On February 25, 2019, the IRS announced that the IRS underpayment and overpayment interest rates will remain the same for the second quarter of 2019 as they were in the first quarter of 2019. The second quarter of 2019 begins on April 1, 2019 and ends on June 30, 2019.
This is an important announcement because these rates will have impact on various calculations and affect many US taxpayers. In particular, the second quarter of 2019 IRS interest rates will apply to the calculation of interest owed on any underpayment of tax as calculated on the amended tax returns. This includes the payments that US taxpayers must make pursuant to the Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures.
Moreover, the increase in the interest rates for the second quarter of 2019 directly affects the calculation of PFIC interest due on any PFIC tax. It is important to remember that PFIC interest cannot be offset by foreign tax credit.
According to the aforementioned IRS announcement, the second quarter of 2019 IRS interest rates will be as follows:
six (6) percent for overpayments (five (5) percent in the case of a corporation); three and one-half (3.5) percent for the portion of a corporate overpayment exceeding $10,000; six (6) percent for underpayments; and eight (8) percent for large corporate underpayments.
Under the Internal Revenue Code, the rate of interest for the second quarter of 2019 is determined on a quarterly basis. The current year’s overpayment and underpayment interest rates are computed from the federal short-term rate determined during January 2019 to take effect February 1, 2019, based on daily compounding.
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.