Corporate Overpayment Interest Rates Apply to S Corporations

The plaintiff, an S corporation coal mining company, overpaid excise taxes on coal sales which triggered refunds, plus interest for tax years 1990 through 1996.  The refund payments were made in 2009, but the plaintiff claimed that more interest should have been applied - to the tune of $6 million.  The plaintiff claimed that it was due the statutory rate of interest applicable to a non-corporate taxpayer - the federal short-term rate plus three percentage points.  The IRS claimed that the corporate rate applied - the federal short-term rate plus two percentage points.  However, a reduced rate of interest applies to overpayment refunds exceeding $10,000.  In that event, the interest rate is the federal short-term rate plus .5 percentage points.  The court agreed with the IRS that I.R.C. Sec. 6621(a)(1) treats an S corporation as a "corporation" for purposes of determining the applicable interest rate.  The court refused to follow a U.S. Tax Court decision that reached the opposite conclusion, and refused to give much weight to an Internal Revenue Manual provision that somewhat supported the plaintiff's argument.  The court did note, however that I.R.C. Sec. 6621(c) treats S and C corporations differently for purposes of determining underpayment interest.  Eaglehawk Carbon, Inc., et al. v. United States, No. 13-1021T, 2015 U.S. Claims LEXIS 862 (Fed. Cl. Jul. 16, 2015).