Academic journal article Journal of Accountancy

Interest Rates on Overpayments

Academic journal article Journal of Accountancy

Interest Rates on Overpayments

Article excerpt

Subject to certain limitations, the government must pay interest on overpayments when it sends taxpayers refund checks. Conversely, taxpayers owe the government interest if they underpay their taxes.

This sounds reasonable, but there is a catch. The interest rate the government charges on underpayments is one percentage point higher than the rate it pays on overpayments. For large corporations the rate is three percentage points higher. What happens when taxpayers receive refunds with interest and years later learn they owe the government more than previously had been refunded?

Assume Tom is a taxpayer who pays taxes on a calendar-year basis. In 1990, he made estimated tax payments totaling $100,000 and filed his extended 1990 return on July 1, 1991. His tax liability was 80,000,'so Tom requested a refund of $20,000. On September 22, 1991, the Internal Revenue Service issued Tom a check for $20,760, including $760 in interest. In 1993, the IRS audited Tom's return and determined the correct tax liability was $110,000, resulting in a tax deficiency of $30,000. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.