rp-00-26.pdf

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Part III
Administrative, Procedural, and Miscellaneous
26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement;
determination of correct tax liability. (Also Part I, §§ 6601, 6611, 6621; 301.6601-1,
301.6611-1, 301.6621-1.)
Rev. Proc. 2000-26
SECTION 1. PURPOSE
This revenue procedure provides guidance regarding the application of
§ 6621(d) of the Internal Revenue Code to interest accruing on or after October 1,
1998. Section 6621(d) was enacted by § 3301 of the Internal Revenue Service
Restructuring and Reform Act of 1998 (RRA), Pub. L. No. 105-206, 112 Stat. 741, and
was amended by § 4002(d) of the Tax and Trade Relief Extension Act of 1998, Pub. L.
No. 105-277, 112 Stat. 2681. Section 6621(d) provides for a net interest rate of zero to
the extent of overlapping tax underpayments and tax overpayments, and generally
applies to interest for periods beginning after July 22, 1998 (i.e.
, interest accruing on or
after October 1, 1998). The net interest rate of zero in § 6621(d) also applies to
interest for periods beginning before July 22, 1998 (i.e.
, interest accruing before
October 1, 1998), provided certain conditions are met. Rev. Proc. 99-43, 1999-47
I.R.B. 579, which modifies and supersedes Rev. Proc. 99-19, 1999-13 I.R.B. 10,

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provides guidance on the conditions applicable to requests for the application of a net
interest rate of zero to interest accruing before October 1, 1998. Section 3.02(1) of
Rev. Proc. 99-43 states that the Service intends to provide further guidance for
interest accruing for periods on or after October 1, 1998. This revenue procedure
provides guidance on the application of § 6621(d) for interest accruing on or after
October 1, 1998.
SECTION 2. BACKGROUND
.01 Interest computations in general
.
(1) Section 6601(a) provides, in general, that if any amount of tax imposed by
the Code is not paid on or before the last date prescribed for payment, interest on such
amount must be paid for the period from such last date to the date paid at the
underpayment rate established under § 6621.
(2) Section 6611(a) provides that interest must be allowed and paid on any
overpayment in respect of any internal revenue tax at the overpayment rate established
under § 6621. Section 6611(b)(1) provides that, in the case of a credit, interest must
be allowed and paid from the date of the overpayment to the due date of the amount
against which the credit is taken. Section 6611(b)(2) provides that, in the case of a
refund, interest must be allowed and paid from the date of the overpayment to a date
preceding the date of the refund check by not more than 30 days.

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.02 Interest rates in general
.
(1) For interest accruing before January 1, 1999, § 6621(a)(1) provides that the
overpayment rate is the federal short-term rate (determined under § 6621(b)) plus 2
percentage points. For interest accruing on or after January 1, 1999, § 6621(a)(1)
provides that the overpayment rate is the federal short term rate (determined under
§ 6621(b)) plus 3 percentage points (2 percentage points in the case of a corporation).
To the extent that an overpayment of tax by a corporation exceeds $10,000, the
overpayment rate is the federal short-term rate plus 0.5 percent.
(2) Section 6621(a)(2) provides that the underpayment rate is the federal short-
term rate (determined under § 6621(b)) plus 3 percentage points. Special rules in
§ 6621(c) increase the underpayment rate on large corporate underpayments by an
additional 2 percentage points.
.03 Interest for overlapping periods
.
(1) Section 6621(d), as enacted by the RRA on July 22, 1998, provides that, to
the extent that for any period interest is payable under subchapter A (§§ 6601 and
6602) and allowable under subchapter B (§ 6611) on equivalent underpayments and
overpayments by the same taxpayer of tax imposed by the Code, the net rate of interest
under § 6621 on such amounts is zero for such period.
(2) The Conference Report, H. R. Conf. Rep. No. 599, 105 Cong., 2d Sess.
th
257 (1998), accompanying the RRA provides that the net interest rate of zero is applied
without regard to whether the overpayment or underpayment is currently outstanding.

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Further, each overpayment or underpayment is considered only once in determining
whether equivalent amounts of overpayment and underpayment overlap for a particular
period. That report also provides that the net interest rate of zero applies even when
special rules increase the rate of interest for large corporate underpayments under
§ 6621(c), or decrease the rate of interest for large corporate overpayments under
§ 6621(a).
.04 Interest accruing on or after October 1, 1998
.
(1) Section 3301(c)(1) of the RRA states that § 6621(d) generally applies to
interest for periods beginning after July 22, 1998 (i.e., interest accruing on or after
October 1, 1998).
(2) In enacting § 6621(d), Congress anticipated that in situations in which
interest is both payable and allowable by the same taxpayer for the same period, the
Secretary will make all reasonable efforts to offset the liabilities, rather than process
them separately using the net interest rate of zero. See
H. R. Conf. Rep. No. 599,
105th Cong., 2d Sess. 257 (1998).
(3) Section 3301(c)(1) of the RRA does not impose preconditions to applying the
net interest rate of zero in § 6621(d) to interest accruing on or after October 1, 1998.
Thus, for interest accruing on or after October 1, 1998, there is no statutory
requirement that the taxpayer request that the Service apply § 6621(d).
(4) The Service does not currently have the ability to automatically apply the net
rate of zero in § 6621(d). Congress recognized this current limitation and intended that

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until such time as procedures are implemented that allow for the automatic application
of § 6621(d) by the Service, the Service will promptly and carefully consider any
taxpayer’s request to have interest charges recalculated in accordance with § 6621(d).
See
H. R. Rep. No. 364 (Part 1), 105th Cong., 1st Sess. 64 (1998); S. Rep. No. 174,
105th Cong., 2d Sess. 62 (1998).
SECTION 3. SCOPE
.01 Applicability
. This revenue procedure applies to the application of the net interest
rate of zero in § 6621(d) to interest for periods beginning after July 22, 1998 (i.e.,
interest accruing on or after October 1, 1998).
.02 Inapplicability
. This revenue procedure does not apply to:
(1) the application of the net interest rate of zero in § 6621(d) to interest for
periods beginning before July 22, 1998 (i.e.
, interest accruing before October 1, 1998)
(see Rev. Proc. 99-43 for guidance regarding interest accruing before October 1,
1998);
(2) interest accruing on or after January 1, 1999, for taxpayers other than
corporations (the interest rate on underpayments and overpayments is equal for such
taxpayers on or after January 1, 1999);
(3) an overpayment or underpayment for any period during which interest on the
overpayment or underpayment is not allowable or payable by law (e.g.
, the 45-day
interest disallowance rule under § 6611(e)); or
(4) the extent of an offset made pursuant to §§ 6402(a) and 6601(f), regarding

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the crediting of an outstanding overpayment against an outstanding underpayment.
SECTION 4. IDENTIFYING PERIODS FOR WHICH THE NET RATE OF ZERO
APPLIES
.01 In general. The Service will take reasonable steps to identify overlapping periods
of tax overpayments and underpayments and apply the net interest rate of zero in
§ 6621(d) to interest accruing on or after October 1,1998. In such instances, the
Service will provide a copy of the interest computation to the taxpayer. However,
because the Service is currently unable to automatically apply the net interest rate of
zero in § 6621(d), there may be instances when the Service fails to identify periods of
overlap and apply the net interest rate of zero. To ensure that taxpayers receive the
benefit of the net interest rate of zero in all applicable situations, taxpayers should
request the net interest rate of zero (or request the Service to recompute the net
interest rate of zero if the taxpayer disagrees with a Service computation of the net
interest rate of zero) on or before the date on which the last applicable period of
limitation (as described in section 4.02 of this revenue procedure) closes and according
to the procedures in section 5 of this revenue procedure. Requests will be required
until such time as the Service can automatically apply the net interest rate of zero.
.02 Applicable periods of limitation
. The applicable periods of limitation are as
follows:
(1) Underpayment interest
. A claim for credit or refund of interest paid on an
underpayment pursuant to § 6601 or 6602 generally must be filed within 3 years from

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the time the tax return was filed or 2 years from the time the interest was paid,
whichever period expires later, pursuant to § 6511.
(2) Overpayment interest
. A claim for payment of additional interest allowable
on an overpayment pursuant to § 6611 must be filed within the 6-year period in which a
suit must be filed pursuant to 28 U.S.C. §§ 2401 and 2501. See
Rev. Rul. 56-506,
1956-2 C.B. 959. A taxpayer’s request for application of the net interest rate of zero
under the procedures described in section 5 of this revenue procedure does not protect
the taxpayer’s rights with respect to suits against the government pursuant to 28 U.S.C.
§§ 2401 and 2501. The only manner in which a taxpayer can fully protect its rights to
additional overpayment interest is by filing a civil suit against the United States prior to
the termination of the 6-year statutory period set forth in 28 U.S.C. §§ 2401 and 2501.
See
Rev. Rul. 57-242, 1957-1 C.B. 452.
.03 Net Rate of Zero. In general, the Service will apply the net rate of zero as
follows:
(1) If the period of limitation for refunding underpayment interest (as described in
section 4.02(1) of this revenue procedure) is open at the time a claim (as described in
sections 5.01 through 5.04 of this revenue procedure) is filed or a written request (as
described in section 5.06 of this revenue procedure) is made, the Service will apply the
net rate of zero by decreasing underpayment interest owed by the taxpayer.
(2) If the period of limitation for refunding underpayment interest (as described in
section 4.02(1) of this revenue procedure) is closed at the time a claim (as described in

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sections 5.01 through 5.04 of this revenue procedure) is filed or a written request (as
described in section 5.06 of this revenue procedure) is made, but the period for paying
additional overpayment interest (as described in section 4.02(2) of this revenue
procedure) is open, the Service will apply the net rate of zero by increasing
overpayment interest owed to the taxpayer.
SECTION 5. PROCEDURES FOR REQUESTING THE NET RATE OF ZERO
.01 Form to file
. Except as provided in section 5.06 of this revenue procedure,
requests for the application of the net interest rate of zero in § 6621(d) with respect to
interest accruing on or after October 1, 1998, should be made on Form 843, Claim for
Refund and Request for Abatement.
.02 Where to file. A Form 843 requesting the net rate of zero solely with respect to
interest accruing on or after October 1, 1998, should be sent to the Internal Revenue
Service Center where the taxpayer filed its most recent federal income tax return.
.03 Label
. The taxpayer should label the top of the Form 843: “Request for Net
Interest Rate of Zero Under Rev. Proc. 2000-26.”
.04 Filing requirements for Form 843
.
(1) Line 1 should be left blank.
(2) The taxpayer may, but is not required to, place a dollar amount on Line 2.
(3) Line 3 should indicate the type of tax and type of return covered by the
request. More than one box may be checked if more than one type of tax or return is
covered by the request. In addition, any taxes imposed by the Code (or returns for

9
those taxes) for which there is no box on Line 3 should be written in on that line.
(4) Line 4 should be left blank.
(5) Line 5 should:
(a) identify the taxable periods for which the taxpayer overpaid and underpaid
its tax liability. A separate Form 843 is not required for each separate taxable period
involved in the request;
(b) state when the taxpayer paid the tax if the underpayment is no longer
outstanding;
(c) state when the taxpayer received a refund of tax if the overpayment is no
longer outstanding;
(d) identify and establish the period(s) for which the taxpayer’s overpayment
and underpayment overlapped and the overlapping amount. For this purpose, the
taxpayer should provide any background material (such as copies of examination
reports, notices, or prior interest computations provided by the Service) relating to the
overpayments and underpayments. The background material is needed to assist the
Service in determining the period(s) for which the overpayment and underpayment
overlap, and the amount of such overlap;
(e) state that, to the extent of equivalent amounts of underpayment and
overpayment for the period(s) identified and established under section 5.04(5)(d) of this
revenue procedure, the period(s) has (have) been used only once in a request to
obtain the net interest rate of zero under § 6621(d); however, if the full amount of the

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overpayment or underpayment is not used in a netting calculation, the remaining
portion may be used in another netting calculation; and
(f) provide a computation, to the extent possible, of the amount of interest to be
credited, refunded, or abated to provide a net interest rate of zero for the period(s) of
overlap. This computation generally should be made by applying § 6621(d) to reduce
the taxpayer’s underpayment interest payable to the Service. However, if the Form 843
is filed after December 31, 1999, and only the period of limitation for claiming additional
overpayment interest is open on that filing date, the computation should be made by
applying § 6621(d) to increase the taxpayer’s overpayment interest payable by the
Service.
.05 Verification
. The amounts used in a computation provided under section 5.04(5)(f)
of this revenue procedure are subject to verification by the Service and may be subject
to adjustment for purposes of computing the net interest rate of zero pursuant to
§ 6621(d).
.06 Special procedure. No Form 843 is required when a computation of interest
using the net interest rate of zero under § 6621(d) for interest accruing on or after
October 1, 1998, is requested by a taxpayer in connection with a return (or returns) of
the taxpayer under consideration by any function of the Service (including Examination,
Appeals, or a case before a federal court that requires a computation of interest by any
function of the Service). Rather than filing a Form 843, the taxpayer should provide the
contact representative of such function a letter or written statement that:

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(1) states that the taxpayer is requesting the net interest rate of zero under
§ 6621(d);
(2) indicates the type of tax and type of return that affects the interest
computation for the taxable period under consideration;
(3) states when and for what period(s) the refund or payment (that affects the
interest computation for the taxable period under consideration) was made; and
(4) states that, to the extent of equivalent amounts of overpayment or
underpayment, the period(s) set forth under section 5.06(3) of this revenue procedure
has (have) not previously been applied to obtain a net interest rate of zero under
§ 6621(d).
.07 Special procedure verification
. The refund or payment provided under section
5.06(3) of this revenue procedure is subject to verification by the Service and may be
subject to adjustment for purposes of computing the net interest rate of zero pursuant to
§ 6621(d).
.08 Coordination of requests. If a taxpayer has made a request for the application of
the net interest rate of zero for interest accruing before October 1, 1998, pursuant to
either Rev. Proc. 99-19 or Rev. Proc. 99-43, then that taxpayer does not have to
make a separate request pursuant to this revenue procedure for the portion of the
overlapping period identified in that request that affects interest accruing on or after
October 1, 1998. The Service will apply the net interest rate of zero to interest accruing
for the entire overlapping period identified in the previously filed request at the time

12
such request is processed. Similarly, if a taxpayer anticipates that a request will be
filed pursuant to Rev. Proc. 99-43, then the taxpayer may request the net interest rate
of zero for the entire overlapping period and will not be required to make a separate
request under this revenue procedure for the portion of the overlapping period that
affects interest accruing on or after October 1, 1998. The Service will apply the net
interest rate of zero to interest accruing for the entire overlapping period identified in
the request at the time such request is processed.
SECTION 6. EFFECTIVE DATE
This revenue procedure is effective for the application of the net interest rate of
zero in § 6621(d) to interest accruing on or after October 1, 1998.
DRAFTING INFORMATION
The principal author of this revenue procedure is John J. McGreevy of the Office
of Assistant Chief Counsel (Income Tax and Accounting). For further information
regarding this revenue procedure, contact Mr. McGreevy on (202) 622-4910 (not a toll-
free call).