CCA 200920040: GATT rate applied to the portion of a contract overpayment above $10,000

Plain-English summary

Chief Counsel considered which interest rate applied to an overpayment under section 460(b)(2)(B). The email treated the amount as an overpayment of tax because the tax liability was accelerated and then overpaid in the redetermination year. Section 460(b)(7) expressly applies the section 6621 overpayment rate, and Counsel viewed the GATT rate as part of that rate. Counsel therefore advised that the GATT rate applied to the extent the overpayment exceeded $10,000. The email also cited three decisions treating overpayment interest as an overpayment of tax for section 6621(a)(1).

Ruling snapshot

• Question: Did the GATT rate apply to a section 460(b)(2)(B) overpayment exceeding $10,000?
• Outcome: Advice given: yes, to the extent the overpayment exceeded $10,000.
• Key authorities: IRC §§ 460(b)(2)(B), 460(b)(7), 6621(a)(1); Exxon Mobil, 484 F.3d 731 (5th Cir. 2007); General Electric Co., 384 F.3d 1307 (Fed. Cir. 2004); State Farm, 126 T.C. 28 (2006).

Full text (IRS public release)

ID: CCA_2009040216195371 Number: 200920040
Release Date: 5/15/2009
Office: --------------
UILC: 6621.01-00

From: ----------------------
Sent: Thursday, April 02, 2009 4:19:55 PM
To: --------------------------------------------------
Cc:
Subject: RE: GATT vs. non-GATT

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I think the GATT rate applies to the extent the overpayment exceeds $10k. It seems to me that a section 460(b)(2)(B) overpayment is an overpayment of tax -- the tax liability is accelerated and the tax is overpaid in the redetermination year. Moreover, section 460(b)(7) clearly provides that the "overpayment rate" under section 6621 applies, and the GATT rate is part of the section 6621 "overpayment rate." Finally, at least three courts have concluded that overpayment interest is an 'overpayment of tax' for purposes of section 6621(a)(1). Cf. Exxon Mobil, 484 F.3d 731 (5th Cir. 2007); General Electric Co., 384 F.3d 1307 (Fed. Cir. 2004); State Farm, 126 T.C. 28 (2006). Please call me if you have any questions.