MARCH 3, 1922, 1 COMP. GEN. 475

MARCH 3, 1922, 1 COMP. GEN. 475

INTEREST ON REFUNDS OF INTERNAL REVENUE TAXES IN COMPUTING INTEREST ON REFUNDS OF INTERNAL REVENUE TAXES FOR A FRACTIONAL PART OF A MONTH THE RATE USED MAY BE 6 PERCENT PER ANNUM ON THE BASIS OF 365 DAYS IN THE YEAR.

ACTING COMPTROLLER GENERAL GINN TO THE SECRETARY OF THE TREASURY, MARCH 3, 1922:

I HAVE YOUR LETTER OF FEBRUARY 25, 1922, AS FOLLOWS:

MAY I ASK YOUR CONSIDERATION AND APPROVAL OF THE FOLLOWING PROVISION WHICH IT IS PROPOSED TO INCORPORATE IN THE INSTRUCTIONS OF THE BUREAU OF INTERNAL REVENUE WITH RESPECT TO THE ALLOWANCE OF INTEREST ON REFUNDS AND CREDITS MADE IN ACCORDANCE WITH SECTION 1324 OF THE REVENUE ACT OF 1921?

PROPOSED PROVISION:

INTEREST WILL BE CALCULATED AT THE RATE OF ONE-HALF OF ONE PERCENTUM FOR A CALENDAR MONTH AND FRACTIONAL PARTS THEREOF FROM THE DATE OF WHICH INTEREST BEGAN TO ACCRUE, AS PROVIDED IN SECTION 1324, REVENUE ACT OF 1921, TO THE DATE OF ALLOWANCE OF THE CLAIM.

IN COMPUTING THE TIME, THE DATE FROM WHICH THE INTEREST BEGAN TO ACCRUE WILL BE INCLUDED AND THE DATE OF ALLOWANCE OF THE CLAIM WILL BE EXCLUDED.

COMPUTATION FOR A FRACTIONAL PART OF A MONTH WILL BE BASED UPON THE ACTUAL NUMBER OF DAYS ELAPSED SINCE THE DATE OF THE NEXT PRECEDING COMPLETE CALENDAR MONTH INCLUDED IN THE PERIOD FOR WHICH INTEREST IS ALLOWABLE; AND INTEREST FOR SUCH FRACTIONAL PART OF A MONTH SHALL BE THE INTEREST FOR THE PROPORTIONAL PART OF 365 DAYS AT THE RATE OF 6 PERCENT PER ANNUM.

THE LAW DOES NOT REQUIRE THIS OFFICE TO APPROVE OR DISAPPROVE INSTRUCTIONS TO BE ISSUED BY AN ADMINISTRATIVE OFFICER TO HIS SUBORDINATES, BUT YOUR SUBMISSION WILL BE TREATED AS A REQUEST FOR DECISION WHETHER THE PROVISIONS OF SECTION 1324 (A) OF THE ACT OF NOVEMBER 23, 1921, 42 STAT., 316, AUTHORIZES THE PAYMENT OF INTEREST COMPUTED IN THE MANNER INDICATED IN THE THREE PROVISIONS SUBMITTED BY YOU. THIS QUESTION WOULD APPEAR TO BE ANSWERED IN PRINCIPLE IN DECISION TO YOU, DATED FEBRUARY 7, 1922, 1 COMP. GEN., 411.

THE FIRST PROVISION IS RATHER AMBIGUOUS AND MIGHT BE UNDERSTOOD TO AUTHORIZE THE ALLOWANCE OF ONE-HALF OF 1 PERCENT FOR EACH MONTH OR FRACTIONAL PART THEREOF FROM DATE AT WHICH INTEREST BEGAN TO ACCRUE TO THE DATE OF ALLOWANCE OF THE CLAIM. SUCH WOULD NOT BE IN ACCORDANCE WITH THE LAW AS CONSTRUED BY THIS OFFICE IN THE DECISION HEREINBEFORE CITED. THE ALLOWANCE AUTHORIZED BY LAW FOR A FRACTIONAL PART OF A MONTH IS AT THE RATE OF ONE-HALF OF 1 PERCENT PER MONTH. FOR INSTANCE, THE INTEREST FOR 15/30 OF A MONTH WOULD NOT BE ONE-HALF OF 1 PERCENT (THE SAME AS FOR A FULL MONTH) BUT 15/30 OF ONE-HALF OF 1 PERCENT.

YOUR SECOND PROVISION IS IN ACCORDANCE WITH THE RULING OF THIS OFFICE.

AS I UNDERSTAND THE FIRST CLAUSE OF YOUR THIRD PROVISION IT IS IN HARMONY WITH THE DECISION OF THIS OFFICE ON THE MATTER, BUT THE SECOND CLAUSE OF SAID PROVISION SUGGESTS A METHOD OF COMPUTATION NOT HERETOFORE CONSIDERED BY THIS OFFICE.

THE RATE OF INTEREST AUTHORIZED UNDER THE STATUTE IS NOT 6 PERCENT PER ANNUM, BUT ONE-HALF OF 1 PERCENT PER MONTH, AND THEREFORE THE CORRECT METHOD OF COMPUTATION IS ON A MONTHLY BASIS, THAT IS TO SAY, THE INTEREST FOR A FRACTIONAL PART OF A MONTH WOULD BE SUCH FRACTIONAL PART OF ONE-HALF OF 1 PERCENT--- THE NUMBER OF DAYS IN THE FRACTIONAL PART OF THE MONTH CONSTITUTING THE NUMERATOR OF THE FRACTION OF WHICH THE TOTAL NUMBER OF DAYS IN THE MONTH INVOLVED IS THE DENOMINATOR.

A MONTH BEGINNING IN JANUARY AND ENDING IN FEBRUARY IS A 31-DAY MONTH, ONE BEGINNING IN FEBRUARY AND ENDING IN MARCH IS A 28-DAY MONTH (EXCEPT IN LEAP YEAR) AND ONE BEGINNING IN APRIL AND ENDING IN MAY IS A 30-DAY MONTH. THEREFORE, THE PERIOD FROM JANUARY 5 TO FEBRUARY 4 (INCLUDING THE FIRST DAY AND EXCLUDING THE LAST) IS 30/31 OF A MONTH, BEING ONE DAY LESS THAN THE 31-DAY MONTH BEGINNING JANUARY 5 OF WHICH IT IS A FRACTIONAL PART. IT IS NOT A FRACTIONAL PART OF THE FULL MONTH OF JANUARY NOR THE FULL MONTH OF FEBRUARY, BUT A FRACTIONAL PART OF THE 31-DAY MONTH WHICH BEGAN JANUARY 5 AND ENDED FEBRUARY 5, THE LAST DAY EXCLUSIVE. LIKEWISE FROM FEBRUARY 15 TO MARCH 14 IS 27/28 OF A MONTH AND FROM APRIL 25 TO MAY 24 IS 29/30 OF A MONTH.

I UNDERSTAND THAT THE REASON FOR PROPOSING THE METHOD OF COMPUTATION FOR FRACTIONAL PARTS OF A MONTH ON THE BASIS OF 6 PERCENT PER ANNUM AND 365 DAYS TO THE YEAR IS THAT UNDER SUCH A METHOD INTEREST TABLES CAN BE USED, THEREBY EFFECTING A CONSIDERABLE SAVING IN TIME AND LABOR.

IF THE RESULT OF THE PROPOSED METHOD WILL BE PRACTICALLY THE SAME AS THE COMPUTATION ON A MONTHLY BASIS AS HEREINBEFORE ILLUSTRATED THERE CAN BE NO LEGAL OBJECTION THERETO. AND I FIND THAT ON A REFUND OF $10,000 THE MAXIMUM DIFFERENCE BETWEEN THE TWO METHODS WOULD BE $0.928 IN FAVOR OF THE CLAIMANT WHERE THE INTEREST IS FOR 30 DAYS IN A 31-DAY MONTH AND $0.662 IN FAVOR OF THE UNITED STATES WHERE THE INTEREST IS FOR 29 DAYS IN A 30-DAY MONTH, WITH CORRESPONDINGLY SMALLER DIFFERENCES WHERE THE NUMBER OF DAYS IN THE FRACTIONAL PERIOD IS SMALLER. CONSIDERING THE FACT THAT THE LARGE MAJORITY OF THE REFUNDS WILL BE FOR AMOUNTS LESS THAN $10,000 AND THAT ONLY IN COMPARATIVELY FEW CASES WILL THE FRACTIONAL PERIOD BE THE MAXIMUM OF 29 OR 30 DAYS I AM CONSTRAINED TO HOLD THAT THE PROPOSED METHOD WILL RESULT IN A SUBSTANTIAL COMPLIANCE WITH THE LAW AND THAT, IN VIEW OF THE ADVANTAGES TO BE OBTAINED FROM THE USE OF INTEREST TABLES, IT IS AUTHORIZED.