After there is a final determination of tax liability, the IRS computes interest on the overpayments and underpayments. That process is not as straight-forward as it seems, however, as some aspects of the law are still uncertain and even when the law is clear the IRS often makes mistakes. Taxpayers may leave money on the table if they don’t review the computations carefully. We recently described one type of common IRS error, related to credit elect transfers. Another category of common IRS errors concerns carrybacks. When a loss or credit is carried back, or an initial carryback is reversed, the change in tax liability in the carryback year is treated for interest purposes as though it occurred as of the return due date for the source year. There are also often certain secondary or indirect effects that must be treated the same way. The analysis can be very complex, particularly when there are multiple carrybacks from multiple years. The IRS sometimes does not properly determine the timing of the resulting changes in tax liability, and errors could have a significant effect on the amount of interest computed. The timing analysis should always be reviewed carefully. You can find more about this, and other interest computation issues, in our 2005 article “Computing Interest on Overpayments and Underpayments: How Difficult Can It Be? Very!" and our chart of Pending Interest Cases. If you have any questions, please contact one of us or any of the other Tax lawyers at Thompson & Knight.