IRS PUBLISHES NEW TABLES FOR COMPUTING INTEREST ON TAX OVERPAYMENTS AND UNDERPAYMENTS.

Rev. Proc. 95-17

SECTION 1. PURPOSE

.01 The purpose of this revenue procedure is to inform taxpayers of the new uniform tables for computing interest using the daily compounding rules established under section 6622 of the Internal Revenue Code, effective for all interest computations made after December 31, 1994. These new interest tables were developed by the Service to more accurately compute interest due on tax overpayments and underpayments, and to replace the interest tables in Rev. Proc. 83-7, 1983-1 C.B. 583.

.02 In addition, the new interest tables have been expanded to include increments of 0.5 percent to facilitate the change made by section 713 of the Uruguay Round Agreements Act, P.L. 103-465, which implements the Uruguay Round of General Agreement on Tariffs and Trade (GATT). That change amends section 6621(a)(1) of the Code to lower the rate of interest paid on the portion of a corporate overpayment of tax exceeding $10,000 for periods after December 31, 1994.

.03 Tables are also provided for computing interest under simple interest rates in effect for interest accruing before January 1, 1983.

SECTION 2. BACKGROUND

.01 Section 6601(a) provides the general rule that interest will be charged at the annual rate established under section 6621 on any amount of tax not paid on or before the last date prescribed for payment.

.02 Section 6611(a) provides that interest will be allowed and paid on any overpayment at the rate established under section 6621.

.03 Under section 6621(a)(1), the overpayment rate is the sum of the federal short-term rate plus 2 percentage points. Under section 6621(a)(2), the underpayment rate is the sum of the federal short-term rate plus 3 percentage points. Section 6621(c) provides that for the purposes of interest payable under section 6601 on any large corporate underpayment, the underpayment rate under section 6621(a)(2) shall be applied by substituting "5 percentage points" for "3 percentage points."

.04 Section 713 of the Uruguay Round Agreements Act, P.L. 103- 465, implementing the Uruguay Round of General Agreement on Tariffs and Trade (GATT), amended section 6621(a)(1) to provide that the interest paid on the portion of a corporate overpayment of tax exceeding $10,000 is the sum of the federal short-term rate plus 0.5 of a percentage point. Section 6621(a)(1), as amended, applies for purposes of determining interest for periods after December 31, 1994.

SECTION 3. PROCEDURE

.01 Interest on underpayments and overpayments accruing before January 1, 1983, will be computed in accordance with Tables 1-6. As shown by the tables, the Internal Revenue Service used the month-day method of calculating interest before February 1, 1980, and a daily rate from February 1, 1980, through December 31, 1982.

.02 Interest on underpayments and overpayments accruing after December 31, 1982, will be computed in the following manner:

(1) Interest on amounts arising after December 31, 1982, will be computed in accordance with Tables 7-54 for non-leap years and Tables 55-102 for leap years. The Service will publish the appropriate tables if the interest rate ever exceeds 24.5 percent. Because section 6621 originally required redetermination of the interest rates semiannually, the effective daily rates for 184 days are published.

(2) Interest on any tax or penalty outstanding as of December 31, 1982, will be computed in accordance with section 3.01. At that time, all tax, assessed penalty or addition to tax, and interest (whether or not assessed) will be added together to determine the amount to be carried over on which daily interest will be charged under the compounding rules.

SECTION 4. SCOPE AND EFFECT

In addition to interest on underpayments and overpayments of tax under sections 6601 and 6611, this revenue procedure will apply to any other amount of interest required to be paid under the Code.

SECTION 5. EFFECT ON OTHER DOCUMENTS

This revenue procedure supersedes Rev. Proc. 83-7 for all interest computations made after December 31, 1994. The tables in Rev. Proc. 83-7 apply to all interest computations made on or before December 31, 1994.

SECTION 6. EFFECTIVE DATE

This revenue procedure is effective for all interest computations made after December 31, 1994.

SECTION 7. DRAFTING INFORMATION

The principal author of this revenue procedure is Marcia F. Rachy of the Office of the Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, contact Ms. Rachy at (202) 622-6232 (not a toll-free call). For information regarding the development of the tables, contact Dan Johnson of the Office of Applications, Design and Development Management (Corporate Systems Division) at (202) 927-2530 (not a toll-free call).

                           Table 1 - 4% Rate

The daily rate for 12% is .000328767. To compute the interest factor for a given period, multiply the number of days by the rate. For example, the fac tor for 82 days would be 82 X .000328767, or .026958894.

TABLES 6 - 20%

The daily rate for 20% is .000547945. To compute the interest factor for a given period, multiply the number of days by the rate. For example, the factor for 237 days would be 237 X .00047945, or .129862965.

                 TABLE 7--1.0% COMPOUND RATE--184 DAYS