IRS Increases Interest Rates for the Second Quarter of 2016

On March 16, 2016, the Internal Revenue Service announced that interest rates have increased for the second quarter of 2016, which began on April 1, 2016 and ends on June 30, 2016. The second quarter of 2016 IRS interest rates will be:

four (4) percent for overpayments [three (3) percent in the case of a corporation];
one and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000;
four (4) percent for underpayments; and
six (6) percent for large corporate underpayments.

The increase in the IRS interest rates for the second quarter of 2016 is the first such increase since the fourth calendar quarter of 2010. The second quarter of 2016 interest rates are computed from the federal short-term rate determined during January 2016 and went into effect Feb. 1, 2016, based on daily compounding. The federal short-term rate has increased from 0% to 1%. This is the first change to the interest rates since the fourth calendar quarter of 2010 when the federal short-term rate decreased from 1% to 0%.

Under the Internal Revenue Code, the rate of interest for the second quarter of 2016 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.

It is important to note that the increase in the interest rates for the second quarter of 2016 directly affects the calculation of PFIC interest.