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Third Quarter 2025 IRS Interest Rates on Overpayment & Underpayment of Tax

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On May 12, 2025, the IRS announced that the Third Quarter 2025 IRS interest rates on overpayment and underpayment of tax will remain the same as in the Second Quarter of 2025.

This means that the Third Quarter 2025 IRS interest rates will be as follows:

seven (7) percent for overpayments (seven (7) percent in the case of a corporation);

seven (7) percent for underpayments;

nine (9) percent for large corporate underpayments; and

four and a half (4.5) percent for the portion of corporate overpayment exceeding $10,000.

How the IRS Calculated Third Quarter 2025 IRS Interest Rates

The IRS calculates the IRS interest rates based on specific tax provisions. We begin with the Internal Revenue Code (“IRC”) §6621, which establishes the IRS interest rates on overpayments and underpayments of tax. Under §6621(a)(1), the overpayment rate is the sum of the federal short-term rate plus 3 percentage points for individuals and 2 percentage points in cases of a corporation. There is an exception to this rule: with respect to a corporate overpayment of tax exceeding $10,000 for a taxable period of time, the rate is the sum of the federal short-term rate plus one-half of a percentage point.

Additionally, under §6621(a)(2), the underpayment rate is the sum of the federal short-term rate plus 3 percentage points. Similarly to overpayments, there is an exception for a large corporate underpayment: in such cases, §6621(c) requires the underpayment rate to be the sum of the relevant federal short-term rate plus 5 percentage points. Also, the readers should see §6621(c) and §301.6621-3 of the Regulations on Procedure and Administration for the definition of a large corporate underpayment and for the rules for determining the applicable date.

Finally, pursuant to the IRC §6621(b)(1), the IRS computed the Third Quarter 2025 IRS interest rates based on federal short-term rates in April of 2025.

Importance of the Third Quarter 2025 IRS Interest Rates

The IRS interest rates are relevant for a great variety of purposes. Let’s highlight three of its most important uses. Firstly, these rates will determine the interest a taxpayer will get on any IRS refunds.

Second, the IRS and the taxpayers use these rates to calculate the interest on any additional US tax liability on amended or audited tax returns. This also applies to the amended (and, in case of SFOP, original) tax returns that the taxpayers submit pursuant to Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures.

Finally, the Third Quarter 2025 IRS interest rates will be used to calculate PFIC interest on any relevant §1291 PFIC tax. This PFIC interest will be reported on the relevant Form 8621 and ultimately Form 1040.

We at Sherayzen Law Office constantly deal with the IRS interest rates on overpayments and underpayments of tax. This is why we closely follow any changes in these IRS interest rates, including the Third Quarter 2025 IRS interest rates.

Sherayzen Law Office Successfully Completes Its 2025 Spring Tax Season

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On April 15, 2025, Sherayzen Law Office, Ltd., successfully completed its 2025 Spring Tax Season. It was a challenging and interesting tax season. Let’s discuss it in more detail.

2025 Spring Tax Season: Sherayzen Law Office’s Annual Compliance Clients

Annual tax compliance is one of the major services offered by Sherayzen Law Office to its clients. The majority of our annual compliance clients are individuals and businesses who earlier retained our firm to help them with their offshore voluntary disclosures. They liked the quality of our services so much that they preferred our firm above all others to ensure that they stay in full compliance with US tax laws.

It is natural that this group of clients is the largest among all other groups, because the unique specialty of our firm is conducting offshore voluntary disclosures.

A smaller group of our annual compliance clients consists of tax planning clients who also asked Sherayzen Law Office to do their annual compliance for them. While the group is smaller, it is usually the one always has a complex set of US tax compliance requirements due to the size of each client.

Finally, the last group of our annual compliance clients consists of businesses and individuals who were referred to our firm specifically for help with their annual compliance. These are usually foreign businesses who just expanded to the United States and foreign executives and professionals who just arrived to the United States to start working here. An important part of this group also includes foreign students.

2025 Spring Tax Season: Sherayzen Law Office’s Annual Compliance Services

Virtually all of our clients have exposure to foreign assets and international transactions. Hence, in addition to their domestic US tax compliance, Sherayzen Law Office prepares the full array of US international tax compliance forms related to foreign accounts (FBAR and Form 8938), PFIC calculations (Forms 8621), foreign business ownership and Section 367 notices (Forms 926, 5471, 8858, 8865, et cetera), foreign trusts (Form 3520 and Form 3520-A), foreign gifts/foreign inheritance (Form 3520), foreign ownership of US businesses (Form 5472) and other relevant US international tax compliance issues.

2025 Spring Tax Season: Unique Challenges and Opportunities

The 2025 Spring Tax Season was especially challenging because of the record number of deadlines that Sherayzen Law Office had to complete. During the season, Sherayzen Law Office filed a large number of FBARs, US income tax returns and US international tax returns such as Forms 3520, 5471, 8865, 8621 and 926.  Despite a very large number of deadlines that we timely finished prior to April 15, due to the international nature of our cases, Sherayzen Law Office extended ever more deadlines.

This year we also implemented on a grander scale new spreadsheets for clients, including the 3.2 version of Account Summary and 3.1 version of Summary of Entities. We also replaced the older versions of the Schedule C and Schedule E spreadsheets with the new 2025 versions. We hope to complete the process of firm-wide usage of updated spreadsheets by the end of the fall tax season.

Looking Forward to Completing Offshore Voluntary Disclosures, Additional Tax Planning and 2025 Fall Tax Season

Having completed such a challenging 2025 Spring Tax Season, Sherayzen Law Office now looks forward to completing our outstanding offshore voluntary disclosures and IRS audits.  During the Spring of 2025, we also expanded our portfolio of international tax planning clients. Finally, we will be working on completing the extensions prior to the October 15th, 2025 deadline.

Contact Sherayzen Law Office for Professional Help with US International Tax Law, including Offshore Voluntary Disclosures

If you have foreign assets or foreign income, contact Sherayzen Law Office for professional help. Our firm specializes in US international tax compliance. We have helped hundreds of US taxpayers to bring themselves into full compliance with US tax laws, and We Can Help You! Contact Us Today to Schedule Your Confidential Consultation!

Second Quarter 2025 IRS Interest Rates on Overpayment & Underpayment of Tax

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On March 6, 2025, the IRS announced that the Second Quarter 2025 IRS interest rates on overpayment and underpayment of tax will remain the same as in the First Quarter of 2025.

This means that, the Second Quarter 2025 IRS interest rates will be as follows:

seven (7) percent for overpayments (six (6) percent in the case of a corporation);

seven (7) percent for underpayments;

nine (9) percent for large corporate underpayments; and

four and a half (4.5) percent for the portion of a corporate overpayment exceeding $10,000.

How the IRS Calculated Second Quarter 2025 IRS Interest Rates

The IRS calculates the IRS interest rates based on specific tax provisions. We begin with the Internal Revenue Code (“IRC”) §6621, which establishes the IRS interest rates on overpayments and underpayments of tax. Under §6621(a)(1), the overpayment rate is the sum of the federal short-term rate plus 3 percentage points for individuals and 2 percentage points in cases of a corporation. There is an exception to this rule: with respect to a corporate overpayment of tax exceeding $10,000 for a taxable period of time, the rate is the sum of the federal short-term rate plus one-half of a percentage point.

Additionally, under §6621(a)(2), the underpayment rate is the sum of the federal short-term rate plus 3 percentage points. Similarly to overpayments, there is an exception for a large corporate underpayment: in such cases, §6621(c) requires the underpayment rate to be the sum of the relevant federal short-term rate plus 5 percentage points. Also, the readers should see §6621(c) and §301.6621-3 of the Regulations on Procedure and Administration for the definition of a large corporate underpayment and for the rules for determining the applicable date.

Finally, pursuant to the IRC §6621(b)(1), the IRS computed the Second Quarter 2025 IRS interest rates based on federal short-term rates in January of 2025.

Importance of the Second Quarter 2025 IRS Interest Rates

The IRS interest rates are relevant for a great variety of purposes. Let’s highlight three of its most important uses. Firstly, these rates will determine the interest a taxpayer will get on any IRS refunds.

Second, the IRS and the taxpayers use these rates to calculate the interest on any additional US tax liability on amended or audited tax returns. This also applies to the amended (and, in case of SFOP, original) tax returns that the taxpayers submit pursuant to Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures.

Finally, the Second Quarter 2025 IRS interest rates will be used to calculate PFIC interest on any relevant §1291 PFIC tax. This PFIC interest will be reported on the relevant Form 8621 and ultimately Form 1040.

We at Sherayzen Law Office constantly deal with the IRS interest rates on overpayments and underpayments of tax. This is why we closely follow any changes in these IRS interest rates.

Foreign Inheritance Tax Attorney San Jose | International Tax Lawyers California

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Receiving a foreign inheritance may open a litany of US international tax compliance obligations. Therefore, one of the first things you should do is to seek the help of an international tax attorney who specializes in foreign inheritance reporting.  If you reside in San Jose, California, you need to look for a Foreign Inheritance Tax Attorney San Jose. You will find that Sherayzen Law Office Ltd. is very likely to be the perfect fit for you.

Foreign Inheritance Tax Attorney San Jose: Why Foreign Inheritance is So Important to Your US international Tax Compliance

There are two main reasons why receiving a foreign inheritance may be a critical event for your US international tax compliance. First, receiving a foreign inheritance means that you have additional assets, income and transactions to report to the IRS.  The way that US international tax law works, it means that it is usually more than just one requirement is triggered. Rather, it may be a set of issues and reporting obligations that require an experienced international tax attorney to resolve them correctly. 

The multitude and complexity of issues can be fairly large: from the reporting of the foreign inheritance itself, income recognition, transfer of cash/assets to the United States to additional reporting requirements concerning newly acquired foreign assets and offshore voluntary disclosures involving prior noncompliance. You should keep in mind that noncompliance with these requirements may result in the assessment of high IRS penalties.

The second reason why a foreign inheritance is so important and so dangerous is the relative complacency with respect to and even complete nonrecognition of the potential US tax consequences of receiving a foreign inheritance with all of the multitude of issues to which I alluded above.  The problem is not just that many US taxpayers are completely ignorant of the fact that a foreign inheritance may require extensive US tax compliance. Even worse, many taxpayers erroneously but ardently believe that a foreign inheritance is something completely unrelated to the United States and should not have any US tax consequences. At best, they may focus on Form 3520 reporting while overlooking the complexity of the rest of the issues involved in receiving a foreign inheritance.

This is precisely why I highly recommend consulting an international tax lawyer with extensive experience in foreign inheritance US tax reporting, such as Sherayzen Law Office, if you have received or about to receive a foreign inheritance.

Foreign Inheritance Tax Attorney San Jose: International Tax Lawyer

I just mentioned that you need to seek the help of an international tax attorney rather than just a foreign inheritance tax attorney.  Why is that?

The answer is simple: a foreign inheritance attorney is first and foremost an international tax lawyer – i.e. a lawyer with profound knowledge of and extensive experience in US international tax law, particularly in the area of US international tax compliance. This means that a lawyer must be familiar with such common US international tax forms as Form 3520 (critically important for foreign inheritance reporting) and Form 8938.  He must also understand and be able to identify related US international tax compliance forms such as Forms 3520-A, 5471, 8858, 8865 cetera.  Of course, every US international tax lawyer must be very familiar with FinCEN Form 114 commonly known as FBAR.

In addition to these information returns, an international tax lawyer must be familiar with all types of foreign income reporting.  This requirement includes the knowledge of foreign rental income, PFIC compliance, GILTI income, capital gains concerning foreign real estate, et cetera.

Sherayzen Law Office is a highly experienced international tax law firm with respect to all of these income tax and information return requirements, including specifically all of the aforementioned forms.

Foreign Inheritance Tax Attorney San Jose: Tax Planning

It is highly prudent to engage in tax planning concerning a foreign inheritance. This is important not only for the purpose of limiting future tax burdens, but also to control future US tax compliance costs.  

Sherayzen Law Office has extensive experience in foreign inheritance US tax planning for its clients in San Jose and all over the world.  We also have highly valuable experience of combining income tax planning with offshore voluntary disclosures.

Foreign Inheritance Tax Attorney San Jose: Offshore Voluntary Disclosures

Perhaps you learned late about your US international tax compliance requirements concerning foreign inheritance. In fact, this is a very common situation. In this case, you will find yourself in a very uncomfortable position of facing potentially multiple high IRS penalties for multiple violations of US international tax law.

For this reason, your foreign inheritance tax attorney must also have a profound understanding of the IRS voluntary disclosure options. In fact, in my experience, a discussion of a foreign inheritance often leads to the identification of past US international tax noncompliance and the immediate discussion of IRS offshore voluntary disclosure to remedy past noncompliance.

Offshore Voluntary Disclosures is a core area of our international tax practice at Sherayzen Law Office. We have helped hundreds of US taxpayers worldwide, including in San Jose, to bring their tax affairs into full compliance with US tax laws. This work included the preparation and filing of all kinds of offshore voluntary disclosures including: SDOP (Streamlined Domestic Offshore Procedures), SFOP (Streamlined Foreign Offshore Procedures), DFSP (Delinquent FBAR Submission Procedures), DIIRSP (Delinquent International Information Return Submission Procedures), et cetera.

Contact Sherayzen Law Office for Professional Foreign Inheritance Tax Help

Sherayzen Law Office is an international tax law firm that specializes in US international tax compliance, including foreign inheritance reporting.  We have helped numerous clients around the world with their foreign inheritance US tax compliance. We can help you!

Hence, if you are looking for a Foreign Inheritance Tax Attorney San Jose, contact us now to schedule Your Confidential Consultation!

Substantial Presence Test United States Definition | International Tax Lawyer Minneapolis

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Foreigners who satisfy the Substantial Presence Test constitute a an important and very large category of resident aliens for US tax purposes. Substantial Presence Test is based on the number of days that an individual is physically present in the country. The definition of “United States” varies depending on a particular Internal Revenue Code (IRC) provision.  This brief essay explores the Substantial Presence Test United States definition.

Substantial Presence Test United States Definition: Background Information

In a previous article, I explored in detail the Substantial Presence Test. I will only provide a summary of the test in this essay.

In reality, there are two substantial presence tests; if an individual meets either test, he is a US tax resident unless an exception applies.

The first substantial presence test is met if a person is physically present in the United States for at least 183 days during the calendar year. 26 USC §7701(b)(3).  

The second test (the so-called “lookback test”) is satisfied if two conditions are met: (1) the person is present in the United States for at least 31 days during the calendar year; and (2) the sum of the days on which this person was present in the country during the current and the two preceding calendar years (multiplied by the fractions found in §7701(b)(3)(A)(ii)) equals to or exceeds 183 days. 26 USC 7701(b)(3)(A).  

Let’s discuss how exactly the lookback test works.  The way to determine to determine whether the 183-day test is met is to add: (a) all days present in the United States during the current calendar year (i.e. the year for which you are trying to determine whether the Substantial Presence Test is met) + (b) one-third of the days spent in the United States in the year immediately preceding the current year + (c) one-sixth of the days spent in the United States in the second year preceding the current calendar year. See 26 USC §7701(b)(3).

Substantial Presence Test United States Definition: Definition of United States

Treas. Regs. §301.7701(b)-1(c)(2)(ii) define “United States” for the purposes of the Substantial Presence Test.  In particular, the regulations state that “United States” includes all fifty states of the United States and the District of Columbia.  Moreover, the definition of “United States” also includes: “the territorial waters of the United States and the seabed and subsoil of those submarine areas which are adjacent to the territorial waters of the United States and over which the United States has exclusive rights, in accordance with international law, with respect to the exploration and exploitation of natural resources”.  Id.

Moreover, the regulations specifically exclude all possessions and territories of the United States as well as the air space over the United States. Id.  For example, time spent in Puerto Rico will not count toward the substantial presence test. Similarly, if an alien flies over the United States on a plane and never lands, then the IRS will exclude this day from the count.

Contact Sherayzen Law Office for Professional Help with US International Tax Law

The Substantial Presence Test United States Definition is just one of a huge array of complications in US international tax law.  This is why you need to secure the help of Sherayzen Law Office for professional help with US international tax issues, including tax compliance, tax planning and offshore voluntary disclosures.  We have helped hundreds of taxpayers around the world.  We can help you!

Contact Us Today to Schedule Your Confidential Consultation!