Computing Interest on Overpayments and Underpayments: How Difficult Can it Be? Very!

102 Journal of Taxation 273, May 2005

8 Pages Posted: 20 Mar 2017 Last revised: 14 Aug 2018

See all articles by Mary A. McNulty

Mary A. McNulty

Thompson & Knight LLP

David Boucher

Independent

Joseph M. Incorvaia

Decision Modeling, Inc. (DMI)

Robert Probasco

Texas A&M University School of Law

Date Written: May 1, 2005

Abstract

Taxpayers often assume that the difficult part of a tax dispute is resolving the tax liability and penalties, while interest computation is fairly straightforward. In the authors' experience, however, interest determinations are as subject to controversy and prone to error as tax liability determinations. The Article explores some of the areas that taxpayers should review carefully in the process of finalizing interest computations. - Frequent Errors. The Article reviews twelve areas in which, even though the law is settled and the facts are usually clear, the Service's interest computations frequently include mistakes. Taxpayers need to be aware of these provisions, gather the necessary facts to support their legal positions, and review interest computations carefully to make sure the Code is applied properly. - Disputed Issues. The Article also discusses five Code provisions for which the courts have not yet reached definitive interpretations. The Service has won some initial victories, but several taxpayers are continuing to litigate these issues under alternative theories or in different jurisdictions. The decision whether to pursue an issue, and the choice of the particular legal theory and strategy to use, will depend on a taxpayer's particular facts and circumstances. At a minimum, taxpayers should carefully evaluate the issue so that a decision regarding a claim can be made before the statute of limitations expires. - Procedural Considerations. Finally, the Article discusses out a planning opportunity to maximize interest benefits, addresses statutes of limitations, and points out a potential problem from the interaction of interest computations with Tax Court Rule 155 computations. Just as it is rare for a large corporate tax audit to yield no change, it is equally unlikely the first evaluation of interest for a tax period will remain unchanged after careful scrutiny. It is always in the best interest of the taxpayer to review thoroughly the factual, computational, and legal basis for the interest computations presented. When the tax liability has been finally determined, the hard work of interest resolution has just begun.

Keywords: income tax, IRS, interest, computation

Suggested Citation

McNulty, Mary A. and Boucher, David and Incorvaia, Joseph M. and Probasco, Robert, Computing Interest on Overpayments and Underpayments: How Difficult Can it Be? Very! (May 1, 2005). 102 Journal of Taxation 273, May 2005 . Available at SSRN: https://ssrn.com/abstract=2933780

Mary A. McNulty

Thompson & Knight LLP ( email )

1722 Routh St.
Suite 1500
Dallas, TX 75201
United States
(214) 969-1187 (Phone)
(214) 880-3182 (Fax)

HOME PAGE: http://www.tklaw.com

David Boucher

Independent ( email )

No Address Available
United States

Joseph M. Incorvaia

Decision Modeling, Inc. (DMI)

One International Blvd, Suite 1130
Mahwah, NJ 07495
United States

Robert Probasco (Contact Author)

Texas A&M University School of Law ( email )

1515 Commerce St.
Fort Worth, TX 76102
United States
817-212-4169 (Phone)

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