IRS Signals Q3 Interest Rate Increases

by Mike Godfrey, Tax-News.com, Washington

12 June 2006

The Internal Revenue Service last week announced that there will be an increase in the under- and over-payment interest rates for the calendar quarter beginning July 1, 2006. Each of these interest rates increases by a single interest point over the rate in the second quarter.

The new interest rates are as follows:

• 8% percent for overpayments [7% in the case of a corporation];
• 8% for underpayments;
• 10% percent for large corporate underpayments; and
• 5.5% for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis.

For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points.

The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus 0.5 of a percentage point.

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