NEW YORK, Jan. 31, 2012 /PRNewswire/ -- Corporate taxpayers may be missing opportunities to minimize the interest they owe the government and maximize the interest the government owes them, if they don't fully understand the rules governing the accrual of interest on federal tax obligations, according to Jeff Malo, Director with WTP Advisors' Interest and Penalty Advisory Services.
In an article entitled "A Second Look at Interest on Corporate Federal Tax Obligations," appearing in the January 23, 2012 issue of Tax Notes Magazine, Malo provides an overview of the complex rules governing the accrual of interest on federal tax obligations, as well as a straightforward way to identify potential opportunities to optimize the interest owed by, or to, a corporate taxpayer.
"With two simple forms, corporate taxpayers can authorize a complex interest computational specialist to review their federal tax transcripts and determine whether hidden benefits can be found in the taxpayer's payment history," says Malo.
WTP Advisors' Interest and Penalty Advisory Services has unique expertise in the field of tax interest recovery. Members of WTP Advisors' Interest and Penalty Advisory Services team were formerly part of the consulting arm of Decision Modeling, Inc., which developed the interest and penalty calculation software that has become the industry gold standard, and is the software used by the federal government for all complex interest calculations. The team includes professionals from the IRS and the Department of Justice Tax Division with years of experience calculating and resolving interest claims.
"Corporate taxpayers generally pay a higher rate of interest on their underpayments than the government pays them on their overpayments. Where a corporation and the government owe each other money during the same period of time, the taxpayer is entitled to a net rate of zero interest on the overlapping payment obligations," says Malo. "This benefit is not automatically offered to corporate taxpayers. Where these facts are present, a corporation must request the benefit of a net zero interest rate."
Finding Hidden Opportunities in Interest Accruals
Every year corporate tax departments dedicate countless hours to calculating the tax liabilities of America's corporate taxpayers. Once the numbers are reported, a second period of time is invested in the defense and resolution of issues that arise from the examination of corporate tax returns. Frequently, the liabilities reported differ from the final liabilities determined for the tax year. Whether the final numbers are the result of a refund claim, an assessment, a settlement, or a judgment, one certainty attached to the outcome—interest will accrue on amounts underpaid or overpaid by the taxpayer.
Most people think of interest as a sum certain once the principal, period and rate are determined. This is true of most commercial or consumer debt, but the rules governing interest on federal tax obligations are considerably more complex. The interest rates on corporate tax obligations change depending on the amount due, and certain events can suspend or restrict the accrual of interest on some federal tax obligations. Moreover, events that occur in subsequent years can impact the amount of tax due in a prior period. Net operating losses or tax credits might be carried back, amended returns might be filed, exam adjustments might be made, or uncertain tax positions might be litigated or settled. Any of these events has the potential to convert a prior period of overpayment to a period of underpayment, and vice versa.
The complexity of this analysis is compounded by the fact that underpayments and overpayments can result from any federal tax obligation – not just corporate income tax. Underpayments related to the income tax can be offset with overpayments related to payroll taxes, a wide variety of federal excise taxes, or any other combination of these federal tax obligations.
"Corporate taxpayers need to think of their tax returns for all types of federal tax as living documents that continue to change and evolve even after the returns are filed," says Malo. "It is critical that taxpayers build a base case of their payment history, and update this analysis annually to ensure that subsequent events do not adversely impact the amount of interest due from, or payable to the taxpayer."
"Taking a second look at the interest that accrues on federal corporate tax obligations is a low risk, potentially high reward opportunity for those taxpayers who seek the assistance of complex interest computational specialists," says Malo.
Malo's article can be found in the January 23rd edition of Tax Notes Magazine. Corporate taxpayers can also contact WTP Advisors for copies of the article, or more information on how they can obtain a complimentary review of their tax transcript history.
WTP Advisors is a leader in tax and business advisory services for a global marketplace. Our highly skilled professionals equipped with years of industry experience, coupled with our cutting-edge technologies, make substantive and long-term differences to an organization's profitability. WTP Advisors is headquartered in White Plains, N.Y., with offices across the Americas, Asia and Europe.
SOURCE WTP Advisors