The need for global interest netting.

• Position: Testimony of Tax Executives Institute's Robert L. Ashby - Transcript

On September 4, 1996, Tax Executives Institute testified at a public hearing sponsored by the Internal Revenue Service on the issues raised by Notice 96-18, relating to comprehensive, or global, interest netting The Institute's testimony was presented by Robert L. Ashby, chair of the Institute's IRS Administrative Affairs Committee, and highlights the position set forth in TEI's June 28, 1996, written comments on Notice 96-18. (The Institute's comments were reprinted in the July-August 1996 issue of The Tax Executive.) Mr. Ashby's prepared statement is reprinted below.

Good morning. I am Robert Ashby, Vice President of Taxation for Northern Telecom in Nashville. I am also the current chair of the IRS Administrative Affairs Committee of Tax Executives Institute. On behalf of the Institute, I am pleased to offer testimony on Notice 96-18. The Institute submitted written comments in June and rather than restate those remarks I would like to focus on the Institute's consistent position since 1986. Comprehensive netting of interest on over- and underpayments represents sound tax policy and is needed -- now, not later.

"The underlying objective of the (interest provisions) is to determine, in a given situation, whose money it is and for how long the other party had use of it. "That statement, a slight paraphrase of Revenue Procedure 60-17, has been a cornerstone of IRS policy on the calculation of interest since 1960. TEI believes that statement should be reaffirmed and built upon in developing the comprehensive netting procedures that Congress has instructed the IRS, on three separate occasions, to implement. Whenever there is mutual indebtedness between the taxpayer and the government -- whenever a taxpayer owes a liability to the government and the government contemporaneously owes a refund to the taxpayer -- the amount of interest for the period of mutual indebtedness should net to zero. As reflected in the statement from Revenue Procedure 60-17, an interest charge represents compensation for the use of money -- nothing more; nothing less. It is not a penalty for underpayment of tax. It is not -- when properly viewed -- a revenue device.

Ten long years have elapsed since Congress created the interest-rate differential on tax assessments and refunds and simultaneously directed the IRS to implement "the most comprehensive netting procedures that are consistent with sound administrative practice." If a corporate tax executive or information...