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More than arithmetic: common errors in calculating interest on deficiencies.

During the past several years, tax executives have been forced to spend increasing amounts of time on matters relating to the calculation of interest on tax deficiencies. Although the mechanics of an interest calculation may seem trivial when compared with the complexity associated with the determination of an underlying tax liability, the issues are not simple. Perhaps more important, the amounts at issue are staggering. The Internal Revenue Service assesses and collects approximately $6 billion in interest each year. In the corporate context, the IRS collects as much interest as tax. Nonetheless, matters relating to interest computation attract precious little attention.

At the same time, it is widely known that both the IRS and taxpayers frequently make errors in the calculations. To deal with this problem, accounting firms, law firms, and others have actively marketed consulting services to assist taxpayers in (1) calculating interest with respect to current controversies, and (2) filing refund claims for previously settled years. In some cases, these services have been provided under contingent fee arrangements. As evidenced by the proposed changes to Circular 230, these contingent fee arrangements are the subject of some controversy. It is fair to conclude, however, that taxpayers owe a debt to those who initially identified the opportunities for correcting IRS calculation errors.(1) Without the successes of the pioneers in the field, taxpayers would simply be unaware of the potential for significant savings. Some practitioners, however, wrap their practices in mystery. While their clients appreciate the magic they perform in obtaining previously undiscovered refunds, neither the substantive nor procedural tax rules should be secret.

This article endeavors to explain and illustrate the rules on interest computation. In addition to identifying common interest problems, the article opens a forum on the subject. To the extent taxpayers or practitioners wish to provide additional examples of common problem areas, the author commits to respond to the submitted items.(2)

More than Getting the Arithmetic Right

At first glance, interest calculations are seemingly straightforward ministerial acts. In fact, if the correct starting and ending dates are known, commercially available tax interest software makes the matter relatively simple.(3) It is in identifying the correct starting and ending dates, however, that the problems and opportunities arise.

As in the case of the substantive rules, the rules regarding the calculation of interest are scattered throughout the tax law. Some of the rules are in sections 6601 and 6611 -- the specific Internal Revenue Code sections on underpayment ("debit") and overpayment ("credit")(4) interest. Some are found elsewhere in the Code. Some are in rulings and regulations, some in legislative history, and some are creatures of administrative practice. The more one looks at the interest rules, the more one becomes convinced that there may be as much complexity and uncertainty in these rules as exists in the substantive tax provisions.

Layered over the complexity of the interest rules is the complexity of a particular taxpayer's factual context. Large taxpayers rarely provide simple factual settings. Instead, it is common to see multiple years in an examination, carrybacks or carryforwards to years outside the audit cycle, partial agreements with waivers on assessment, and other complicating factors.

Owing to the complexity of the law and the facts, the IRS is frequently required to take the computation away from the computers in the various Service Centers. That is to say, they "restrict" the computers from making the computation. These so-called restricted interest problems require human intervention(5) in the calculation. With human intervention, of course, comes the opportunity for error.

Taxpayers are understandably concerned that the IRS may be making erroneous computations and sending bills for amounts that are not owed. The IRS is making significant strides to ameliorate these problems. Planned improvements to the IRS Masterfile system will enable the IRS to reduce the number of computations subject to error.(6) In addition, future systems and more comprehensive training are likely to further reduce errors. As long as human beings make manual restricted interest calculations, however, errors will continue to occur.

Classes of Common Errors

Interest errors come in all shapes and sizes, but the following are the general categories of errors:

* Underpayment interest charged for periods where

there was no true underpayment.

* Overpayment credit-elect and adjustment to

"overpayment" year.

* Overpayment refund paid without interest and

adjustment to "overpayment" year.

* Form 1139 refund and adjustment to the loss or

credit year.

* Form 1139 refund and adjustment to the carryback

year.

* Special statutory rules.

* Execution of Form 870 -- 30-day rule.

* Pre-TEFRA rules on carryback amounts.

* Special foreign tax credit rules.

* Certain employment tax adjustments.

* Interest on penalties.

* Inadequate netting of overpayments against underpayments.

1. No True Underpayment

Generally, debit interest for a year runs from the due date for the return. The IRS sometimes charges interest, however, for periods during which a taxpayer was not actually underpaid. This occurs where the taxpayer was temporarily overpaid for some period, but the overpayment was refunded or credited without the payment of credit interest.(7) The following are four common instances of this problem.

a. Overpayment Credit-Elect and Adjustment to "Overpayment" Year

Under Treas. Reg. [section] 301.6402(b), a taxpayer may elect to credit overpayments shown on a return toward estimated tax liability for the following year.(8) If the year giving rise to the claimed overpayment is later adjusted(9) by the IRS, debit interest should not automatically run from the due date of the return. Instead, debit interest on the amount credited should run only from the date the credit is made. For corporate taxpayers, the result is a one-month, six-month, or longer delay before debit interest begins to run.

Example 1.(10) For 1983, calendar-year corporate

taxpayer shows estimated payments of $1,000,000.

On March 15, 1984, taxpayer files a Form 7004,

"Application for Automatic Extension of Time to

File Corporation Income Tax Return." Taxpayer

pays $1,200,000 with the Form 7004.

On September 15, 1984, taxpayer files its Form

1120, showing tax liability of $2,100,000, prior payments

of $2,200,000,(11) and a resulting overpayment

of $100,000. Taxpayer makes an election to credit

the $100,000 overpayment to its 1984 estimated

tax, but does not identify the installment to which

the payment should apply. The taxpayer's first

estimated tax installment for 1984 is April 15. On

August 1, 1992, the taxpayer and the IRS agree

that the amount of tax that should have been shown

on the 1983 return was $2,150,000, with a resulting

deficiency of $50,000.

Without manual intervention, the IRS will compute debit interest on the $50,000 deficiency from March 15, 1984 -- the due date of the 1993 return. In Rev. Rul. 88-98, 1988-2 C.B. 356, however, the IRS ruled that April 15 -- and not March 15 -- is the correct starting date for debit interest.(12)

For Example 1, the correct interest calculation is based on the following events:(13)
 Event Date Amount Balance
Reported liability 03-15-84 $2,100,000 $2,100,000
Adjustment 03-15-84 50,000 2,150,000
Payments 03-15-84 (2,200,000) ( 50,000)
Suspend interest 03-15-84(14)
Resume interest 04-15-84
Credit applied(15) 04-15-84 100,000 50,000
 Correct interest charge to 08-01-92: $69,006.


By comparison, if the taxpayer were simply charged interest from March 15, 1984, on a $50,000 deficiency, the amount of interest would be $70,120.

This benefit becomes significantly larger if the taxpayer makes an affirmative election to credit the overpayment to the September 15 estimated tax installment.(16) In that case, the correct calculation will be based on the following events:
 Event Date Amount Balance
Reported liability 03-15-84 $2,100,000 $2,100,000
Adjustment 03-15-84 50,000 2,150,000
Payments 03-15-84 (2,200,000) ( 50,000)
Suspend interest 03-15-84
Resume interest 09-15-84
Credit to 1984 09-15-84 100,000 50,000
 Correct interest charge to 08-01-92: $63,660.


Compare this result to the previous $70,120 and $69,006 computations.

Thus, the effect of making a designation to an installment other than the first installment can reduce a future debit interest liability. Before designating to the third or fourth estimated tax installment, however, taxpayers should consider whether the delay in applying the credit would result in estimated tax penalty exposure for the year to which the credit will be made.

b. Overpayment Refunded Without Interest and Subsequent Adjustment

The following example illustrates the case where the overpayment is refunded rather than credited. In this calculation, the refund is paid without interest under the 45-day rule of section 6611(e).

Example 2.(17) For 1983, calendar-year corporate

taxpayer shows estimated payments of $1,000,000.

On March 15, 1984, taxpayer files a Form 7004,

"Application for Automatic Extension of Time to

File Corporation Income Tax Return." Taxpayer

pays $1,200,000 with the Form 7004.

On September 15, 1984, taxpayer files its Form

1120, showing tax liability of $2,100,000, prior payments

of $2,200,000, and a resulting overpayment

of $100,000. Taxpayer requests a refund of the

$100,000 overpayment. The $100,000 was refunded

within 45 days by a check dated October 9, 1984.

On August 1, 1992, the taxpayer and the IRS agree

that the amount of tax that should have been shown

on the 1983 return was $2,150,000, with a resulting

deficiency of $50,000.

When a taxpayer claims an overpayment on a return filed on the original due date or on a return filed with an extension and the claimed overpayment is refunded in full without interest, Rev. Proc. 88-98 provides that interest on a subsequently determined deficiency runs from the date of the refund check. The correct calculation of interest is, as follows:
 Event Date Amount Balance
Reported liability 03-15-84 $2,100,000 $2,100,000
Adjustment 03-15-84 50,000 2,150,000
Payments 03-15-84 (2,200,000) ( 50,000)
Suspend interest 03-15-84
Resume interest 10-09-84
Refund paid 10-09-84 100,000 50,000
 Correct interest charge to 08-01-92: $62,841.


As previously noted, if interest were not properly suspended for the period that the taxpayer was not underpaid, the interest calculation would be $70,120.

c. Form 1139 "Quick Refund" and Adjustment to the Carryback Loss or Credit

In situations where a taxpayer receives a From 1120X refund or section 6411 tentative carryback amount without interest and the amount of the carryback amount is later adjusted, interest on the underpayment should run from the date the carryback refund is received.(18)

Example 3. Calendar-year taxpayer files its 1986

return on March 15, 1987. The return shows estimated

payments of $3,000,000; tax liability of

$3,100,000; and a payment with the return of

$100,000. On September 15, 1990, taxpayer files a

1989 return (on extension) showing a net operating

loss. A Form 1139 "Request for Tentative Carryback

Adjustment" carrying back the loss to 1986 is

filed on October 1, 1990. In response to the Form

1139, the IRS pays a $1,000,000 refund without

interest(19) on November 1, 1990.

On April 1, 1992, the taxpayer and the IRS

agree to an adjustment to the 1989 year which

reduces the amount of the loss. As adjusted, the

amount of the refund paid in response to the Form

1139 should have been $400,000 rather than

$1,000,000. As a result, the IRS proposes a deficiency

of $600,000 for 1986.

In this example, two types of errors occur. In rare instances, the IRS will impose debit interest from March 15, 1987, the due date of the return for the 1986 year. Although the refund does arise from the 1986 year, the event giving rise to the overpayment is the carryback of the 1989 loss. Hence, the taxpayer was not "underpaid" until after the 1989 year.

The second more common error is starting debit interest March 15, 1990, the due date of the return for the loss year. Where a taxpayer does not receive credit interest on a refund, the taxpayer was not underpaid with respect to the refund until that amount was paid. Consequently, debit interest should be charged beginning with the date of payment.

For Example 3, the correct interest calculation for the 1986 year is based on the following events:
 Event Date Amount Balance
Reported liability 03-15-87 $3,100,000 $3,100,000
Payments 03-15-87 (3,100,000 -0-
Refund arises(20) 03-15-90 1,000,000 (1,000,000)
Adjustment 03-15-90 600,000 ( 400,000)
Suspend interest 03-15-90
Resume interest 11-01-90
Refund paid 11-01-90 1,000,000 600,000
 Correct interest(21) charge to 08-01-92: $111,032.


By comparison, if the IRS failed to recognize that the taxpayer was not underpaid for the period from March 15 until November 1, the interest charge would be $162,287.

d. Form 1139 "Quick Refund" and Adjustment to the Carryback Year

The following example illustrates the case where the adjustment is made to the carryback year, rather than to the year of the loss or credit.

Example 4. Calendar-year taxpayer files its 1986

return on March 15, 1987. The return shows estimated

payments of $3,000,000; tax liability of

$3,100,000; and a payment with the return of

$100,000. On September 15, 1990, the taxpayer

files a 1989 return (on extension) showing a net

operating loss. A Form 1139 "Request for Tentative

Carryback Adjustment" carrying back the loss to

1986 is filed on October 1, 1990. Pursuant to the

Form 1139, the IRS pays a $1,000,000 refund without

interest on November 1, 1990.

On April 1, 1992, the taxpayer and the IRS agree

to an adjustment of $800,000 to the 1986 year which

increases the amount due as of March 15, 1987, the

return due date. As adjusted, the amount of the

refund paid pursuant to the Form 1139 should have

been $200,000 rather than $1,000,000. As a result,

the IRS proposes a deficiency of $800,000 for 1986.

Even after the IRS adjustment, this example shows that the taxpayer had an overall refund for 1986. The loss giving rise to the refund, however, did not occur until 1989. Under section 6601(d)(1), the reduction of tax by reason of a carryback does not affect the computation of debit interest for the period ending with the filing date for the loss year. As a result, debit interest is owed for the period from the due date of the return for the carryback year to the due date of the return for the loss year.

Beginning with the filing date for the lose year, the reduction of tax does affect the computation.(22) As a result, for Example 4, the correct interest calculation for the 1986 year is based on the following events:
 Event Date Amount Balance
Reported liability 03-15-87 $3,100,000 $3,100,000
Payments 03-15-87 (3,100,000) -0-
Adjustment 03-15-87 800,000 800,000
Refund from 1989 03-15-90 (1,000,000) ( 200,000)
Refund 11-01-90 1,000,000(23) 800,000
 Correct interest charge to 08-01-92: $309,435.


By comparison, if the IRS failed to suspend deficiency interest on $1,000,000 for the period that the taxpayer did not receive credit interest, the calculation would be $394,861.

2. Special Statutory Rules

a. Execution of Form 870 -- 30-Day Rule

Under section 6601(c), if a taxpayer gives the IRS a waiver of restrictions on assessment (by execution of a Form 870, Form 4549, or similar document), the IRS has 30 days within which to send the taxpayer notice and demand for payment. The notice and demand need not be in any special form, but if the IRS fails to demand payment, no interest runs from the 31st day until the IRS sends a bill. The failure to send demand for payment occurs most frequently when the taxpayer makes a partial settlement and signs a partial Form 870 covering agreed items.

For a variety of reasons, taxpayers have become increasingly sensitive to IRS debit interest rates.(24) As a result, taxpayers are becoming more willing to enter into partial agreements and pay agreed tax amounts. Generally, the IRS will request payment at the time the waiver of restrictions on assessment is executed.

Rather than pay at the time of the granting of a waiver of restrictions on assessment, taxpayers should consider requiring the IRS to comply with the 30-day rule of section 6601(c). If the IRS complies with the 30-day period, the taxpayer does remain exposed to debit interest for the period until payment. Nevertheless, the taxpayer can offset at least a portion of this cost by investing the agreed tax amount.(25) In addition, by waiting for the notice and demand, the taxpayer becomes entitled to a 10-day interest-free grace period under section 6601(d). Since the worst-case result is paying an IRS rate for 30 days and earning a competitive investment rate for 40 days, the benefit of seeing whether the IRS meets the 30-day rule generally outweighs the cost. Even without payment, accrual basis taxpayers may accrue the interest deduction associated with the agreed tax amounts.(26)

This planning strategy raises the question of when the taxpayer may give the IRS a waiver or restrictions that will trigger the 30-day rule. The statute suggests that a taxpayer may give the IRS a waiver at any time.(27) Where a taxpayer is willing to concede the tax amount, it is important to remember that taxpayers have wide discretion in completing and filing Forms 870.

b. Pre-TEFRA Rules on Carryback Amounts

Under current law, the carryback of a loss or credit to a year does not affect the debit interest computation on the carryback year until the due date of the return for the loss or credit year. Prior to the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), however, the debit interest computation would be affected as of the last day of the loss or credit year. The effective date for the change was for interest accruing after October 3, 1982. Occasionally, the IRS fails to give taxpayers the more favorable rule for old years.

c. Special Foreign Tax Credit Rules

As previously noted, the carryback of a credit to an earlier year does not affect the debit interest computation on the carryback year until the due date of the return for the credit year. The term "credit carryback," however, is specifically defined in section 6601(d)(2)(B) as having the same meaning as that found in section 6411(d)(4)(C). Under this rule, a credit carryback has the same meaning as a "business carryback" as defined under section 39.

Since the foreign tax credit is not a credit for the purposes of the "business carryback" rules of section 39, special rules seemingly apply. For example, the IRS has issued a technical advice memorandum(28) holding that the carryback of foreign tax credit is not subject to the rule that permits the IRS to deny interest to credit carryback refunds paid within 45 days. More important, the carryback of a foreign tax credit to reduce a proposed deficiency may stop the running of debit interest beginning with the carryback year.(29)

d. Certain Employment Tax Adjustments

Section 6601(k) provides an interest "amnesty" provision for certain employment tax underpayments. If a taxpayer discovers a failure to withhold FICA or income tax, and then deposits the tax with the employment tax return for the period in which the error is "ascertained," the IRS will not charge interest on the previously underpaid amount. The rules for this interest-free adjustment are found in Treas. Reg. [section] 31.6205-1(a).

The IRS has provided liberal rules for determining the time an error is ascertained. For example, in Situation (2) of Rev. Rul. 75-464, 1974-1 C.B. 474, the IRS holds that it is possible for a taxpayer to initially ascertain the error at the conclusion of an appeals conference.

e. Interest on Penalties

Both the substantive penalty rules and the rules relating to interest on penalties have undergone several revisions in the past decade. Taxpayers facing interest on penalties should carefully review the effective dates for the various changes. The following are the general rules.

Current Law -- Post-1989 Act. (OBRA 89, Public Law No. 101-239.) Interest starts running upon notice and demand for payment(30) except for sections 665 1(a)(1) (failure to file), 6653 (failure to pay stamp tax), 6662 (accuracy-related) and 6663 (fraud). For the four exceptions, interest runs from the due date of the return. Effective date: For returns the due date of which is after December 31, 1989.

Post-1988 Act. (TAMRA, Public Law No. 100-647.) Interest starts running upon notice and demand for payment, except for sections 6651(a)(1) (failure to file), 6653 (negligence), 6659 (valuation overstatement), 6660 (valuation understatement), and 6661 (substantial understatement). For the five exceptions, interest runs from the due date of the return. Effective date: For returns the due date of which is after December 31, 1988.

Post- 1984 Act. (DEFRA, Public Law No. 98-369.) Interest starts running upon notice and demand for payment, except for sections 6651(a)(1) (failure to file), 6659 (valuation understatement), 6660 (valuation overstatement), and 6661 (substantial understatement). For the four exceptions, interest runs from the due date of the return. Effective date: Generally, for interest accruing after July 18, 1984.

Pre-1984 Act Effective Date. Interest starts running upon notice and demand for payment.

3. Inadequate Netting of Overpayment against Underpayments

Beginning with the Tax Reform Act of 1986, interest on underpayments runs at a rate one percentage point higher than interest on overpayments. In the Omnibus Budget Reconciliation Act of 1990,(31) the Congress adopted the "hot interest" rules which (in certain cases) can increase the differential to three percentage points.

Because of these interest differentials, taxpayers have a significant incentive to apply overpayments against underpayments, rather than computing separate streams of interest on the different items.(32) On two occasions(33), the IRS has been directed in legislative history language to adopt comprehensive netting procedures, but no such procedures have been formally adopted.

In the absence of specific rules on netting, it is difficult to identify the failure to adopt comprehensive netting as an "error" in an interest calculation. Nonetheless, the beneficial effects of netting should not be overlooked. Even without specific rules, the IRS is currently allowing netting on a case-by-case basis. Individual agents and appeals officers have wide discretion in the application of netting.

Tools for Verifying Interest Computations

With the above-described rules in mind, the next step is to determine whether a taxpayer's history evidences any errors. Of course, each taxpayer is best situated to assemble the information necessary to perform its own calculation, but sketchy records and fading memories often make the matter difficult. The following are useful items that the taxpayer may be able to obtain from the IRS.

Masterfile Transcripts of Account. Transcripts are arranged by tax and period. A tax for a period is often called a "module." Each module will show various debit and credit transactions, including debit and credit interest computations. These documents are available from the IRS Service Center where the taxpayer files its return.

Forms 2285. At the close of an examination the IRS will frequently use a Form 2285 to memorialize "restricted interest" computations. The IRS will generally provide Forms 2285 to the taxpayer at the end of the examination. The lower half of these forms show the starting and ending dates for interest computations.

Examination Documents. The IRS district that performed the examination will generally maintain an administrative file which may contain waivers of restriction, Revenue Agent Reports, and other materials that could be helpful in reconstructing the factual context.

What Years Are Open?

As a general rule, a taxpayer may request a recomputation of a debit interest amount for at least two years after the amount is paid.(34) If the IRS fails to respond, a formal claim should be filed within the period. A different rule applies for credit interest. For most credit interest, a taxpayer may request a recomputation of the amount for six years after the amount is paid.(35)

Conclusion

Owing to the complexity of the interest rules and taxpayers' factual situations, it is currently impossible for the IRS to rely on masterfile-generated computations of interest on deficiencies. Instead, the IRS must rely on "manual" computations. Despite the IRS's beet efforts at training and supervision, this human intervention creates the opportunity for human error. This article has striven to "de-mystify" the subject matter and provide a guide to common errors. As is the case with most magic tricks, the magic is more impressive before you know how the trick is done. Nevertheless, taxpayers should not underestimate the potential savings involved. (1) Even a comprehensive knowledge of the interest rules will not eliminate the value of the better account analysis programs. These programs provide analysis beyond the correction of common interest errors. For example, these programs provide payment tracing and the correction of penalty calculation errors. (2) The author can be reached through Tax Executives Institute, 1001 Pennsylvania Avenue, N.W., Suite 320, Washington, D.C. 20004-2505, Attention: TEP/Interest. (3) A similar conclusion was reached by James V. Heffernan in "Interest on Federal Tax Deficiencies and Overpayments," 42 Tax Executive 19 (Jan.-Feb. 1990). (4) The terms "debit" and "credit" interest are commonly used by the IRS to describe underpayment and overpayment interest. (5) Rev. Proc. 60-17, 1960-2 C.B. 942, defines restricted interest as "special provisions in the law which limit or prohibit interest under certain circumstances." These computations are sometimes called "manual" computations. While a manual computation may employ computer programs, the IRS uses the term to describe computations that are not performed by the IRS masterfile system. (6) Some of these changes are anticipated in late 1992 or early 1993. (7) If an overpayment is paid with credit interest, the transaction may raise issues associated with netting overpayments against underpayments. See Item 3 in the text that follows. (8) The election is found at line 31 of the Form 1120. (9) In this article, the term "adjustment" refers to an increase in tax liability. (10) The facts in this example are modeled after Situation 2 of Rev. Rul. 88-98, 1988-2 C.B. 356. (11) $1,000,000 estimated tax payments plus the $1,200,000 paid with the Form 7004. (12) See also Avon Products, Inc. v. United States, 588 F.2d 342 (2d Cir. 1978). (13) The interest calculations in this article show the starting dates and stopping dates for the principal amount of tax underpayment and overpayment amounts. The details of the intervening interest calculation detail are available upon request; such requests should be forwarded to the author at the address listed in note 2. (14) No credit interest is paid on amounts credited to the following year's estimated tax. (15) In this calculation, the allowance of a credit to another tax account is a charge to this account. (16) Rev. Rul. 84-58, 1984-1 C.B. 254, states that the designation to a particular installment should be made in the return showing the credit-elect. If no designation is made, Rev. Rul. 84-58 states that the IRS will credit the amount to the first installment. If a taxpayer fails to make the designation in the return, there is no dear guidance on how, when, or if the failure can be corrected. Relief under Treas. Reg. [section] 301.9100 may be available. See Rev. Proc. 92-86, 199242 I.R.B. 32. (17) The facts in this example are modeled after Situation 3 of Rev. Rul. 88-98. (18) Rev. Rul. 88-98. See also Notice 88-119, 1988-2 C.B. 453. The examples in the text use a Form 1139 tentative carryback (rather than a Form 1120X refund amount) because of the greater likelihood that a tentative carryback will be paid without credit interest. (19) No credit interest is paid under the 45-day rule of section 6611(f)(3)(b). (20) For interest computation purposes, a refund attributable to a carryback is deemed not to occur until the filing date of the loss or credit year. I.R.C. [section] 6611(f). (21) The examples in this article assume that no "hot interest" under section 6621(c) is applicable. (22) This result is based on the deficiency interest provisions of the Code since 1954. A contrary result appears to have been required under the 1939 Code. See General Electric v. United State8, 369 F.2d 724 (Ct. Cl. 1966), where the court found that "the [taxpayer's injury results from an inadequacy built into the statute." (23) This example does not contain a suspension of interest because the taxpayer is never overpaid. The $800,000 underpayment, plus accrual of debit interest on the underpayment, is greater than the $1,000,000 refund. (24) In 1986, the debit interest rate was changed to float three percentage points over the federal short-term rate. In 1990, the Congress added the "hot interest" rule, which can increase the rate by an additional two percentage points. With the overall decline in market interest rates, these full percentage point increases have a disproportionate effect on taxpayers' sensitivity to interest costs. (25) In many cases, the result is that the taxpayer will refrain from borrowing the funds. (26) Rev. Rul. 70-660, 1970-2 C.B. 37. (27) Section 6213(d) of the Code states that "[t]he taxpayer shall at any time (whether or not a notice of deficiency has been issued) have the right by a signed notice in writing filed with the Secretary, to waive the restrictions provided in subsection (a) on the assessment and collection of the whole or any part of the deficiency." But see the possible requirement of "ascertainment." Moore v. Cleveland Rail. way Co., 108 F.2d 656 (6th Cir. 1940). (28) Letter Ruling No. 8518002. (29) This issue is currently pending at the IRS National Office. (30) For items (i) through (iv), section 6601(eX2) provides that no interest runs if payment is made within 10 days of notice and demand. (31) Public Law 101-608. (32) For individual taxpayers the differential is exacerbated by the fact that credit interest income is included in income while there is generally no deduction for debit interest. (33) The 1986 Act legislative history is found at 1986-3 C.B. 784. The 1990 Act legislative history is found at 1990-3 C.B. 1100. (34) I.R.C. [section] 6501. See also Alexander Proudfoot Co. v. United States, 454 F.2d 1379 (1972). (35) Rev. Rul. 56-506, 1956-1 C.B. 959; Rev. Rul. 57-242, 1967-1 C.B. 452; Barnes v. United States, 137 F. Supp. 716, 133 Ct. Cl. 510, cert. denied, 361 U.S. 933 (1956).

TOM E. PERSKY is currently providing tax interest and penalty consulting services to TimeValue Software, Inc. and other clients. Mr. Persky was the Assistant to the Commissioner (Legislative Liaison) from 1984 to 1986. From 1986 to 1992, Mr. Persky headed the IRS practice and procedure group for Price Waterhouse.
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Date:Nov 1, 1992
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