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20.2.5.8
(03-01-2002)
Large Corporate Underpayment
-
Effective January 1, 1991, the debit interest rate was increased two percentage points (above the prevailing underpayment
rate) for
"C"
Corporations (includes corporate income, employment and excise tax returns) when:
-
The notice of underpayment or proposed deficiency (or the assessment of the proposed deficiency) is greater than $100,000
(determined without regard to interest, penalties, or additions to the tax), AND
-
the balance due is not paid within 30 days of the date of notice and demand if deficiency procedures do not apply, OR
-
30 days from the date the taxpayer was notified of a proposed deficiency of tax by either a 30/90–Day Letter (whichever is
earlier).
Exception:
See Section 5.8.5.for start dates prior to December 31, 1997.
Note:
"C"
Corporation is any BMF taxable entity with a significant Form 1120 filing requirement (except Form 1120S), and any BMF
taxable entity without a significant Form 1120 filing requirement, but having an Exempt Organization Section present with
a Corporate Indicator.
20.2.5.8.1
(03-01-2002)
Threshold
-
The
"2% Interest"
threshold amount is $100,000. Once $100,000 is exceeded and the other criteria mentioned above are met, the additional
2% interest applies.
-
The threshold refers to the underpaid tax (TC 150, TC 29X and/or TC 30X) for a single tax period.
Caution:
DO NOT INCLUDE interest, penalties, or additions to tax to determine the threshold.
-
If the $100,000 threshold is exceeded, compute the additional 2% interest on the total liability (including interest, penalties
and additions to tax) from the
"applicable"
date for beginning 2% interest.
20.2.5.8.1.1
(03-01-2002)
Consideration of Payments
-
Do NOT apply the additional 2% interest if the liability is paid within 30 days of the date of the notice or the date of a
30/90 Day Letter. See LEM 20.2
-
Cash bonds are not considered for purposes of determining whether the underpayment (shown in the notice or letter) is paid
within 30 days.
Example:
The taxpayer has a threshold underpayment that exceeds $100,000 and submits a cash bond. The taxpayer is subject to the additional
2% interest, because the cash bond is not considered as payment of the liability.
-
To avoid the additional 2% interest, all of the tax, penalty, interest and additions to tax must be paid within 30 days of
the notice or 30/90 Day Letter.
| If the threshold is met |
Then |
| and the total liability, including interest, penalty and additions to tax, is paid within 30 days of the notice or 30/90 Day Letter
|
The additional 2% interest does NOT apply |
| and the total liability, including interest, penalty and additions to tax, is not paid within 30 days of the notice or 30/90 Day Letter
|
Assess additional 2% interest on the total liability from the applicable date. |
Example:
A math error was made on an original 1995 Form 1120 which resulted in a bill for $50, that was not paid. One year later, an
audit assessment resulted in a deficiency of $99,951. The additional 2% interest rate applies to interest accruing for the
underpayment period ending on or before December 31, 1997.
-
The Form 1120 is a
"C"
Corp.; AND
-
The threshold underpayment amount was exceeded, $100,001 ($99,951 + $50),
-
The first underpayment of tax ($50) was not paid within 30 days of notice and demand, AND
-
The interest period ends on or before December 31, 1997.
20.2.5.8.2
(03-01-2002)
Start Date for Additional 2% Interest
-
The date of the 30–Day Letter, date of notice of deficiency (90 day letter) or the date of notice and demand is known as the
"notice" date.
-
The earliest notice date is used for purposes of determining when the additional 2% interest starts. The notice dateplus 30 days is referred to as the
"applicable"
date.
Example:
If a taxpayer does not pay the amount shown within 30 days of the first notice, and subsequently another notice is issued,
the
"applicable"
date remains the earliernotice date plus thirty days.
20.2.5.8.3
(03-01-2002)
Master File and Additional 2% Interest
-
Generally, Master File programming can not systemically compute the additional 2% interest. These modules must be manually
computed and updated.
20.2.5.8.4
(03-01-2002)
Application of 2% Interest
-
Once it is determined that additional 2% is to be charged;
-
Using a current TXMOD or Master File transcript, compute a running module balance from the return due date to the day after
notice date plus thirty days (applicable date).
-
Compute debit interest, including the additional 2% interest, starting from the applicable date to the payment date, W+30
date (if applicable), or 23C date, whichever is appropriate.
-
If the taxpayer is liable for 120% TMT deficiency interest and 2% interest, compute deficiency interest by adding 120% to the additional 2% interest rate.
20.2.5.8.5
(03-01-2002)
Special Application of 2% Interest for Periods Before and After December 31, 1997.
-
Prior to December 31, 1997, an unpaid notice for any amount would activate the additional 2% for large corporate underpayments
if the other criteria were met. After December 31, 1997, the notice must show an amount of $100,000 or greater. Because of
this, special consideration must be made.
-
If the notice activating the increased rate prior to December 31, 1997 was for less than $100,000, the increased rate is not
assessed after December 31, 1997.
-
It is possible to have a second notice for $100,000 or more activate the additional 2% rate after December 31, 1997 after
a first notice of less than $100,000 activated the increased rate before December 31, 1997. In this case, there would be two
"applicable"
dates for the start of the increased rate. One prior to December 31, 1997 with the increased rate ending on that date
and the other after December 31, 1997 with the increased rate resuming on the new
"applicable "
date.
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