Rev. Proc. 99-19: interest netting.

• Position: IRS Revenue Procedure 99-19 concerning interest netting on o

May 12, 1999

On May 12, 1999, Tax Executives Institute submitted the following comments to the Internal Revenue Service relating to Revenue Procedure 99-19, which requested comments on the application of section 6621(d) to interest for periods prior to the July 22, 1998, general effective date of recent interest netting legislation. TEI's comments were prepared under the aegis of its IRS Administrative Affairs Committee, whose chair is Stephen W. Boocock of Allegheny Teledyne, Inc. Contributing substantially to the development of the Institute's submission were Philip D. Fracassa of General Motors Corporation, Sheldon A. Kimel of Brunswick Corporation, Dina Shapiro of CitiGroup, Inc., and Neil D. Traubenberg of Sundstrand Corporation.

Section 6621(d) of the Internal Revenue Code was enacted by section 3301 of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, 112 STAT. 741, and was amended by section 4002(d) of the Tax and Trade Relief Extension Act of 1998, Pub. L. No. 105-277, 112 STAT. 2681. This section provides for a net interest rate of zero to the extent of overlapping tax underpayments and overpayments, and generally applies to interest for periods beginning after July 22, 1998. Under appropriate circumstances, the net interest rate of zero also applies for periods beginning before July 22, 1998. On March 16, 1999, the Internal Revenue Service issued Revenue Procedure 99-19, requesting comments concerning the application of section 6621(d) to interest for periods prior to the July 22, 1998, general effective date. The procedure is reprinted in the March 29, 1999, issue of the INTERNAL REVENUE BULLETIN, 1999-14 I.R.B. 10.

Background

Tax Executives Institute is the preeminent association of business tax executives in North America. Our approximately 5,000 members represent 2,800 of the leading corporations through 52 chapters in the United States, Canada, and Europe. TEI represents a cross-section of the business community, and is dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. As a professional association, TEI is firmly committed to maintaining a tax system that works -- one that is administrable and that taxpayers can comply with in a cost-efficient manner.

Members of TEI are responsible for managing the tax affairs of their companies and must contend daily with the Internal Revenue Service and provisions of the tax law relating to the operation of business enterprises. We believe that the diversity and professional training of our members enable us to bring an important, balanced, and practical perspective to the issues raised by Rev. Proc. 99-19, relating to interest netting.

The Cause of the Problem: The Interest Rate Differential

Section 6621 of the Code establishes the rate of interest to be paid on over- and underpayments of tax. For the past 13 years, the statutory rate of interest on underpayments has exceeded the rate of interest on overpayments by as much as 4.5 percentage points.(1) When the interest rate differential was first enacted as part of the Tax Reform Act of 1986, Congress directed the Treasury Department to implement comprehensive procedures to permit taxpayers to net overpayments with underpayments for interest computation purposes.(2) Unfortunately, no such procedures were implemented.

In 1998, Congress revised the interest charges for periods in which a taxpayer has both an overpayment and an underpayment. As part of the IRS Restructuring and Reform Act, Congress enacted section 6621(d) of the Code, providing "[t]o 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." The provision applies to interest for periods beginning after July 22, 1998.

In addition, a transition rule provides:

Subject to any applicable statute of limitation not having expired with regard to either a tax underpayment or a tax overpayment, the amendments made by this section shall apply to interest for periods beginning before the date of the enactment of this Act if the taxpayer-- (A) reasonably identifies and establishes periods of such tax overpayments and underpayments for which the zero rate applies; and (B) not later than December 31, 1999, requests the Secretary of the Treasury to apply section 6621(d) of the Internal Revenue Code of 1986, as added by subsection (a), to such periods. TEI commends Congress for providing the much needed equitable relief to taxpayers. Given that the nature of the interest...