Frequently Asked Questions
Who is eligible for the Large Corporate Underpayment Interest Avoidance?
Applies to C corporations with underpayments exceeding $100,000; payment must be made within 30 days of the first letter of proposed deficiency.
How does the Large Corporate Underpayment Interest Avoidance work?
Avoids the 2% increase in the underpayment interest rate (hot interest) for large corporate underpayments if the amount is paid in full within 30 days of the IRS notice.
What law authorizes the Large Corporate Underpayment Interest Avoidance?
The Large Corporate Underpayment Interest Avoidance is authorized under IRC §6621(c)(2)(B)(ii) of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §6621
Source: Internal Revenue Code, Title 26, United States Code
§ 6621. Determination of rate of interest(a) General rule(1) Overpayment rateThe overpayment rate established under this section shall be the sum of—(A) the Federal short-term rate determined under subsection (b), plus
(B) 3 percentage points (2 percentage points in the case of a corporation).
To the extent that an overpayment of tax by a corporation for any taxable period (as defined in subsection (c)(3), applied by substituting “overpayment” for “underpayment”) exceeds $10,000, subparagraph (B) shall be applied by substituting “0.5 percentage point” for “2 percentage points”.
(2) Underpayment rateThe underpayment rate established under this section shall be the sum of—(A) the Federal short-term rate determined under subsection (b), plus
(B) 3 percentage points.
(b) Federal short-term rateFor purposes of this section—(1) General ruleThe Secretary shall determine the Federal short-term rate for the first month in each calendar quarter.
(2) Period during which rate applies(A) In generalExcept as provided in subparagraph (B), the Federal short-term rate determined under paragraph (1) for any month shall apply during the first calendar quarter beginning after such month.
(B) Special rule for individual estimated taxIn determining the addition to tax under section 6654 for failure to pay estimated tax for any taxable year, the Federal short-term rate which applies during the 3rd month following such taxable year shall also apply during the first 15 days of the 4th month following such taxable year.
(3) Federal short-term rateThe Federal short-term rate for any month shall be the Federal short-term rate determined during such month by the Secretary in accordance with section 1274(d). Any such rate shall be rounded to the nearest full percent (or, if a multiple of ½ of 1 percent, such rate shall be increased to the next highest full percent).
(c) Increase in underpayment rate for large corporate underpayments(1) In generalFor purposes of determining the amount of interest payable under section 6601 on any large corporate underpayment for periods after the applicable date, paragraph (2) of subsection (a) shall be applied by substituting “5 percentage points” for “3 percentage points”.
(2) Applicable dateFor purposes of this subsection—(A) In generalThe applicable date is the 30th day after the earlier of—(i) the date on which the 1st letter of proposed deficiency which allows the taxpayer an opportunity for administrative review in the Internal Revenue Service Independent Office of Appeals is sent, or
(ii) the date on which the deficiency notice under section 6212 is sent.
The preceding sentence shall be applied without regard to any such letter or notice which is withdrawn by the Secretary.
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