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WHAT'S 1.5% WORTH?
January 18, 2006
Most taxpayers with money coming back from the IRS don't much worry about how much interest the IRS pays. In fact, most refunds don't even earn interest. When they do, it's enough for many taxpayers just to get the money back, and the interest isn't worth fighting over.
Now if the overpayment is $1.6 billion, that's a different story.
For "large corporate overpayments" - those over $10,000 - the tax law provides a 1.5% reduction in the interest rate paid by the IRS, a result of a 1994 tax law change. Exxon-Mobil went to Tax Court to argue that interest accrued prior to the law change was exempt from the 1.5% haircut. Yesterday, the Tax Court disappointed the oil company.
A quick and dirty calculation shows that the 1.5% difference from January 1, 1995 until today on the $1.6 billion overpayment would amount to just shy of $487 million. That goes to show what a little compound interest can do, when you start with $1.6 billion.
Cite: ExxonMobil Corporation, 126 TC No. 3.
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