer shall be applied first as provided for in §A(3) of this regulation, and then in the following order of priority:
(1) To any debt collection intercept under COMAR 03.04.05 or 03.04.06; and
(2) To the taxpayer of any remaining balance.