SECTION 2. BACKGROUND

.01 Interest computations in general.

(1) Section 6601(a) provides, in general, that if any amount of tax imposed by the Code is not paid on or before the last date prescribed for payment, interest on such amount must be paid for the period from such last date to the date paid at the underpayment rate established under § 6621.

(2) Section 6611(a) provides that interest must be allowed and paid on any overpayment in respect of any internal revenue tax at the overpayment rate established under § 6621. Section 6611(b)(1) provides that, in the case of a credit, interest must be allowed and paid from the date of the overpayment to the due date of the amount against which the credit is taken. Section 6611(b)(2) provides that, in the case of a refund, interest must be allowed and paid from the date of the overpayment to a date preceding the date of the refund check by not more than 30 days.

(1) Section 6621(d), as enacted by the RRA on July 22, 1998, provides that, to the extent that for any period interest is payable under subchapter A (§§ 6601 and 6602) and allowable under subchapter B (§ 6611) on equivalent underpayments and overpayments by the same taxpayer of tax imposed by the Code, the net rate of interest under § 6621 on such amounts is zero for such period.

(2) The Conference Report, H. R. Conf. Rep. No. 599, 105th Cong., 2d Sess. 257 (1998), accompanying the RRA provides that the net interest rate of zero is applied without regard to whether the overpayment or underpayment is currently outstanding. Further, each overpayment or underpayment is considered only once in

.02 Interest rates in general.

(1) For interest accruing before January 1, 1999, § 6621(a)(1) provides that the overpayment rate is the federal short-term rate (determined under § 6621(b)) plus 2 percentage points. For interest accruing on or after January 1, 1999, § 6621(a)(1) provides that the overpayment rate is the federal short term rate (determined under § 6621(b)) plus 3 percentage points (2 percentage points in the case of a corporation). To the extent that an overpayment of tax by a corporation exceeds $10,000, the overpayment rate is the federal shortterm rate plus 0.5 percent.

(2) Section 6621(a)(2) provides that the underpayment rate is the federal shortterm rate (determined under § 6621(b)) plus 3 percentage points. Special rules in § 6621(c) increase the underpayment rate on large corporate underpayments by an additional 2 percentage points.

.03 Interest for overlapping periods.

determining whether equivalent amounts of overpayment and underpayment overlap for a particular period. That report also provides that the net interest rate of zero applies even when special rules increase the rate of interest for large corporate underpayments under § 6621(c), or decrease the rate of interest for large corporate overpayments under § 6621(a).

.04 Interest accruing on or after Octo- ber 1, 1998.

(1) Section 3301(c)(1) of the RRA states that § 6621(d) generally applies to interest for periods beginning after July 22, 1998 (i.e., interest accruing on or after October 1, 1998).

(2) In enacting § 6621(d), Congress anticipated that in situations in which interest is both payable and allowable by the same taxpayer for the same period, the Secretary will make all reasonable efforts to offset the liabilities, rather than process them separately using the net interest rate of zero. See H. R. Conf. Rep. No. 599, 105th Cong., 2d Sess. 257 (1998). (3) Section 3301(c)(1) of the RRA does not impose preconditions to applying the net interest rate of zero in § 6621(d) to interest accruing on or after October 1, 1998. Thus, for interest accruing on or after October 1, 1998, there is no statutory requirement that the taxpayer request that the Service apply § 6621(d).

(4) The Service does not currently have the ability to automatically apply the net rate of zero in § 6621(d). Congress recognized this current limitation and intended that until such time as procedures are implemented that allow for the automatic application of § 6621(d) by the Service, the Service will promptly and carefully consider any taxpayer’s request to have interest charges recalculated in accordance with § 6621(d). See H. R. Rep. No. 364 (Part 1), 105th Cong., 1st Sess. 64 (1998); S. Rep. No. 174, 105th Cong., 2d Sess. 62 (1998).