CSMS Message: 99-000637

TO : ALL ABI BROKERS.

FROM : MARIA NAVARRETE

SUBJECT : ACS Reconciliation Prototype:

InTE : 08/11/1999

ACS 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.

I. 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, CUSTOMS 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.

II. 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.

III. INTEREST RATES

THE INTEREST RATES APPLICABLE ARE DETERMINED BY THE INTERNAL REVENUE
SERVICE AND ARE PUBLISHED QUARTERLY IN THE FEDERAL REGISTER. FOR
REFERENCE, HERE ARE THE RATES IN EFFECT FROM THE BEGINNING OF THE
PROTOTYPE TO PRESENT. WHEN FILING RECONCILIATIONS, FILERS NEED ONLY
CALCULATE USING THE RATE FOR UNDERPAYMENTS. INTEREST ON OVERPAYMENTS
(REFUNDS) WILL BE CALCULATED BY CUSTOMS.

FROM TO INTEREST RATE FOR UNDERPAYMENTS

040198 123198 8%
010199 033199 7%
040199 063099 8%
070199 093099 8%

IV. 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

V. 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)

WHERE THE "¬" MEANS, "RAISED TO THE EXPONENTIAL POWER."

VI. AN EXAMPLE OF EXTRA PAYMENTS ON AN ENTRY-BY-ENTRY RECONCILIATION:

ENTRY NO. ORIG. PAYMENT DATE. ADDITIONAL PAYMENT ON RECON

010104-5 01/05/99 $300
010289-2 04/12/99 $670
010346-8 05/28/99 $600

RECONCILIATION IS FILED ON 09/15/99, MAKING ADDITIONAL PAYMENT OF
$1570. INTEREST IS SEPARATELY CALCULATED FOR EACH ENTRY, USING THE
ADDITIONAL DUTY FOR EACH ENTRY AS THE PRINCIPAL, WITH INTEREST RUNNING
FROM THE DATE ORIGINAL PAYMENT WAS REQUIRED THROUGH DATE OF PAYMENT OF
THE RECONCILIATION.

THE FIRST STEP IS TO DETERMINE THE NUMBER OF DAYS AT EACH RATE TO
APPLY INTEREST TO EACH ADDITIONAL PAYMENT AMOUNT.

ENTRY NO. ORIG. PMT.. ADD'L PMT. INTEREST APPLICABLE

010104-5 01/05/99 $300 01/05/99 THRU 03/31/99 (86 DAYS)
AT 7 PERCENT
04/01/99 THRU 06/30/99 (89 DAYS)
AT 8 PERCENT
07/01/99 THRU 09/15/99 (74 DAYS)
AT 8 PERCENT

010289-2 04/12/99 $670 04/12/99 THRU 06/30/99 (78 DAYS)
AT 8 PERCENT
07/01/99 THRU 09/15/99 (74 DAYS)
AT 8 PERCENT

010346-8 05/28/99 $600 05/28/99 THRU 06/30/99 (32 DAYS)
AT 8 PERCENT
07/01/99 THRU 09/15/99 (74 DAYS)
AT 8 PERCENT

NEXT, APPLYING THE FORMULA FROM SECTION V ABOVE WE GET THE AMOUNT OF
INTEREST APPLICABLE TO THE MONETARY ADJUSTMENT OF EACH ENTRY VIA THE
RECONCILIATION.

ENTRY NO. ADD'L PMT. INTEREST APPLICABLE

010104-5 $300 01/05/99 THRU 03/31/99 (86 DAYS) AT
7 PERCENT = $ 4.99
04/01/99 THRU 06/30/99 (89 DAYS) AT
8 PERCENT = $ 5.91
07/01/99 THRU 09/15/99 (74 DAYS) AT
8 PERCENT = $ 4.90

TOTAL INTEREST FOR THIS ENTRY................................ $15.80

010289-2 $670 04/12/99 THRU 06/30/99 (78 DAYS) AT
8 PERCENT = $11.55
07/01/99 THRU 09/15/99 (74 DAYS) AT
8 PERCENT = $10.95

TOTAL INTEREST FOR THIS ENTRY................................ $22.50

010346-8 $600 05/28/99 THRU 06/30/99 (32 DAYS) AT
8 PERCENT = $ 4.22
07/01/99 THRU 09/15/99 (74 DAYS) AT
8 PERCENT = $ 9.81

TOTAL INTEREST FOR THIS ENTRY............................. $14.03
TOTAL INTEREST FOR RECONCILIATION......................... $63.88

THE INDIVIDUAL AMOUNTS OF INTEREST ARE SHOWN ON THE ASSOCIATION FILE
TRANSMITTED VIA ABI.

VII. AN EXAMPLE OF EXTRA PAYMENT ON AN AGGREGATE RECONCILIATION:

ENTRY NO. ORIG. PAYMENT DATE.

010104-5 01/05/99
010289-2 04/12/99
010346-8 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 DATE OF PAYMENT OF 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 ENTRIES ABOVE IS
01/05/99, AND THE LATEST DATE IS 05/28/99. THERE ARE 143 DAYS BETWEEN
DATE + 71 DAYS GIVES THE MIDPOINT DATE, WHICH IS 03/17/99.

NEXT, APPLYING THE FORMULA FROM SECTION V ABOVE WE GET THE AMOUNT OF
INTEREST APPLICABLE TO THE MONETARY ADJUSTMENT ON THE RECONCILIATION

RECON NO. ADD'L PMT. INTEREST APPLICABLE

090966-8 $1570 03/17/99 THRU 03/31/99 (14 DAYS)
AT 7 PERCENT = $ 4.22
04/01/99 THRU 06/30/99 (89 DAYS)
AT 8 PERCENT = $30.92
07/01/99 THRU 09/15/99 (74 DAYS)
AT 8 PERCENT = $25.67

TOTAL INTEREST FOR RECONCILIATION.......................... $60.81

VIII. 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.
QUESTIONS REGARDING THIS DOCUMENT, OR THE RECONCILIATION PROTOTYPE IN
GENERAL, MAY BE DIRECTED TO DON LUTHER AT (202) 927-0915, OR SHARI
MCCANN AT (202) 927-1106.