Revenue Procedure 95-17 and Revenue Procedure 83-7

Revenue Procedure 95-17, 1995-1 CB 556, must be read in conjunction with Revenue Procedure 83-7, 1983-1 CB 583.

(Interest tables are not shown for Revenue Procedure 83-7 because they were replaced by those in Revenue Procedure 95-17. In addition, interest tables shown here in Revenue Procedure 95-17 omit the 0.5% increments because they do not apply to estate tax interest computations. Finally, tables for interest rates above 12% have also been omitted because at present they do not seem relevant.)

Before January 1, 1983, interest on underpayments and overpayments of tax was calculated as simple interest, which meant that interest was not included in the base on which interest was being computed. Title III, sections 344(a) and (c), of Public Law 97-248, dated September 3, 1982, added new section 6622 to the Code (captioned Interest Compounded Daily), providing that, beginning January 1, 1983, interest is to be compounded daily. This means that interest is to be included in the base on which additional interest is computed. Revenue Procedure 83-7 was then issued to provide compound interest factor tables of 184 days each for rates from 1% through 24% in one-percent increments, and to provide examples showing how compound interest is to be computed using the tables for periods beginning January 1, 1983.

To more accurately compute interest due on tax overpayments and underpayments, the IRS issued Revenue Procedure 95-17 to provide new compound interest factor tables to replace those in Revenue Procedure 83-7. The new tables were effective for all interest computations made after December 31, 1994. In addition, the tables were expanded to include increments of 0.5 percent to implement the change made in the Uruguay Round of GATT, which amended IRC section 6621(a)(1) to lower the rate of interest paid on the portion of a corporate overpayment exceeding $10,000 for periods after December 31, 1994. However, examples showing how compound interest is computed were not included in Revenue Procedure 95-17, so one must refer to the computation examples in Revenue Procedure 83-7 and substitute the tables in Revenue Procedure 95-17. 

Section 6621 was further amended by Public Law 105-206, dated July 22, 1998, to provide that the interest rate on non-corporate overpayments would be the same as for underpayments, effective January 1, 1999. Since then, the interest rates on estate tax overpayments have been the same as for estate tax underpayments.

NOTE 1: In an IRS field examination situation where a refund is indicated, despite appearances to the contrary the field examination interrelated interest computation is not intended to calculate the amount of interest to be paid on the refund; that is the responsibility of Cincinnati Campus when the refund is actually scheduled to be paid. The purpose of the interest component of the field examination computation is to, inter alia, determine the amount of interest, if any, that is allowable as a deduction on Schedule J of the estate tax return pursuant to IRC section 2053.

NOTE 2: Effective for dates of death after December 31, 1997, interest on tax deferred under section 6166 is 2% on the tax attributable to the first $1,000,000 of taxable business value (adjusted for inflation), and 45% of regular underpayment interest rates on the balance of the deferred tax, if any. Revenue Procedure 95-17 did not provide tables for 45% of regular underpayment interest rates, so the 45% interest factor tables are provided on this web site.