Interest netting encounters less than "global" enthusiasm from the IRS and Treasury.

• Author: Everidge, Kathy L.
• Position: Netting of multiple year tax return interest on overpayments and underpayments of tax

With the July 22, 1998, enactment of the Internal Revenue Service Restructuring and Reform Act of 1998 (Public Law No. 105-206), interest netting finally became a reality. On March 16, 1999, the Internal Revenue Service released Rev. Proc. 99-19, 1999-13 I.R.B. 10, which provides guidance to taxpayers on how to request global interest netting for interest accruing in periods beginning prior to July 22, 1998. But what does this really mean to the taxpayer? More important, what actions must be taken prior to December 31, 1999, to ensure each taxpayer receives maximum benefit afforded by this legislation?

This article discusses the current status of interest netting with respect to IRS positions and issues that still need to be resolved. In addition, actions that should be taken prior to December 31, 1999, are discussed. It is anticipated that the IRS will issue a revenue procedure or announcement in the near future with respect to interest netting on years on which the tax will not be determinable prior to the expiration of the transition period. For a more complete discussion of the new legislation and the background leading to its enactment, see Kathy L. Everidge, Taxpayer Actions Required to Take Advantage of Long-Awaited Interest Netting Legislation, 50 Tax Executive 261 (1998).

The new law establishes a net interest rate of zero on equivalent amounts of overpayment and underpayment that exist for any tax and any period for interest accruing on or after October 1, 1998. In addition, the statute provides a special "transition" rule for overlapping periods of underpayment and overpayment with interest accruing before that date. In order to obtain benefit from this rule, the taxpayer must reasonably identify and establish such periods and request that the netting procedure be applied prior to December 31, 1999. There are still many issues remaining to be resolved with respect to interest--both for pre-enactment periods and post-enactment periods.

Rev. Proc. 99-19

Rev. Proc. 99-19 was issued on March 16, 1999, to provide guidance to taxpayers on how to request interest netting for interest accruing before October 1, 1998. In order to qualify for interest netting during the transition period, taxpayers must submit a Form 843, Claim for Refund and Request for Abatement, indicating the type of tax and type of return covered by the request, identifying the taxable periods of mutual indebtedness, and, if possible, providing a computation of the amount of interest to be credited, refunded, or abated.

Taxpayers filling out Form 843 should:

* Label the top of the Form 843 "Request for Net Interest Rate of Zero Under Rev. Proc. 99-19."

* Place a dollar amount on Line 2 (if available).

* Indicate the type of tax and type of return covered by the request on Line 3. More than one box on this line may be checked if more than one type of return is covered by the request. Types of taxes and returns on those taxes for which there is no box available should be written on that line.

* Identify the taxable period for which the taxpayer overpaid and underpaid its tax liability on Line 5. Separate Forms 843 for each taxable period covered by the request are not required. On Line 5, the taxpayer should also state when the tax was paid if the underpayment is no longer outstanding and state when the refund was received if the overpayment is no longer outstanding.

* Also on Line 5, the taxpayer must identify and establish the period(s) for which the overpayment and underpayment overlapped. Background materials such as copies of examination reports, notices, or prior interest computations should be provided. Line 5 should also contain a...