Large-corporate interest rate applies to Form 1042 withholding tax

Plain-English summary

Chief Counsel considered whether the higher interest rate for large corporate underpayments applies to withholding taxes reported on Form 1042 after the IRS issues a notice of deficiency. The advice concluded that it does when the taxpayer is a C corporation and the other threshold requirements of IRC § 6621(c) are satisfied. Section 6621 defines a large corporate underpayment without limiting the type of tax involved. The regulation likewise contains no tax-type restriction, even though its examples discuss FICA and FUTA rather than the withholding taxes imposed by IRC §§ 1441, 1442, and 1461.

Ruling snapshot

• Question: Does the large corporate underpayment interest rate apply to Form 1042 withholding-tax liabilities?
• Outcome: Advice given. The higher rate applies when the other requirements of IRC § 6621(c) are met.
• Key authorities: IRC §§ 1441, 1442, 1461, and 6621(c); Treas. Reg. § 301.6621-3

Full text (IRS public release)

ID: CCA_2014051508420104 [Third Party Communication:

UILC: 6621.03-00 Date of Communication: Month DD, YYYY]

Number: 201421019
Release Date: 5/23/2014
From:
Sent: Thursday, May 15, 2014 8:42:01 AM
To:
Cc:
Bcc:
Subject: RE: LCU Rate - Form 1042 W/H Tax

We’ve considered your question about whether the large corporate underpayment rate applies to withholding taxes required by sections 1441/1442 and 1461 and reported on Form 1042, when the Service issues a stat notice. We’ve concluded that it does, as long as the other requirements of 6621(c), such as threshold amount owed by a C- corporation, are met.

Our general advice with respect to the LCU rate is that the statute doesn’t restrict the type of tax that it applies to, because section 6621(c)(3)(A) says “large corporate underpayment means any underpayment of tax by a C Corporation.” The LCU regulation, Treas Reg 301.6621-3, also does not restrict the type of tax the rate applies to. The regulation contains several examples, including ones that address FICA and FUTA taxes, but none for the withholding taxes you are asking about. However, in keeping with the plain language of the statute, we concluded that section 1441/1442 and 1461 taxes are subject to the LCU.

If you have any further questions or would like to discuss this advice, please let me know.

Thanks,
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