IRS announces drop in interest rates

The Internal Revenue Service has announced that interest rates for the calendar quarter beginning April 1, 2008, will drop by one percentage point. The new rates will be:

Six (6) percent for overpayments [five (5) percent in the case of a corporation];

Six (6) percent for underpayments;

Eight (8) percent for large corporate underpayments; and

Three and one-half (3.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The new interest rates are computed from the federal short-term rate based on daily compounding determined during January 2008.

The new rates, as well as historical information about previous rates, appear in Revenue Ruling 2008-10 [1].