The Problem
Example:
From 1/1/2003 through 12/31/2003 a corporation owed the
IRS $150,000 from 2000. From 1/1/2003 through 12/31/2003 the IRS owed the same
corporation $150,000 from 2001. Thus, the actually owed during 2003 is zero
($150,000  $150,000). The amount of interest owed on zero should be zero also,
but that isn't how the IRS is going to compute interest (at least to begin
with).
2003 interest on 2000 underpayment of $150,000: $10,439
2003 interest on 2000 underpayment of $150,000: $3,399
The difference is $7,040. Without using the Interest
Netting rules, the corporation will overpay the IRS by $7,040.
IRS Interest Rates
For all taxpayers from January 1, 1987 through December 31, 1998 the IRS used higher interest
rates on underpayments than it did on overpayments. This difference was usually
1%. For noncorporate taxpayers, after December 31, 1998 the overpayment and
underpayment interest rate is the same.
For "small" corporate overpayments or refunds the interest rate is 1% lower
than the noncorporate interest rate. A small corporate overpayment is $10,000
or less.
For "large" corporate overpayments the interest rate is 2.5%
lower than the
noncorporate interest rate. A large corporate overpayment is over $10,000.
For "large" corporate underpayments the interest rate is
2% higher than the noncorporate interest rate. A large corporate underpayment
is over $100,000.
Some taxpayers who paid interest on underpayments for one period and received
interest on overpayments on an overlapping period may get a
break. If the statute of limitations has not run, you may be able to get the
difference back.
Situations that result in Global Interest Netting refunds:
 The taxpayer paid interest on underpaid taxes;
 The taxpayer received interest on overpayments of taxes;
 The interest rate on underpayments was different than
the interest on overpayments;
 The periods of underpaid interest and overpaid interest must overlap; and
 The statute of limitations has not run on either returns.
The Remedy
Revenue Procedure 9943 (rev proc 9943), Revenue
Procedure 200026 (rev proc 200026) and Internal Revenue Code Section
6621(d) offers a solution to the
overlapping interest problem.
The interest for the overlapping periods will be zero
to the period and amount of overlapping interest.
