Revised sec. 6621(c) (2) hot interest provision.

• Author: Martin, Linda
• Position: IRC section 6621(c - 2

The Taxpayer Relief Act of 1997 amended Sec. 6621(c)(2), which provides for an increased rate of interest for large corporate underpayments. This amendment is effective for interest accruals after 1997.

A large corporate underpayment is defined as any underpayment of tax by a C corporation for any taxable period if the underpayment exceeds $100,000. This amount does not include interest or penalties when determining if the $100,000 threshold has been met; however, the additional 2% interest rate applies to the full underpayment (including tax and penalties).

The additional 2% rate is triggered by a letter or notice of deficiency not paid in full within 30 days, but only if there is an underpayment of tax exceeding $100,000. Prior to the amendment, a notice or letter for under $100,000 in tax could become a trigger if there were subsequent tax increases that raised the tax underpayment to over $100,000. If there was more than one trigger, the earliest trigger date was the applicable date.

Under the amendment, the applicable date will be the 30th day after the issuance of the first letter or notice of a deficiency or assessment of tax of over $100,000 not paid within 30 days. Small notices or letters reflecting amounts not greater than $100,000 are disregarded and can no longer trigger the additional 2% interest rate. If the additional 2% interest rate was being charged on an account, it should stop as of Dec. 31, 1997, if the notice establishing the 2% rate increase did not reflect tax over $100,000. The increased rate would only begin again 30 days after a notice or letter, if one is issued after Jan. 1, 1998 reflecting a tax amount exceeding $100,000. If the tax account has already been...