The interest rates for the first quarter of 2017 have recently been announced in IR-2016-159, Dec. 5, 2016 (with Rev Rul. 2016-28, 2016-51 IRB), here, are:
- four (4) percent for overpayments [three (3) percent in the case of a corporation];
- 1 and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000;
- four (4) percent for underpayments; and
- six (6) percent for large corporate underpayments [JAT note: sometimes called "hot" interest].
The announcement explains the basis for the interest as follows:
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 one-half (0.5) of a percentage point.
The interest rates announced today are computed from the federal short-term rate determined during October 2016 to take effect Nov. 1, 2016, based on daily compounding.Remember that these interest rates are adjusted quarterly.
In my practice, I generally have an accountant associated with my client representation. The accountant makes the calculations when some degree of precision is required. I generally just need to ball park the calculation in discussions with the client. I use a software program called Tax Interest, here. It is relatively inexpensive and very easy to use. It is also more powerful than just for ball park calculations, but I just use it for my ball park calculations. I find that some of the accountants with whom I work use that same program for making their interest and penalty calculations.