Hot Interest

Thanks for sharing!
ThermometerImage source: www.openclipart.org

Generally, the IRS charges interest when you fail to pay the amount of tax you owe by the date it is due. The interest rate charged is the federal short term rate plus 3%, and is determined quarterly by the IRS. A special rate applies to C corporations that owe more than $100,000. For these “large corporate underpayments”, Section 6621(c) of the tax code imposes an additional 2% interest rate, called “LCU” interest or “hot” interest.

The extra interest is assessed only after the “applicable date”. The applicable date starts if your corporation fails to pay the underpayment within 30 days of the date of a letter of proposed deficiency sent to you by the IRS (a 30-day letter), or a statutory notice of deficiency (90-day letter). When neither of those notices apply, the applicable date is the 30th day after you receive any notice from the IRS about an assessment, or proposed assessment, of tax.

Note there are three requirements for assessment of the hot rate:

1) Your corporation is a C corporation.

2) The tax you have underpaid must exceed $100,000.

3) The increased rate applies only after the applicable date.

Note, too, that when the hot rate applies, the interest is calculated based on the entire balance you owe–including interest, penalties and other additions to tax.

***

Other posts you might enjoy

Definitions — Curtailing the number Image source: openclipart.org   Voluntary truncation hardly sounds like an enjoyable pastime. But cutting off part of taxpayer identification numbers may be a way to reduce identity theft. Back in 1936, when the Social Security Board created the nine-digit social security number to id...
Definitions — Not so strictly confidential Image source: Public domain via Wikimedia Commons   You've probably heard the old joke about life's two rules. The first one is to never give out all the information. That's a rule the IRS follows and most of the time you're probably happy they do. But for identity theft victims, the ...
Definitions — Paying the piper Image source: Edmund Evans, Public domain, via Wikimedia Commons   Whether you believe the expression comes from the Pied Piper of legend or the old proverb, paying the piper does not always mean you get to call the tune. Sometimes the one who makes the rules gets to choose the music. Th...
Definition — Fun with statistics Image source: openclipart.org Keep calm, it's only statistics, and according to author Rex Stout, there are only two kinds – the kind you make up and the kind you look up. The IRS generates statistics (presumably of the second kind) at a heady pace, and the Spring 2017 Statistics of Income Bulle...
Posted in Taxing Definitions Tagged with: , , ,