Interest Payments made by IRS on the NOL refund amount
In 2015, generally, the IRS pays 3% annual interest on overpayments (0.25% per month, accrued on the 15th) that they take “too long” to refund to the taxpayer.
NOLs generally are not entitled to any interest paid on the refunded amount. There are two situations where interest is paid:
If the NOL processing is delayed so that your refund check is sent out later than what the IRS considers timely (usually three months or so) then the taxpayer is entitled to interest which can be computed from the date your NOL refund request was received by IRS, or the date the refund check “should” have been mail to you, depending on how the IRS clerk understands the rules.
The IRS, unbelievably, has exceeding poor quality control over this area. It has been reported anonymously to us by some taxpayers that the IRS has paid substantial interest, retroactively, from the due date of the original tax return from which the refund amount is coming from.
Conscientious taxpayers inform the IRS of the possible error and occasionally the IRS understands and takes back the interest by voiding the original and then reissuing the check. Other times the IRS appears to be clueless about the concept of when interest is supposed to be paid to a taxpayer. [Caution – if sending back the original IRS check, many taxpayers find themselves in a deep dark IRS black hole and if takes months or years to get their money. So an alternative to consider is to cash the IRS check and repay with a personal check] [Caution #2 – cashing an IRS check for a greater amount than you are entitled to, potentially subjects the taxpayer to penalties and interest on the excess funds deposited.]
Therefore when obtaining a NOL refund, sometimes substantial interest is included, and sometimes a small insignificant amount of interest is included and sometimes interest is not included at all.
For information on similar problems when the IRS is charging interest, go to this link:
IRS Not Charging Interest on Tax Penalties