TEI comments on clarification of interest netting rules.

May 24, 2000

On May 24, 2000, TEI's President Charles W. Shewbridge, III sent the following letter to Senator William V. Roth, Jr., Chairman of the Senate Committee on Finance, concerning the need for a technical clarification of the interest netting rules. The Institute's comments were prepared under the aegis of its IRS Administrative Affairs Committee, whose chair is Robert J. McDonough, Jr. of Getronics NV.

On behalf of Tax Executives Institute, I am writing to urge a clarification of the interest netting rules, which were adopted as part of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No.105-206, [sections] 3301. A revenue procedure issued last year narrowly construes the new statute and, we believe, undermines Congress's intent to provide equitable relief when there are mutual periods of indebtedness between the government and the taxpayer. A correction is therefore needed to remedy the situation.

Tax Executives Institute is the principal association of corporate tax professionals. Our 5,000 members represent the largest 2,800 companies in the United States, Canada, and Europe. The Institute has closely followed the interest netting issue for more than a decade.

Interest netting issues arise because of the difference in the rates of interest charged 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. The differential is especially egregious when there are cross-payments due -- which may net to zero (or even result in the taxpayer's being a net creditor of the government) -- and yet those payments create an interest charge to the taxpayer.

Congress addressed this inequity in the IRS Restructuring Act by revising the interest calculation for periods in which a taxpayer has both an overpayment and an underpayment. Section 6621(d) of the Internal Revenue Code now provides that "[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."

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