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20.2.6.2
(03-01-2002)
Compound Interest
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The Service is required to compound interest on a daily basis per IRC
section 6622(a). This results in a daily recalculation of the principal amount plus accrued interest.
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principal amount (P)
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daily interest rate (R)
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number of days (T)
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Interest (I)
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The balance (principal amount) on which interest is compounded includes
tax, penalties (at the point they become subject to interest per IRM IRM 20.2.5.3 ), additions to tax and all accrued interest.
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The formula to compute interest is as follows: Interest equals principal
times the rate (I = P x R.) The interest plus principal equals the new principal
( I + P = the new P). This procedure is continued over the number of days
(T) in the interest computation period.
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