Second Circuit: Interest rate on tax refunds to nonprofit corporations

Second Circuit: Interest rate on tax refunds

The U.S. Court of Appeals for the Second Circuit today held that the rate of interest that applies on a refund of a tax overpayment to a nonprofit corporation is the lower interest rate that applies for corporations under section 6621(a)(1).

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The case is: Maimonides Medical Center v. United States, No. 14-4279-cv (2d Cir. December 18, 2015) Read the Second Circuit’s decision [PDF 164 KB] 


In general, the rate of interest that applies to the overpayment of tax for an “ordinary taxpayer” is the federal short-term rate plus three percentage points. However, section 6621(a)(1) provides that if the taxpayer is a corporation, the rate of interest is the federal short-term interest rate plus two percentage points on the first $10,000 for each tax period, and the federal short-term interest rate plus half a percentage point on the remainder.

The taxpayer (a teaching hospital) and the IRS agreed that the taxpayer was entitled to refunds of FICA taxes that it had paid on its medical residents’ wages. However, the parties disagreed on the rate of interest that would apply with respect to the refund of the tax overpayment. The taxpayer asserted that the lower interest rate does not apply to nonprofit organizations and that it was entitled to the higher standard interest rate. 

A federal district court granted summary judgment for the government, and today, the Second Circuit affirmed. The appeals court agreed with the government’s position that the lower interest rate under section 6621(a)(1) applies equally to for-profit and nonprofit corporations. 


For more information, contact the Managing Director-in-Charge of KPMG's Washington National Tax Exempt Organizations Tax group:

D. Greg Goller | +1 (703) 286-8391 |

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