New interest-netting rules.

• Author: Fowler, Carolyn
• Position: Interest on overpayments and underpayments of tax

The IRS Restructuring and Reform Act of 1998 added Sec. 6621(d), eliminating the interest differential imposed on equivalent underpayments and overpayments of any tax:

To the extent that, for any period, interest is payable under subchapter A and allowable under subchapter B on equivalent underpayments and overpayments by the same taxpayer of tax imposed by this title, the net rate of interest under this section on such amounts shall be zero for such period.

This provision is beneficial to taxpayers who have been audited (or are currently under audit) and subjected to the interest rate differential on tax underpayments and overpayments. For example, if an audit determined that an individual reported income in 1993, but should have reported it in 1992, there would be a mutual period of equivalent tax underpayment and overpayment. The mutual period of equivalent tax underpayment and overpayment would extend from the date the 1993 return was filed (e.g., April 15, 1994) through the date of audit settlement (e.g., April 15, 1996). By virtue of Sec. 6621 (d), no interest would be assessed for this time period. However, interest would be assessed from April 15, 1993 through April 15,1994, because there was no tax overpayment to offset the underpayment for this time period.

The new net zero interest rate of Sec. 6621(d) is effective for interest associated with calendar quarters beginning on or after July 23, 1998. The IRS has provided an exception to the effective date if the taxpayer (1) identifies periods for which the net zero interest rate would apply and (2) requests that the Service apply the provisions of Sec. 6621(d) to such periods no later than Dec. 31...