Instant Interest Manual – Large Corporate Overpayments

Beginning January 1, 1995, large Federal, Alabama, Arizona, and Virginia corporate overpayments (defined as refunds in excess of $10,000) accrue interest at 1.5 points less than the published refund rate. This is known as the GATT credit interest computation on refunds. The calculation is split with different interest rates being applied to amounts above and below the GATT threshold. Amounts below the GATT threshold are calculated using the published refund rate. Amounts above the GATT threshold are calculated using a reduced refund rate equal to the published rate minus 1.5 points.

The amount eligible for the reduced interest rate is equal to the amount of the credit (i.e., the refund due) in excess of $10,000 as of 1/1/95 or the date the total of the credits exceeds $10,000, whichever is later. Additional credits available after 1/1/95 and after the $10,000 threshold is reached can also be added to the amount eligible for the reduced rate.

There is a discrepancy in IRS communications regarding how interest should be calculated on interest accumulated before 1/1/95. According to a 1995 memo from John J. Monaco, Assistant Commissioner of the IRS, to Chief Compliance Officers (for the complete memo, see

On December 31, 1994, all interest accrued to this date will be added to $10,000, and credit interest will be calculated on this total at the normal rate to the refund schedule date (less the applicable days for the credit interest "back-off" period). Credit interest on the principal amount that exceeds the $10,000 threshold will be computed from December 31, 1994 to the refund schedule date at the lower GATT rate.

However, on December 24, 1997, the Office of Chief Counsel of the IRS issued a memorandum which said (the full memo may been seen at

As of January 1, 1995, the reduced rate of interest under GATT (the "GATT rate") applies not only to the excess portion of an overpayment, but also to the interest that accrued on such excess portion under pre-GATT law.

The earlier memo also clearly states, "The GATT legislation only applies to refunds, it DOES NOT apply when credits are used as an offset against a liability."

Neither memorandum has the force of law and to our knowledge the issue has not been adjudicated in a court. C & C Software, in its Instant Interest program, does not take a position on determining which internal IRS method is the correct way of calculating large corporate refunds under GATT. Until the issue is resolved as a result of Treasury Department regulation, Internal Revenue Service rules, or a court opinion in which the IRS acquiesces, the program will allow our users to calculate GATT refund interest under both scenarios. Having this ability may be helpful in increasing your interest refund with the IRS. The same issue involves the three states that follow the federal rules related to GATT interest.

If you want to use the method described in the 1995 memo, choose "Normal Rate". If you want to use the method described in the 1997 memo, choose "Reduced Rate".