Before 1995, overpayment interest for corporations was the federal short-term rate plus 2 percentage points. That year, section 6621 was amended to reduce the corporate rate to 0.5 percentage points above the federal short-term rate for any portion of an overpayment exceeding $10,000.
Exxon Mobil timely filed all its corporate returns for 1979 through 1985, on which it overpaid $567 million. The IRS refunded the sum in July 2005, plus interest calculated at the reduced rate from Jan. 1, 1995, on both the overpaid amounts and the $491 million in interest accrued before 1995. Exxon Mobil petitioned the Tax Court for an additional $140 million in interest, saying under the language of the amended statute, the rate reduction applied only to overpayments. The interest on the interest, Exxon Mobil said, should continue to accrue at the original rate. The motion was denied, and Exxon Mobil appealed. In affirming the Tax Court, the Fifth Circuit refused to bifurcate interest in the manner suggested by Exxon Mobil. Accordingly, the 0.5 percentage point increase over the federal short-term rate called for in section 6621 is used to compound pre-1995 interest.
Exxon Mobil Corp. v. Commissioner , 99 AFTR2d 2007-2145