Reconciliation Prototype Interest Calculation Information:
The legislation which authorizes the use of midpoint-date interest calculation for Reconciliations has been signed into law. A Federal Register notice was published on July 21, 1999 (64 FR 39187) announcing this change. This document explains how interest is to be calculated on Reconciliations, with illustrative examples.
When Reconciliations result in a claim for a refund:
For Value, 9802 and Classification Reconciliations where the importer claims a refund, interest calculation will be done by Customs upon liquidation of the Reconciliation, on an entry-by-entry basis. For NAFTA Reconciliations claiming a refund, CBP will calculate interest from the date of filing of the Reconciliation to the date it is liquidated. Refunds may only be claimed on Entry-by-entry Reconciliations.
When Reconciliations result in additional money owed to Customs:
The importer or filer calculates the Reconciliation interest due if the Reconciliation results in an increase in duties, taxes, or fees. The amount of interest calculated will be paid at the time of Reconciliation filing. Midpoint interest calculation will be used for Aggregate Reconciliations.
Entry-by-entry interest calculation will be used for Entry-by-entry Reconciliations.
Interest Rates:
The interest rates applicable are determined by the Internal Revenue Service and are published quarterly in the Federal Register. When filing Reconciliations, filers need only calculate using the rate for underpayments, interest on overpayments (refunds) will be calculated by CBP.
How Reconciliation Interest Calculation Works (For additional payments):
The formula below is used to calculate interest. It is used for both entry-by-entry and midpoint calculations of interest. For entry-by-entry interest calculation, the formula is applied to each entry's adjustment, from the date the importer was required to deposit each entry's original payment, to the date the Reconciliation is filed with payment.
For midpoint interest calculation, the formula is applied to the total amount of adjustment made on the Reconciliation, from the midpoint date of the underlying entries until the Reconciliation payment date.
Interest Formula:
Interest is calculated using the compound interest formula of:
(((1 + (RATE/NBR OF DAYS IN YR)) ^ NO OF DAYS) - 1) MULTIPLIED BY THE BILL/REFUND AMOUNT.
Basically, each day the amount is outstanding, interest accrues at the rate in effect for that day.
EXAMPLE:
RATE = 10%
NUMBER OF DAYS IN YEAR = 365
NUMBER OF DAYS INTEREST = 60
BILL AMT = $1,000.00
STEP 1: (.10/365) = .00027395 (Daily Interest Rate...)
STEP 2: (1 + .00027395) = 1.00027395
STEP 3: (1.00027395) ^60 = 1.01657054 (...compounded for number of days...)
STEP 4: (1.01657054 - 1) = .01657054
STEP 5: $1,000.00 * .01657054 = $16.57 (...applied to the principal)
NOTE: Where the "^" means, "Raised to the exponential power."
IMPORTANT: When doing calculations across multiple time periods, such as different fiscal quarters, it is important to remember to add the interest determined for one period to the principal for calculation during the next period.
Examples of extra payments on an entry-by-entry Reconciliation:
| Entry No | Orig. Payment Date | Additional Payment on a Recon |
|---|---|---|
010104-5 | 01/05/1999 | $300 |
010289-2 | 04/12/1999 | $670 |
010346-8 | 05/28/1999 | $600 |
Reconciliation is filed on 09/15/99, making additional payment of $1570. Interest is separately calculated for each entry, using the additional amount of duties, taxes, and fees for each entry as the principal, with interest running from the date original payment was required through the date of payment for the Reconciliation. The first step is to determine the number of days at each rate to apply interest to each additional payment amount.
| Orig. Payment Date | Additional Payments | %Applicable |
|---|---|---|
| Entry number: 010104-5 | $300 | 01/05/99-03/31/99- (86 days) at 7% 04/01/99-06/30/99 - (91 days) at 9% 07/01/99-09/15/99 - (77 days) at 8% |
Entry number: 010289-2 | $670 | 04/12/99-06/30/99 - (80 days) at 8% 07/01/99-09/15/99 - (77 days) at 8% |
Entry number: 010346-8 | $600 | 05/28/99-06/30/99 - (34 days) at 8% 07/01/99-09/15/99 - (77 days) at 8% |
Next, applying the formula from the section above we get the amount of interest applicable to the monetary adjustment of each entry via the Reconciliation. Because the interest is compound, the amount of interest for each calculated period becomes part of the principal for the next time period's calculation.
Entry No. 010104-5
Principal | Interest Applicable | Total |
|---|---|---|
$300 | 01/05/99 - 03/31/99 (86 days) at 7%= | $4.99 |
$304.99 | 04/01/99 - 06/30/99 (91 days) at 8%= | $6.14 |
$311.13 | 07/01/99 - 09/15/99 (77 days) at 8%= | $5.29 |
Total Interest for this entry= $16.42
Entry No. 010289-2
| Principal | Interest Applicable | Total |
|---|---|---|
$670.00 | 04/12/99 - 06/30/99 (80 days) at 8% = | $11.85 |
$681.85 | 07/01/99-09/15/99 (77 days) at 8%= | $11.60 |
Total Interest for this entry= $23.45
Entry No. 010346-8
| Principal | Interest Applicable | Total |
|---|---|---|
$600 | 05/28/99-06/30/99 (34 days) at 8%= | $4.49 |
$604.49 | 07/01/99-09/15/99 (77 days) at 8%= | $10.29 |
Total Interest for the Reconciliation= $54.65
The individual amounts of interest are shown on the Association File, transmitted via ABI.
An example of extra payment on an Aggregate Reconciliation is shown below:
| Entry Number No. | Orig. Payment Date |
|---|---|
010104-5 | 01/05/99 |
010289 | 04/12/99 |
010346 | 05/28/99 |
Reconciliation is filed on 09/15/99, making additional payment of $1570. Because midpoint interest calculation is used for Aggregate Reconciliations, interest is calculated for the single amount of the additional payment on the Reconciliation as a whole, with interest running from the midpoint date through the date of payment on the Reconciliation.
The first step is to determine the midpoint date, and the number of days from that date until the filing/payment date of the Reconciliation.
Midpoint Date = Earliest Date + ((Latest Date - Earliest Date)/2)
The earliest summary payment date of the three (3) entries above is 01/05/99, and the latest date is 05/28/99. There are 144 days between these dates, halfway is 72 days. The earliest date + 72 days gives the midpoint date, which is 03/17/99. If halfway between the dates comes up with a fraction, it is rounded down. For example, 71.5, is rounded to 71.
Next, applying the formula from the section above, we get the amount of interest applicable to the monetary adjustment on the Reconciliation.
Recon. No. 090966-8:
| Principal | Interest Applicable | Total |
|---|---|---|
| $1570.00 | 03/17/99 - 03/31/99 (15 days) at 7%= | $4.52 |
| $1574.52 | 04/01/99 - 06/30/99 (91 days) at 8%= | $31.72 |
$1606.24 | 07/01/99-09/15/99 >(77 days) at 8%= | $27.34 |
Total Interest for the Reconciliation= $63.58
Summary:
The process of calculating interest may appear complex, but the calculations involved are repetitive in nature, and the process can easily be facilitated through the use of commercial software such as general-purpose spreadsheets or specific accounting software packages. As the different versions of this document illustrate, special care should be taken when initially setting up the process, so that it can be done correctly the first time.
