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Determine federal rates FOR a month means?

Technical topics regarding tax preparation.
#1
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IRC 6621(b) https://www.law.cornell.edu/uscode/text/26/6621 states:

(b) Federal short-term rate For purposes of this section—
(1) General rule
The Secretary shall determine the Federal short-term rate for the first month in each calendar quarter.

(2) Period during which rate applies
(A) In general
Except as provided in subparagraph (B), the Federal short-term rate determined under paragraph (1) for any month shall apply during the first calendar quarter beginning after such month.

(3) Federal short-term rate
The Federal short-term rate for any month shall be the Federal short-term rate determined during such month by the Secretary in accordance with section 1274(d).


and IRC 1274(d)(1)(B) https://www.law.cornell.edu/uscode/text/26/1274 says:

(B) Determination of rates

During each calendar month, the Secretary shall determine the Federal short-term rate, mid-term rate, and long-term rate which shall apply during the following calendar month.


Questions:

[1] So "The Federal short-term rate for any month = the Federal short-term rate determined during such month = "the Federal short-term rate applied for the following calendar month"?

Is this the standard use of the word "for"? If we say "rate for a month", doesn't it means the rate applicable for the month?

[2] When we look up the the Federal short-term rate for a given month from https://apps.irs.gov/app/picklist/list/federalRates.html, it is the rate determined during or applied for the month?

[3] "the Federal short-term rate determined under paragraph (1) for any month shall apply during the first calendar quarter beginning after such month", so if we need to determine the underpayment rate as defined in IRC 6621(a)(2) for the 4th quarter, we should look up the Federal short-term rate applied for August? i.e. underpayment rate as defined in IRC 6621(a)(2) = the Federal short-term rate determined during the first month and applied for the second month of the previous quarter, rounded up to nearest integer, and plus 3%?

Each month in the quarter has its own monthly short-term rate, but we ignore that for the purpose of determine the underpayment rate as defined in IRC 6621(a)(2), but use the rate applied for the second month of the previous quarter?

[4] The two statements seem to be inconsistent:

    "The Secretary shall determine the Federal short-term rate for the first month in each calendar quarter"
    "During each calendar month, the Secretary shall determine the Federal short-term rate".

The first statement seems to indicate the secretary only determine the rate for the first month in each quarter.
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#2
Doug M  
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I am not sure what your question is, but the Secretary in month 1 determines what the rates are going to be for month 2. This is what §1274(d)(2)(1)(b)says

"During each calendar month, the Secretary shall determine the Federal short-term rate, mid-term rate, and long-term rate which shall apply during the following calendar month".

There is one other quirk of timing. That being the -(d)(2) reference

"In the case of any sale or exchange, the applicable Federal rate shall be the lowest 3-month rate...."
Last edited by Doug M on 19-Oct-2020 7:08pm, edited 2 times in total.
 

#3
Nilodop  
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This is what §1274(d)(2) says. That would be 1274(d)(1)(B).

There is one other quirk of timing.. There are many. Section 1274
(e) 110 Percent rate where sale-leaseback involved
(1) In general
In the case of any debt instrument to which this subsection applies, .....
(3) Debt instruments to which this subsection applies
This subsection shall apply to any debt instrument given in consideration for the sale or exchange of any property if, pursuant to a plan, the transferor or any related person leases a portion of such property after such sale or exchange.
. Does that mean forever after?
Last edited by Nilodop on 18-Oct-2020 9:02pm, edited 1 time in total.
 

#4
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Doug M wrote:I am not sure what your question is, but the Secretary in month 1 determines what the rates are going to be for month 2.


I have my questions labelled. One of the questions is: if we were to lookup the interest rate as mentioned in "The Secretary shall determine the Federal short-term rate for the first month in each calendar quarter", let us say, July 2020, which month should we look up in the table https://apps.irs.gov/app/picklist/list/ ... Rates.html ?
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Pitch78  
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#6
Doug M  
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§6621 is the code section that defines the interest rates on underpayments and overpayments. These rates are adjusted every three months. Hence the reference to the rate for that three month period is determined in month one. Think 2210 penalty. Look at the four periods (each three months long) for determining the underpayment penalty

§1274 is the code section that determines rates for other other applications within the tax law. The most common use of these tables is the AFR rates. These rates are determined monthly. The link in post number 4 is the AFR rate tables. Most common is the interest rate to use for related party transactions, or to be imputed if no interest is stated.
 

#7
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Pitch78 wrote:https://www.irs.gov/pub/irs-drop/rr-20-07.pdf


Thanks Pitch78, the link you provided list the underpayment and overpayment directly. For educational purpose, if you were to lookup short term rate from https://apps.irs.gov/app/picklist/list/ ... Rates.html, and add 3%, how do you do it? For example, to find 2020Q4 rate for underpayment, which month from federalRates table you should use? Thanks!
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