20.2.14. Netting of Overpayment and Underpayment Interest

(1) A running module balance is computed on the tax module to verify the original underpayment and overpayment interest amounts.

(2) When unable to determine how the interest was originally computed, the original interest computations can often be found with the adjustment source document.

(3) If a source document is unavailable and information on an adjustment is needed to accurately recreate the interest computation, all avenues must be used to locate the required documentation, such as:

1. Order all applicable source documents from the Files function.

2. Call the offices or employees that may have had the case in the past to determine if an "office file" is available.

3. Contact the taxpayer or power-of-attorney (POA) to obtain copies of any documents they may have (e.g., ACT/DMI reports, Form(s) 2285,Concurrent Determinations of Deficiencies (Increases in Tax) and Overassessments (Decreases in Tax) in Cases Involving Restricted Interest Provisions of the Internal Revenue Code, etc.). Or, if applicable, contact the examining official to request that they contact the taxpayer or POA directly.

(4) Prepare a time line to determine where the overlapping period(s) occur.

1. Begin the time line with the earliest tax event (usually the return due date of the oldest tax period).

2. Continue building the time line with each event that impacts interest such as payments, refunds, penalty assessment, waiver periods, etc., for the entire tax module.

3. For each period, indicate whether the period of limitations for overpayments or underpayments was open at the time the taxpayer filed the request to ensure that the IRC 7502 timely mailing/timely filing rule is applied.

4. Indicate relevant information, such as GATT/LCU/TMT interest rates, along the time line.

5. Superimpose a similar time line for the overlapping period over the first time line.

6. Create and superimpose additional time lines as needed to cover all the overlapping periods.

7. Indicate overlapping periods on the time line.

8. Identify the amount of underpayment and overpayment that overlap for each overlapping period.

9. Identify unnetted amounts and unnetted periods so this information is available for any possible future net rate requests.

(5) In the Marin Corporation example, the overlapping period is from March 15, 2013, the return due date, to October 13, 2013, the last day overpayment interest was paid. Do not include periods when no overpayment interest was paid or payable.

(1) The overlapping amount is the lesser of the running module balance for either the underpayment or overpayment, including interest.

(2) In the Marin Corporation example, the interest start date for both the overpayment and the underpayment are the same: March 15, 2013. Overpayment interest was allowed on $1,654,900.00. Underpayment interest was charged on $595,890.00.

(3) In this example, the underpayment is the lesser amount, so the overlapping amount on which netting is applicable is $595,890.00 as of March 15, 2013.

(1) The net rate adjustment is generally accomplished by computing underpayment interest at the overpayment rate during the overlapping interest period(s).

(2) Because the IRS calculated GATT overpayment interest differently prior to January 1, 1999, always compute overpayment interest in the same manner as originally allowed.

(3) To allow the taxpayer the best benefit of netting, if the entire overpayment is not used, use the GATT rate first, then the higher rate for "within module netting" and "net rate interest netting" purposes. See IRM 20.2.4.9.3, GATT Rate, for instructions on computing interest at the "GATT" rate.

(4) In the Marin Corporation example, the amount of the overpayment subject to the GATT rate exceeds the underpayment amount, so the entire net rate adjustment will be computed at the GATT rate.

(1) Using the overlapping period, amount, and rate determined for the Marin Corporation, compute underpayment interest at the lower overpayment rate.

(2) In the Marin Corporation example which illustrates within module netting, GATT interest is computed on $595,890.00 from March 15, 2013, to October 13, 2013, for a total of $1,733.03. This is the netted interest amount (underpayment interest computed at the overpayment interest rate) and will be input with a TC 772 or computer generated with a TC 777.

(1) At the end of the netting period, underpayment interest continues on the running module balance at the underpayment rate.

(2) In the Marin Corporation example, the module balance at the end of the netting period is the principal of $595,890.00, plus the netted interest of $1,733.03. Because normal overpayment interest processing on the originally issued "taxpayer initiated" overpayment allows an interest-free (9-Day back-off) period on this module from October 14 to October 22, no underpayment interest can be charged during this period up to the amount of the overpayment. Thus, underpayment interest on the $597,623.03 begins on October 23, 2013.

(1) The ACT/DMI software is programmed to complete all of the above steps to correctly compute both within module and net rate interest netting when the correct tax module information is input.

(2) First, enter the tax module information into the program to verify the previous overpayment interest to the refund date of October 22, 2013, as shown in Figure 20.2.14-3.

(3) Next, the tax assessment and subsequent payment amounts are entered on the Single Module screen, as shown in Figure 20.2.14-4, with interest computed using a running module balance until the date of the notice. For this example, a notice date of September 12, 2015 was used.

(4) The ACT/DMI program will compute the netted and underpayment interest and provide a 490 Activity Summary report (See Figure 20.2.14-5) which is sent to the taxpayer showing the restricted interest computation. The report must also be used as documentation for the interest adjustment and be attached to the file source documents. Since this computation format and content cannot be retained on IDRS, it is highly recommended that copies of the report (paper or electronic) be maintained in addition to source documents sent to the Files function.

1. IRC 6631 requires that an explanation of interest computations be sent to an individual (IMF) taxpayer "with each notice which includes an amount to be paid." The requirements of IRC 6631 also apply to employment and excise tax liabilities of sole proprietors. Master File programming will systemically include an explanation of the interest calculation with notices sent to taxpayers. However, if interest is manually computed or restricted, an interest computation must be mailed to the taxpayer. See IRM 20.2.1.3.2, Notice Requirements.

2. IRC 6631does not apply to statutory notices of deficiency (i.e., 90-Day letters), or refunds. IRC 6631 applies to notices that "include an amount to be paid."

(5) The 490 Activity Summary report in Figure 20.2.14-5 shows the following interest adjustments that must be made to the module:

• Underpayment interest (TC 340) in the amount of $33,728.01, and,

• Netted interest (TC 772) in the amount of $1,733.03.

(1) Effective January 1993, Master File programming was updated to accomplish netting within a single module. When refunds are issued with interest, Master File posts the netted interest amount with a TC 777, which carries the 23C date of the prior related refund and a "999" in the Julian Date field of the DLN as shown in the following partial TXMOD example.Computer Generated Within-Module Netting

(2) If multiple refunds are involved, Master File separately calculates and posts netted interest amounts attributable to each refund. Each netted interest amount posts with the 23C date of the related refund, beginning with the earliest refund. Master File also calculates the netted interest and the underpayment interest amounts on quick and prompt assessments (Form 2859, Request for Quick or Prompt Assessment) on modules where interest is not restricted. See IRM 20.2.14.4.4, Within Module Netting for Quick and Prompt Assessments, for processing instructions.

(3) Master File calculates the netted interest amount by finding the difference between the amounts of the interest paid on the refunded overpayment and the recomputed overpayment interest on the corrected refund amount.

(4) Underpayment interest (TC 336, TC 196) is computed on:

1. The amount of the subsequent assessment, in excess of the refunded overpayment, FROM the due date of the liability to the appropriate interest TO date, and

2. The netted underpayment amount plus the netted interest FROM the 23C date of the refund to the appropriate interest TO date.

(1) The process of applying within module netting results in an underpayment interest amount. Master File may not be able to correctly compute within module netting in modules containing an underpayment or overpayment interest-free period associated with a refund, offset or assessment when the interest-free period(s) overlaps the underpayment or overpayment interest period(s) to be netted. Master File may also not be able to compute netted interest in modules containing more than one underpayment interest-free period, even when there’s no overlap with the underpayment or overpayment period(s) to be netted. Examples include, but are not limited to:

• Two or more refunds (one issued without interest and one or more issued with interest) and the underpayment interest period on the subsequent assessment overlaps both types of refunds. See IRM 20.2.4 , Overpayment Interest.

• An underpayment interest-free period created by a credit elect and the underpayment or overpayment interest period to be netted overlaps the interest-free period.

• More than one underpayment interest-free period due to IRC 6601(c) waiver periods for agreements when the tax liability is not assessed within 30 days (one type of waiver is Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment). See IRM 20.2.5, Interest on Underpayments.

• An underpayment interest-free period due to IRC 7508(A) (i.e., presidentially declared disaster) and another due to IRC 6601(c). See IRM 20.2.7, Abatement and Suspension of Interest.

• Interest input with TC 190 for quick or prompt assessments. TC 190 does not restrict Master File from computing underpayment interest but it does restrict Master File from performing within module netting.

If Master File’s ability to accurately compute within module netting is in question, manually compute and restrict the module or monitor and verify Master File’s systemic computation after posting of the adjustment.

Reminder: If overpayment interest was manually computed and input with TC 770, then the within module netting adjustment must also be manually computed.

(2) Master file does not perform "within module netting" on a MFT 31 tax module that is not established through mirroring of its corresponding MFT 30 tax module. See IRM 21.6.8.5, Mirrored Account Overview. Those tax modules that are not mirrored require all interest to be manually computed and input with TC 34X. See IRM 20.2.14.4.3 (7).

(3) Underpayment interest periods that are "interest-free" by law are also interest-free for netted interest computations. If, during an overlapping period, an interest-free period for an underpayment exists, suspend netting computations during that interest-free period to the extent the underpayment is subject to the interest-free period.

(1) Master File is currently programmed to compute within module netting on tax modules that are not previously restricted. Do not restrict a tax module for within module netting unless there is another reason the module must be restricted, or it is determined that Master File cannot correctly compute interest netting on that module. See IRM 20.2.5.6.1, Reasons to Manually Compute Interest, for some of the reasons a module may need to be restricted.

(2) The following example illustrates an overlapping underpayment and overpayment interest period that requires within module netting:

(3) Shown below in Figure 20.2.14-7 is the ACT/DMI “Single Module” screen for the information in the James Corporation example above with interest computed to April 2, 2015. The ACT/DMI software is programmed to compute "within module" interest netting.

(4) The 490 Activity Summary below shows the underpayment interest adjustment in the amount of $4,433.00 and netted interest adjustment in the amount of $142.04 that would be posted to Master File for the tax assessment. See Figure 20.2.14-8 for the 490 Activity Summary report.

(5) If the ACT/DMI program is not used, take the following steps (as defined in IRM 20.2.14.3, General Netting Computation Information), to determine the overlapping interest periods for within module interest netting for the James Corporation:

1. Determine the underpayment interest computation period(s). Underpayment interest is charged from March 15, 2013 (RDD), to April 2, 2015 (23C date of the $80,000.00 tax increase).

2. Determine the overpayment interest computation period on the refund. Overpayment interest on the refund was computed from March 15, 2013, to July 8, 2013 (refund date less 9 days).

3. Prepare a time line reflecting the underpayment and overpayment interest computation periods to determine where the overlapping period(s) occur. When preparing a time line, the ending date for the overpayment interest computation period must be the date to which the overpayment interest was actually computed (i.e., the overpayment interest back-off date). The overlapping underpayment/overpayment interest period is from March 15, 2013, to July 8, 2013. This is the time frame during which both underpayment and overpayment interest accrued.

4. Determine the overlapping amount subject to netting and compute the netted interest (underpayment interest computed at the lower overpayment interest rate) on the amount of underpayment equal to the overpayment during the overlapping period. Netted interest is computed on $60,000.00 of the $80,000.00 underpayment during the overlapping interest period from March 15, 2013, to July 8, 2013. Netted interest on the $60,000.00 totals $142.04.

5. Continue the underpayment interest computation on the netted underpayment amount of $60,000.00, plus the netted interest of $142.04, from the July 17, 2013 refund date of the overpayment to the assessment date of April 2, 2015, for an interest computation of $3,164.89.

   Note: No "within module netting" takes place during the back-off period for computation of overpayment interest on a generated refund. See IRM 20.2.4, Overpayment Interest. However, underpayment interest is charged through that period on any portion of the tax assessment that exceeds the principal amount of the refund.

6. Compute interest on the amount of underpayment that exceeds the overpayment principal from the applicable interest start date to the interest computation ending date. In this example, interest on the underpayment of $20,000.00 is computed from March 15, 2013 to April 2, 2015 and totals $1,268.11. When this amount is added to the interest computation of $3,164.89 (from the prior step) and the netted interest of $142.04, it results in a total underpayment interest amount of $4,575.04.

   Note: When comparing separate interest computations with a single running module computation, the result may vary by a few cents due to rounding.

7. Manually calculated within module netted interest should mirror Master File computations.

8. Begin the netting calculation with the earliest refund and continue through the latest refund when processing subsequent assessments with multiple refunds.

(6) When adjustments are processed via CC AMCLS or CC ADJ54, input a TC 772 for the interest amount for the underpayment that was netted, or if one interest adjustment involves multiple overpayments that were netted, combine the netted amounts for a single TC 772 adjustment. See IRM 20.2.14.4.4 for within module netting when processing quick and prompt assessments.

(7) If the module is restricted (or needs to be), input the underpayment interest amount with a TC 340. DO NOT include the netted interest amounts with the TC 340 amount. The netted interest amount(s) are input as a separate TC 77X.

(1) Special procedures apply for netted interest amounts related to quick and prompt assessments made using Form 2859, Request for Quick or Prompt Assessment.

(2) If interest is restricted, enter on Form 2859 a separate TC 772 for each netted interest amount using the transaction date of the TC 770 or TC 776 being netted and TC 340 for the underpayment interest.

(3) If interest is not restricted and does not need to be restricted, take the following steps:

1. Calculate the netted interest as shown in IRM 20.2.14.4.3, Manually Computing Within Module Interest Netting.

2. Enter as TC 190 the sum of the netted interest plus the underpayment interest.

3. Indicate in the Remarks area of Form 2859 the separate components of the interest.

4. When the adjustment posts, Master File with split the TC 190 into its respective netted interest (TC 777) and underpayment interest (TC 196 or TC 197) charges, generating each systemically.

   Caution: It is recommended the assessment be monitored to ensure the netting adjustment(s) posts properly.

(1) When making a within module interest netting adjustment due to a subsequent assessment involving TMT interest:

1. During the overlapping period, underpayment interest on the tax motivated transaction is charged at the same interest rate that was allowed on the overpayment.

2. The amount of tax subject to the within module netting adjustment is limited to the amount of overpayment on which interest was allowed.

3. Prior refunds must be shown as "tax motivated" to ensure interest is calculated at the TMT rate within the ACT/DMI program. To accomplish this, select the TC 846 or TC 840 in the “Single Module” screen, then click on the "Advanced" link located in the bottom area of the screen which opens the “Advanced” window. In the “Transaction Type” drop down menu, choose "Motivated" and click the "Save" icon at the top of the “Single Module” screen. This action must also be completed for the accompanying TC 1003 or TC 1004.

(2) When the total assessment is comprised of both non-TMT and TMT tax, apply netting against the portion of the overpayment that is equal to the non-TMT tax first. If any unnetted overpayment remains, compute interest at the overpayment rate on the portion of TMT tax equal to the remaining unnetted overpayment.

(1) IRC 6621(d) provides for a net interest rate of zero to the extent of overlapping tax underpayments and tax overpayments for the same taxpayer. While generally applying to interest accruing on or after October 1, 1998, IRC 6621(d) may apply to interest before that date if some conditions are satisfied. See IRM 20.2.14.6.1.2, Pre-Enactment Date Interest Periods.

(2) Section 2.05 of Rev. Proc. 2005-18 specifies that interest allowable under IRC 6603(d) on a deposit returned to the taxpayer at the federal short-term rate cannot be used for net rate interest netting during an overlapping period.

(1) IRC 6511(a) provides general period of limitation stating that claims for credit or refund of underpayment interest must be filed by the later of the following dates. Contact Chief Counsel if there are questions about whether an alternate period of limitation applies under IRC 6511(d), IRC 6511(f), IRC 6511(g), or IRC 6511(h). See IRC 6511 for details.

1. Three years from the time the return is filed; or

2. Two years from the time the tax (including interest) was paid, whichever period expires later. See Exhibit 20.2.14-13.

3. If an agreement is made between the taxpayer and the IRS to extend the period of time for assessment (i.e., Form 872,Consent to Extend the Time to Assess Tax), the request must be filed within 6 months of the extended Assessment Statute Expiration Date (ASED). The amount of credit or refund may not exceed the portion of the tax paid after the execution of the agreement and before the filing of the request. It is also limited to the portion of the tax that would have been open under the two or three year period of limitations described above, if a request had been filed on the date the agreement was executed.

(2) If the request is timely, determine the amount of tax that may be credited or refunded under IRC 6511(b).

1. If a request is filed during the 3-year period, the amount of credit or refund shall not exceed the portion of the tax paid within the period immediately preceding the filing of the request, equal to 3 years, plus the period of any extension of time for filing the return.

2. If the request is not filed within the 3-year period, the amount of the credit or refund shall not exceed the portion of the tax paid during the 2 years immediately preceding the filing of the request. For credit OFFSETS, add 2 years to the cycle date of the offset to determine the applicable 2-year period.

   Exception: If the offset is a misapplied payment, use the date of the payment to determine the applicable 2-year period.

   
   

3. If a Form 872 was signed by the taxpayer, the amount of credit or refund may not exceed the portion of the tax paid after the execution of the agreement and before the filing of the net rate request plus the portion of the tax that would have been open under the two or three year period of limitations described above, if a request had been filed on the date the agreement was executed.

(3) The 3 or 2-year period of limitations is determined based on the underpayment that is to be netted.

(4) The Internal Revenue Code does not provide a period of limitations for the allowance and payment of interest on an overpayment of tax. However, 28 U.S.C. section 2401 and 28 U.S.C. section 2501 provide a six-year period within which a suit must be filed for the allowance of additional interest on an overpayment.

1. The schedule date of the overpayment is the starting event for the six-year period.

2. The schedule date is shown on Form 2188 , Voucher and Schedule of Overpayment and Overassessments. If a Form 2188 is not available, for administrative purposes, the 23C date of the refund or cycle date of the offset will be considered the schedule date of the overpayment.

(5) An adjustment of interest allowable on an overpayment may be allowed and paid within the six-year period of limitations beginning on the 23C date of the refund or the cycle date of an offset overpayment. Although Form 843 can be used to request additional overpayment interest, filing Form 843 will not stop the running of the six-year period (see Rev. Proc. 2000-26). If the request is received within the six-year period of limitations, the IRS may allow and pay additional overpayment interest after the six-year period has expired. However, the IRS should caution the taxpayer that filing a request does not protect the six-year period for filing suit. The only manner in which a taxpayer can fully protect the right of a judicial review of the IRS determination is to file suit within the six-year period.

(6) Generally, the net rate adjustment is made to the underpayment period. However, when the underpayment period of limitations for interest accruing on or after October 1, 1998 is closed, but the overpayment period is open, the net rate adjustment is made to the overpayment period by designating the status of the underpayment period as "USE." See IRM 20.2.14.6.6 and its subsections for details.

(1) Rev. Proc. 2000-26 provides the following guidelines for filing a net rate request.

1. The request should be filed on Form 843, Claim for Refund and Request for Abatement.

   Exception: See IRM 20.2.14.6.1.1(5).

2. The taxable periods for which the taxpayer overpaid and underpaid its tax liability must be identified.

3. The request must state when the taxpayer paid the tax if the underpayment is no longer outstanding.

4. The request must state when the taxpayer received a refund of tax if the overpayment is no longer outstanding.

5. The request must identify and establish the periods for which the taxpayer's overpayment and underpayment overlapped and the overlapping amount.

6. The request must state that, to the extent of equivalent amounts of underpayment and overpayment for the identified period(s), the period(s) has (have) been used only once to obtain the net rate under IRC 6621(d). However, if the full amount of the overpayment or underpayment is not used in a netting calculation, the remaining portion may be used in another netting calculation.

7. The request must 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.

   Note: Due to the length of some of the computations, the taxpayer may submit their netting computations on a compact disc (CD), digital video disc (DVD), or flash drive. It is the responsibility of the tax examiner working the request to scan the portable media for any viruses. Instructions for scanning can be found on the IRWeb at the following link.≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

(1) The following steps must be taken in order to determine the net rate interest adjustment.

1. Determine the overlapping interest computation period(s).

2. Determine the amount subject to the net rate during the overlapping period(s).

3. Determine the applicable interest rate during the overlapping period(s).

4. Determine the adjustment amount to the underpayment interest.

5. Determine the adjustment amount to overpayment interest.

20.2.14.6.4.1 (02-01-2017)

Determine the Overlapping Interest Computation Period(s)

(1) The net rate can only be applied based on interest legally allowed or allowable on an overpayment and legally paid or payable on an underpayment. The net rate cannot be applied based on an overpayment for the period during which interest is not legally allowed (e.g., 45-day interest-free period, refund back-off period), nor on an underpayment for the period during which interest is or was not legally charged (e.g., Revenue Ruling 99-40).

Caution: Section 2.05 of Rev. Proc. 2005-18 specifically prohibits the use of interest allowed on an IRC 6603 deposit at the federal short-term rate to make a net rate interest adjustment for the same period.

(2) To apply the net rate during an overlapping period where underpayment and overpayment interest was or will be paid and allowed:

1. Determine the overpayment and underpayment interest computation periods for the tax years where interest has already been or will be paid or allowed.

2. Compare the interest computation periods to each other to determine when the overlapping interest period(s) occurs. It can be helpful to prepare a time line or ACT/DMI Report 530, Adjustment/Positions, to "visually" determine when the overlapping interest period(s) occur. See Exhibit 20.2.14-18 for specific information related to preparing a time line.

Example: The Athens Corporation is a calendar year taxpayer and agrees to a 200412 Form 1120 tax underpayment of $150,000.00. The taxpayer paid the tax plus interest on February 20, 2009. On March 23, 2009, a $79,000.00 refund with interest was issued from the taxpayer's 200712 Form 1120 return. On August 1, 2009, Athens Corporation filed a request asking that the net rate be applied to the underpayment interest paid for the 200412 Form 1120 based on the 200712 overpayment that was issued with interest. The overlapping period is from March 15, 2008 to February 20, 2009.

DETERMINE THE OVERPAYMENT AND UNDERPAYMENT INTEREST COMPUTATION PERIODS.

• Interest on the 200412 Form 1120 tax underpayment of $150,000.00 was charged as follows:
  1. From: 03152005 (return due date)
  2. To: 02202009 (payment date)

• Overpayment interest on the tax year 200712 Form 1120 overpayment of $79,000.00 was allowed as follows:
  1. From: 03152008 (return due date and the return was timely filed)
  2. To: 03142009 (refund schedule date, less 9-Day back-off period)

• The net rate adjustment for this example will be made to the underpayment period.

• The overlapping period is from 03152008 to 02202009.

Note: When determining the overlapping period, always use the overpayment interest back-off date as the ending date for the overpayment interest computation period. Using the back-off date provides the actual time frame during which interest was allowed on the overpayment.

A time line or ACT/DMI Report 530 can be used to visually compare and determine when the interest computation periods "overlap."

(3) If the benefit of within module netting under Rev. Proc. 94-60 was previously allowed during an overpayment period, a net rate benefit for the same overpayment period and amount cannot be allowed. The same overpayment cannot be used for both within module and net rate interest netting.

20.2.14.6.4.4 (02-01-2017)

Determine the Net Rate Adjustment Amount to Underpayment Interest

(1) To accurately determine the net rate underpayment interest adjustment:

• Determine the overpayment amount that is equal to the underpayment amount as of the beginning of the overlapping period.

(2) The following example illustrates how to apply the net rate when the underpayment interest starts before interest begins to accrue on the overpayment.

Example: Hunter Corporation filed a 200612 Form 1120X and fully paid the underpayment of $53,000.00 plus interest of $6,706.66 on December 3, 2008. On June 2, 2008, Hunter Corp. filed a Form 1120X claiming an overpayment of $32,000.00 from its 200712 tax return, which was refunded with interest on September 17, 2008.

1. Underpayment interest begins on 03152007, which is prior to the date interest begins on the overpayment and the beginning of the overlapping period of 03152008.

2. Since interest has not yet accrued on the overpayment amount as of the beginning of the overlapping period, the amount of the underpayment subject to the net rate (at the beginning of the overlapping period) equals only the principal overpayment amount of $32,000.

(3) Interest on the underpayment is computed as follows:

1. Underpayment interest at the normal rate is computed from 03152007 to 03152008 to determine the balance due as of the beginning of the overlapping period.

2. When the underpayment amount is greater than the overpayment amount (as of the beginning of the overlapping period), separate the amount of underpayment subject to the net rate from the underpayment amount charged interest at the prevailing rate.

   Note: The separation is performed automatically by the ACT/DMI software.

Interest Computation Breakdown
$53,000.00	03152007 to 03152008 (normal underpayment rate) = 4,306.19
4,306.19	Add accrued interest at the normal underpayment rate.**
57,306.19	Underpayment balance on 03152008
(32,000.00)	Subtract the amount of underpayment equal to the available overpayment on 03152008 (beginning of the overlapping period) which will accrue underpayment interest at the net (overpayment) rate from 03152008 to 09082008 (refund schedule date of 09172008, less the 9-Day back-off period).
25,306.19	Equals the underpayment amount that will continue to accrue interest at the underpayment rate from 03152008 to 12032008.
1,060.04	Add accrued interest at the normal underpayment rate**
$26,366.23	Balance due on 12032008

Net Rate Interest Computation
$32,000.00	03152008 to 09082008 (net rate period)
572.17	Add accrued underpayment interest at the overpayment rate**
32,572.17	Balance due on 09082008
442.58	Add accrued interest at the normal underpayment rate from 09082008 to 12032008**
$33,014.75	Balance due on 12032008
Interest previously assessed	$6,706.66
**Add all interest amounts above (**) to equal the total interest after netting	6,380.98
Net Rate Adjustment or Netting Benefit (TC 341)	(325.68)

Reminder: Allow statutory overpayment interest (as appropriate) on the net rate adjustment amount that will be refunded or offset.

(4) The next example illustrates how to apply the net rate when the underpayment interest computation and the beginning of the overlapping period start after interest begins to accrue on the overpayment. In addition, the example illustrates how the underpayment interest computation is made factoring in the net rate to arrive at the interest due on the unprocessed underpayment.

Example: Stetson Corporation received a refund of an overpayment in the amount of $9,200.00 plus $1,537.99 in interest on August 18, 2008, from its 200512 Form 1120. On November 21, 2008, Stetson Corporation also signed an agreement for a 200612 Form 1120 tax underpayment of $27,000.00. The underpayment has not been processed and the corporation requests a net rate adjustment on the 200612 return based on the 200512 overpayment.

1. Overpayment interest begins on 03152006, which is prior to the date interest begins on the underpayment and the beginning of the overlapping period of 03152007.

2. Since overpayment interest begins prior to the date interest starts on the underpayment, the amount of underpayment subject to the net rate equals the available overpayment amount of $9,200.00 plus the overpayment interest of $638.13 that has accrued to 03152007 (the beginning of the overlapping period).

Interest Computation Breakdown Prior to the Overlapping Period
$9,200.00	03152006 to 03152007 (overpayment) = 638.13
638.13	Add accrued interest at the overpayment rate
9,838.13	Available overpayment amount that is equal to the underpayment that will be charged interest at the net (overpayment) rate as of the beginning of the overlapping period.

(5) Interest on the underpayment is computed as follows:

Interest Computation Breakdown on the Unnetted Portion
$27,000.00	Underpayment due 03152007
9,838.13	Subtract the amount of underpayment equal to the available overpayment on 03152007 (beginning of the overlapping period) which will accrue underpayment interest at the net (overpayment) rate from 03152007 to 08092008 (refund schedule date of 08182008, less 9-Day back-off).
17,161.87	Equals the underpayment amount that will accrue interest at the prevailing rate from 03152007 to 12212008.
2,228.81	Add accrued interest at the prevailing underpayment rate**
19,390.68	Balance due on unnetted portion to 12212008 (IRC 6601(c) suspension)

Net Rate Interest Computation
$9,838.13	03152007 to 08092008 (net rate period)
899.86	Add accrued underpayment interest at the overpayment rate**
10,737.99	Balance due that continues to accrue underpayment interest at the prevailing rate from 08092008 to the 12212008 interest ending date.
222.89	Add accrued underpayment interest at the prevailing rate**
$10,960.88	Balance due on the netted portion to 12212008 (870 waiver + 30 days)
**Total Interest Due (**) with Netting	$3,351.56 (2,228.81 + 899.86 + 222.89)
Interest Previously Assessed	.00
Net Rate Adjustment (TC 340)	$3,351.56

(6) When a net rate adjustment is made to an underpayment year (for which payments or credits had previously been made), applying the net rate causes the balance due to decrease. Since the former balance due is decreased, this results in a lesser amount of the previous payments or credits being needed to pay the revised balance due. Any "excess" payments or credits are an overpayment available for refunding or offset to another year's tax liability. The resulting overpayment may be available to use for a future net rate adjustment.

20.2.14.6.4.5 (02-01-2017)

Determine the Net Rate Adjustment Amount to Overpayment Interest

(1) Net rate adjustments are generally made to the underpayment period. When the taxpayer files a request and the underpayment period of limitations is expired, the net rate adjustment is made to the overpayment period. However, the six-year period for refunding of overpayment interest must be open at the time the request is filed. See IRM 20.2.14.6.6 and subsections for additional information.

(2) Applying the net rate to an overpayment period follows the same methodology as applicable to an underpayment period. The net rate is applied by allowing overpayment interest on the amount of the overpayment that is equal to the underpayment (plus accrued interest, as applicable) as of the beginning of the overlapping period.

(3) The example below illustrates how to apply the net rate to the overpayment period when the underpayment period status is USE but the overpayment period is open.

Example: The Henry Corporation filed a 200612 Form 1120X and fully paid the underpayment of $53,000.00 plus interest of $5,617.29 on August 3, 2008. On June 2, 2008, Henry Corporation filed a Form 1120X claiming an overpayment of $32,000.00 from its 200712 tax return, which was refunded with interest on September 17, 2008. The taxpayer filed a net rate request on December 31, 2010.

(4) Interest on the overpayment is computed as follows:

Since the period of limitations on the underpayment period has expired, overpayment interest will be computed at the underpayment interest rate during the overlapping period. Any overpayment that was created as a result of applying the net rate during the overlapping period will be allowed overpayment interest at the prevailing rate to the refund schedule (23C) date, less the 9-Day back-off period. See IRM 20.2.4.7.1.1, Systemic Refund Dates for IMF and BMF, for an explanation of the refund back-off period.

Net Rate Interest Computation
$32,000.00	03152008 to 08032008 (net rate period)
732.13	Add overpayment interest at the underpayment interest rate
32,732.13	Available credit on 08032008
95.72	Add accrued overpayment interest at the prevailing rate to 09082008
32,572.17	Amount refunded on 09172008 with 9-Day back-off to 09082008
255.68	Available credit at 09082008
.16	Add accrued overpayment interest at the prevailing rate from 09082008 to 09172008.
255.84	Overpayment available for refund or offset as of 09172008.
TC 770 is $255.84	Plus overpayment interest at the prevailing rate to the current 23C minus the appropriate back-off period.

Reminder: Ensure overpayment interest (as appropriate) is allowed on the net rate adjustment amount that will be refunded or offset from the available overpayment date.

(1) When a net rate computation is made during an overlapping period, the amount of overpayment or underpayment (that is allowing the net rate adjustment to be made) may not be completely used for that period. The part of an interest computation period and the amount of overpayment or underpayment that is not used to make a net rate adjustment on a tax year is considered the "unnetted" portion. An unnetted period or amount can also occur outside of the overlapping interest computation period (i.e., when an underpayment or overpayment accrues interest before the overlapping period, netting does not occur during that time frame, so an unnetted period and amount also exists).

• If another tax year’s interest computation period overlaps with a remaining "unnetted" period and amount, a net rate adjustment may be made to the underpayment and or overpayment interest based on that remaining unnetted period and amount.

(2) When the net rate is applied to underpayment interest that has been paid, interest is allowed on the overpayment of underpayment interest as appropriate from the date of the overpayment to the refund schedule date or liability due date (if offset). This interest period creates an overpayment period that may later be used to apply the net rate against another underpayment period.

(3) The time line in Figure 20.2.14-14, illustrates that the overpayment interest period (from 03152007 to 01012008) was not completely used. Only part of the computation period was used for the net rate adjustment, from 03152007 to 07072007. The part of the overpayment computation period not used for the net rate adjustment runs from 07072007 to 01012008. The period from 03152006 to 03152007 is also not used for the net rate adjustment. These time frames are both unnetted computation periods.

• If a subsequent adjustment occurs for another tax year and the underpayment interest computation period overlaps with any remaining unnetted computation period(s), a net rate adjustment may be made during these unnetted time frames.

• In addition to reflecting the unnetted computation period(s), the amount of overpayment or underpayment available for use for another net rate adjustment must also be determined. This amount is shown in the interest computation source documents.

(4) To determine the unnetted amount that is available for use for a future net rate adjustment, identify the amount of overpayment or underpayment at the beginning of the unnetted period that was not used for the net rate adjustment as follows:

• As of the end of the overlapping period (which is the beginning of the unnetted period when an unnetted amount and period exists), determine the total overpayment or underpayment amount plus accrued interest that is available for netting during the overlapping period.

• Subtract from this amount, the overpayment or underpayment plus accrued interest that was used for the net rate adjustment.

• The difference represents the balance of overpayment or underpayment plus accrued interest that was not used for the net rate adjustment. This is the amount of unnetted overpayment or underpayment plus accrued interest that is available for another net rate adjustment.

• When an underpayment or overpayment accrues interest before the overlapping period, the amount of overpayment or underpayment as of the beginning of that computation period is the unnetted amount available for another net rate adjustment.

(5) The time line illustrates that the net rate was not applied on the underpayment from 03152006 to 03152007. Therefore, 03152006 to 03152007 also represents the unnetted underpayment period. The unnetted amount represents the underpayment of $175,000 as of the beginning of this unnetted period. If another overpayment overlaps this unnetted period, and a timely request is filed, the net rate can be applied to the $175,000 from 03152006 to 03152007.

(6) Refer to the following exhibits for additional information:

• Exhibit 20.2.14-6, Special Net Rate Interest Computations – More than One Overpayment Period.

• Exhibit 20.2.14-7, Special Net Rate Interest Computations – Overlapping Amount Completely Used.

• Exhibit 20.2.14-9, Net Rate Interest Computation – Later Underpayment Interest Period Overlaps a Previously Unnetted Overpayment Amount.

(1) In order for the ACT/DMI software to accurately apply the statute rules to net rate computations, the appropriate "Netting Status" must be determined and entered for the underpayment interest ("Underpay") and the overpayment interest ("Overpay") on each tax module involved in the computation. The available "Netting Status" designations for "Underpay" (underpayment interest decrease), and "Overpay" (overpayment interest increase) are: "OPEN," "CLOSED," "USE," and "UNSETTLED."

(2) See IRM 20.2.14.6.6.1 and IRM 20.2.14.6.6.2 which provide information on determining the ACT/DMI netting statuses for pre-enactment and post-enactment interest. The information is presented in an question and answer format to promote ease in making the status determinations.

(1) There will be occasions where multiple tax periods are involved in a net rate adjustment that can result in more than one overlapping or net rate period.

(2) There can be multiple overlapping periods that cannot be used in making a net rate interest adjustment.

• 200609 Form 1120 underpayment period is from 12152006 to 12232008 (normal corporate rate).

• 200709 Form 1120X overpayment period is from 12152007 to 10062008 (normal and GATT rate).

• 200712 Form 941 overpayment period is 01312008 to 06292009 (Refund date minus 54-Day back-off period at the corporate overpayment rate).

• First overlapping period is 12152007 to 10062008.

• Second overlapping period is 01312008 to 12232008.

• Unnetted overpayment period remains from 12232008 to 06292009 based on the 200712 Form 941 overpayment.

• Unnetted underpayment period remains from 12152006 to 12152007 based on the 200609 Form 1120 underpayment.

(1) Whenever possible [except as stated in IRM 20.2.14.6.8 (3), offset a credit against a liability. When an underpayment and an overpayment are processed concurrently, offsets will take place systemically if no restrictions exist on the modules involved with the offset. If Master File restrictions do not allow systemic offset, the offset must be made manually.

(2) See Exhibit 20.2.14-3, Offset Methodology Examples, to illustrate the impact of the offset process on the net rate provision.

(3) To the extent that an underpayment has been partially or fully paid, the liability is not considered to be "outstanding" for purposes of offsetting an overpayment with an earlier availability date.

(1) The following information is available on IDRS to identify a module affected by net rate interest adjustments:

• A TC 34X with a correspondence date of 07221998 (IRC 6621(d) enactment date). This date will appear only if the adjustment was input using IDRS Command Code (CC) ADJ54. It is not input with CC AMCLS.

• A control base closed with the activity code "netrate" and or Control Category INTC.

• Transaction Code 971, Action Code 355 (BMF modules only).

• Accounts Management Services (AMS) [previously Desktop Integration (DI)] can be used to determine if netting occurred and identify the tax periods involved.

(2) The complexity of net rate adjustments requires extensive documentation of the facts used to make the computation. In addition, all interest computations described in IRM 20.2.14.6.10 must be included with the work papers for each tax period involved with the net rate request. The relevant ACT/DMI computation reports and the information they contain that is specific to net rate interest adjustments are described as follows:

1. ACT/DMI Report 020 - Principal and Interest Adj. Summary -The "Computed Individual Modules" section of the ACT/DMI Report 020 summarizes the results of all modules without net rate interest netting, while "Computed Modules with Netting", shows the modules after netting has taken place. The "Deficiency Interest," "Overpayment Interest," and "Principal" columns correspond to the "Adjustment" columns in the final sections of the pre- and post-netting Reports 490. The "Netting Benefit" that appears in the lower right hand corner of the ACT/DMI Report 020 is the difference between the "Total" columns in the top and bottom sections of the report.

2. ACT/DMI Report 490 Activity Summary - This report header does not differ from the non-netting report. However, the module’s underpay or overpay status (open, use, or closed) in the upper right hand corner is significant for net rate purposes. When Report 490 is created based on the net rate, it will differ from a single module report because of the transactions added as a result of the netting adjustment(s). The netting transactions, numbered in the 1500 and 1600 series, are unique numbers to the ACT/DMI program and do not correspond to any actual transaction codes found on IDRS transcripts. The first section of the report will show all the transaction numbers with their descriptions, while the second section of the report will show how the transactions were used in the net rate computation. The transaction numbers themselves will not be displayed in the second section, but their effect upon the computation will appear with the letters "NR" for net rate (e.g., NR underpay @ GATT, NR overpay @ underpay, etc.), and correspond to the overlapping periods and amounts on the Report 530. The third and final section on this report shows the total overpayment and underpayment interest with "Adjustment" column figures that correspond to the amounts of the second section of the Report 020.

3. ACT/DMI Report 530 Adjustments/Positions - This report is used to show the net rate information (see Exhibit 20.2.14-6, and Exhibit 20.2.14-7). The Report 530 shows:

• "N-Amt/Net Rate Amount" – provides the amount of overpayment or underpayment that the net rate was applied to. The same "N-Amt" information is shown for each year involved with the net rate adjustment.

• "N-Beg/Beginning Overlapping Period" - provides the beginning date of the overlapping interest period used in the net rate computation. The same "N-Beg" information is shown on the year that caused the net rate adjustment to be made (usually the overpayment year) and the year on which the net rate adjustment was made (usually the underpayment year).

• "N-End/Ending Overlapping Period" - provides the ending date of the overlapping interest period used in the net rate computation. The same "N-End" information is shown on the year that caused the net rate adjustment to be made (usually the overpayment year) and the year on which the net rate adjustment was made (usually the underpayment year).

• "N-MFT/Net Rate MFT" – provides the Master File Tax Class Code for the return to which the net rate was applied and the return that caused the net rate adjustment. On the return to which the net rate adjustment was made, the MFT Code is the return that caused the net rate adjustment to be made. On the return that caused the net rate adjustment, the MFT Code is the return to which the net rate adjustment was made.

• "N-Per/Net Rate Tax Period" - provides the tax period for the return to which the net rate adjustment was made and the tax period of the return that caused the net rate adjustment. For the return to which the net rate adjustment was made, the "N-Per" is the return that caused the net rate adjustment to be made. For the return that caused the net rate adjustment to be made, the "N-Per" is the return to which the net rate was applied.

• Unnetted - Provides the tax period(s) and amount(s) that are unnetted. Any portion of the interest computation period not used for netting is deemed unnetted.

Note: Attaching the ACT/DMI Report 530 to net rate adjustment documents replaced the need for the "N-Information" fields on CC ADJ54, so those fields were removed.

(1) Specific actions must be taken to post the required adjustment(s) to all tax modules involved with the net rate request.

(2) When processing a net rate request for abatement or refund and no current tax adjustment activity exists, post the adjustment as follows:

CC REQ54

• Blocking Series (BLK) – Use BLK 00 if the original return or controlling DLN is included with the adjustment document. If the original or controlling DLN is NOT included but needs to be pulled and added to the adjustment, use BLK 18. If the module has an open AIMS base and the documents do not need to be retained, use BLK 05 for IMF cases or BLK 15 for BMF cases.

• TC 34X – underpayment Interest Adjustment (TC 340 for "zero" is required if no decrease or increase is applicable). See note below

• Debit-Int-To-DT – Input the date underpayment interest is computed to (RDD is used if no underpayment interest exists on that year).

• TC 770 – Overpayment Interest Adjustment (input is not accepted if interest adjustment amount is zero or is a TC 772). TC 772 can be input as long as the module will be in a balance due status after posting. If the module will be overpaid after the TC 772 posts, consider IRM 20.2.14.6.10(4).

• Credit-Int-To-DT – The date overpayment interest is computed to (input is not needed if amount is zero or if TC 772 is input).

• Correspondence DT – 07221998 (IRC 6621(d) enactment date).

• AMD-CLMS-DT – Received date of the request.

• Activity CD – netrate.

• Hold CD – 3 (Do not allow a generated notice to be issued to the taxpayer. Send the taxpayer the appropriate letter).

• Attach all appropriate documentation to the adjustment. See IRM 20.2.14.6.10(6).

• TC 971 Action Code 660 - To identify the module as interest abatement resulting from a net rate adjustment.

(3) For tax periods in which current tax adjustment activity exists, there are two types of input formats to consider. Enter the adjustments based on the input format your area uses. A two-step process is required to allow for a notice of adjustment to be issued that does not contain a correspondence date of July 22, 1998.

1. For non-Examination or non-Appeals related tax adjustments:

Step 1: Input the following information using CC REQ54:

• BLK - Use BLK 00 if the original return or controlling DLN is included with the adjustment document. If the original return or controlling DLN is NOT included but needs to be pulled and added to the adjustment, use BLK 18. If the module has an open AIMS base and the documents do not need to be retained, use BLK 05 for IMF cases or BLK 15 for BMF cases.

• TC 29X - Tax Adjustment.

• TC 34X – Underpayment Interest Adjustment (TC 340 for "zero" is required if no interest decrease or increase is applicable. See note below).

• Debit-Int-To-DT – Input the date underpayment interest is computed to (RDD if no underpayment interest exists on that year).

• TC 770 – Overpayment Interest Adjustment (input is not accepted if interest adjustment amount is zero). A TC 772 can be input if the module will be in a balance due status after posting. If the module will be overpaid after the TC 772 posts, follow procedures in IRM 20.2.14.6.10(4).

• Credit-Int-To-DT – The date overpayment interest is computed to (input is not required if the amount is zero or if TC 772 is input).

• Correspondence DT – Date of the correspondence.

• AMD-CLMS-DT – Received date of the net rate request.

• If the tax adjustment is an increase of $100,000 or more, do not use a hold code to suppress the adjustment notice.

  Note: A notice may need to be issued for purposes of triggering the large corporate underpayment (LCU) interest rate.

• Attach all appropriate documentation to the adjustment. See IRM 20.2.14.6.10(6).

Step 2: Use CC REQ54 and post delay one cycle the following information:

• BLK – 05 or 15.

• TC 340 - enter "zero".

• Debit-Int-To-DT – Input the same underpayment interest date used in Step 1 above (RDD is used if no underpayment interest is due on that year).

• Correspondence DT – 07221998 (IRC 6621(d) enactment date).

• AMD-CLMS-DT – request received date.

• Activity CD – netrate.

• Hold CD – 3.

• PSTNG-DLAY-CD – 1.

• Notate in "Remarks" that the "interest computations are attached to the previous interest adjustment made one cycle earlier."

Note: Even when the net rate adjustment is made to the underpayment year, it is necessary to input a TC 340 with a "zero" amount on all overpayment years involved with the net rate adjustment(s). This action is required to identify all overpayment periods included in the current net rate adjustment so that used overlapping periods may not be used again in a subsequent net rate adjustment. If a requested net rate year is unnetted because of no overlapping periods, input a TC 290 for "zero" with Blocking Series 18, to properly identify that the module was not used for netting.

2. For Examination or Appeals related adjustments, a two-step process is required.

Step 1: Input the following information on the appropriate adjustment, Form 5344, Examination Closing Record or Form 5403, Appeals Closing Record, and submit for processing:

• TC 30X – Tax Adjustment.

• TC 34X – Underpayment Interest Adjustment (TC 340 for "zero" is required if no interest decrease/increase is applicable. See note below).

• Debit-Int-To-DT – Input the date underpayment interest is computed to (RDD is used if no underpayment interest exists on that year).

• TC 770 – Overpayment Interest Adjustment (input is not required if interest adjustment amount is zero). A TC 772 can be input if the module will be in a balance due status after posting. If the module will be overpaid after the TC 772 posts, consider IRM 20.2.14.6.10(4).

• Credit-Int-To-DT – The date overpayment interest is computed to (input will not be accepted if the interest adjustment amount is zero or if TC 772 is input).

• If the tax adjustment is an increase of $100,000 or more, do not use a hold code to suppress the adjustment notice.

  Note: A notice may need to be issued for purposes of triggering the LCU interest rate.

• Any and all other pertinent or required entries per IRM 4.4.1, AIMS/Processing Handbook, Introduction and IRM 2.8.7, Audit Information Management System (AIMS), AIMS Command Code AMCLS, etc.

• Attach all appropriate documentation to the adjustment. See IRM 20.2.14.6.10(6).

Step 2: Use CC REQ54 and post delay one cycle the following information:

• BLK – 05 for IMF or 15 for BMF.

• TC 340 enter "zero".

• Debit-Int-To-DT – Input the same underpayment interest date used in Step 1 above (RDD is used if no underpayment interest is due on that year).

• Correspondence DT – 07221998 (IRC 6621(d) enactment date).

• AMD-CLMS-DT – request received date, if applicable.

• Activity CD – netrate.

• Hold CD – 3.

• PSTNG-DLAY-CD – 1.

• Notate in "Remarks" that the "interest computations are attached to the previous interest adjustment entered one cycle earlier."

Note: Even when the net rate adjustment is made to the underpayment year, it is necessary to input a TC 340 with a "zero" amount on all overpayment years involved with the net rate adjustment(s). This action is required to identify all overpayment periods included in the current net rate adjustment so that used overlapping periods may not be used again in a subsequent net rate adjustment. If a year requested in the request is unnetted because of no overlapping periods, input a TC 290 for "zero" with Blocking Series 18, to properly identify that the module was not used.

(4) Master File does not recognize a TC 772 as a total consideration of all overpayment interest (i.e., an overpayment interest combination adjustment which may include netted or additional overpayment interest etc.). As a result, if the tax period has an overpayment at the time of posting, it will calculate overpayment interest again, post an erroneous TC 776 amount, and issue a refund with too much interest. To avoid this, it is necessary to cycle the adjustment into two parts. The first part will be to calculate your interest to the 23C date of the following cycle, post the necessary adjustments including the TC 772 to the current cycle, using a hold code to prevent Master File from posting a TC 776 and releasing the credit. The second part is to cycle delay one week (to match the interest to date) and input a TC 340 for "zero" and TC 770 for "zero" to release the credit for refund. Be sure to use a hold code that only holds the notice.

(5) Transaction Code (TC) 971 Action Code 355 is used to readily identify BMF modules affected by net rate interest computations. Master File programming does not allow input of this information for IMF modules. If a tax period included with the request is unnetted due to no overlapping period(s), input of TC 971 AC 355 is not necessary. The latest adjusted tax period is cross-referenced by the input of TC 971 AC 355 using CC REQ77 on all other modules (see exception below for cases involving multiple TINs). Referencing the latest adjusted tax period will identify where the complete copy of the case file is located.

The following information is required for input on all but the tax period where the case file is to be located:

• TC - 971.

• TRANS-DT - The received date of the request.

• TC 971/151-CD - 355.

• XREF-TIN - The EIN where the case file is to be located.

• XREF-TX-PRD - The tax period where the case file is to be located.

• XREF-MFT - The MFT where the case file is to be located.

• The literal "NET-RATE" is automatically moved into the "MISC" field.

On the tax period where the complete copy of the case file is to be located, input separate Transaction Codes 971 AC 355 to cross-reference each module for every tax period involved in the request.

Exception: When multiple TINs are involved, the case file should be associated with the latest adjusted tax period for the parent corporation or surviving entity.

(6) In addition to the actions described above, ensure the following information is part of the source documents filed with all but the last tax year involved with the net rate adjustment. See Exhibit 20.2.14-17, Net Rate Request Processing, which provides additional documentation requirements.
(a) The latest adjusted tax period should be cross-referenced with TC 971 AC 355. See the TC 971 AC 355 procedures above in IRM 20.2.14.6.10(5) including the exception for multiple TIN cases.

• A copy of the written request or claim Form 843. The original is to be attached to the last year of adjustment

• ACT/DMI Report 490 (post-netting). Only for the tax year in which the adjustment pertains.

• A copy of the appropriate Power-of-Attorney form.

• A copy of the current allow or partial allowance letter from the IRS. The taxpayer's copy of the letter must include copies of the ACT/DMI Reports 020, 490, and 530 for all tax periods involved.

• Any re-file documents that you have in your possession.

• ACT/DMI Report 490 (pre and post-netting) and ACT/DMI Report 530 (post-netting), as well as all interest computations made by the taxpayer, for all tax periods involved.

• ACT/DMI Report 020.

• Any pertinent correspondence and information from the taxpayer or the representative.

• Any personal notes or observations pertaining to the request that would be helpful to the next tax examiner who may have to update the interest or process a subsequent adjustment on the account.

(1) When a net rate adjustment has previously been made and only part of the overpayment or underpayment period was used, you must be aware of the overpayment or underpayment amount available during the unnetted overpayment or underpayment period(s). If a subsequent underpayment or overpayment occurs that overlaps any of the unnetted period(s), a determination of the available overpayment or underpayment amount that can be used during the subsequent or new overlapping period(s) must be made. This information will reflect how much of an underpayment or overpayment that can be netted during this time frame. See Exhibit 20.2.14-5 for examples illustrating the special computations required in this situation.

(2) See Exhibit 20.2.14-6 for net rate computations involving more than one overpayment period. The exhibit provides the interest computation using ACT/DMI and explains how to determine whether the net rate computation was accurately computed. When using ACT/DMI, special information is provided that must be considered when verifying the accuracy of a net rate adjustment.

(3) See Exhibit 20.2.14-8 for non-corporate computations before and after the 01/01/1999 rate equalization provided by section 3302 of the Restructuring and Reform ACT (RRA) of 1998. The exhibit also explains how to verify unnetted amounts and the accuracy of a net rate computation.

(4) See Exhibit 20.2.14-10 for applying the net rate to a settled underpayment year when currently working on an overpayment year that creates an overlapping period. This example also explains verifying the accuracy of the net rate computation using ACT/DMI.

(5) See Exhibit 20.2.14-11 for net rate computations when Form 2285 is used reflecting the tax liability adjustments.

(6) See Exhibit 20.2.14-12 for net rate computations involving a subsequent interest adjustment after the net rate was applied. The exhibit provides a two-part example to illustrate that a taxpayer can only receive a one-time benefit of a net rate interest period that is used to the extent of equivalent amounts of overpayment and underpayment.

(1) IRM 4.10.26, Examination of Returns, Net Rate Netting Procedures for LB&I Cases, provides background information on net rate procedures to process taxpayer requests. The procedures therein apply to campus processing tax examiners and other similar technicians.

(2) The procedures in IRM 4.10.26, Examination of Returns, Net Rate Netting Procedures for LB&I Cases apply only to examination personnel in LB&I and revenue agents who receive a taxpayer's net rate request before the case is closed. To the extent that inconsistencies are found, follow IRM 20.2.14.

(1) A request for abatement is a request for abatement of unpaid tax, penalty or interest. See IRC 6404(b).

(2) A claim for refund is a request for abatement and refund of tax, penalty or interest that has been paid.

(3) One of the exceptions to IRC 6404(b) is the application of the net rate during overlapping underpayment and overpayment periods under Rev. Proc. 2000-26, 2000-1 C.B. 1257, and IRC 6621(d), which allows for submission of a net rate request without the "tax" being paid. For more information, see IRM 25.6.1.10.1, Requests for Abatement.

(4) Claims for refund must be filed before the last applicable period of limitations expires.

(5) Refer to Exhibit 20.2.14-15 and Exhibit 20.2.14-16 for specific request processing procedures.