CSMS Message: 99-000777

TO : ALL ABI BROKERS.

FROM : MARIA NAVARRETE

SUBJECT : RECON - INTEREST CALCULATION

DATE : 09/10/1999

ACS RECONCILIATION PROTOTYPE: INTEREST CALCULATION INFORMATION
RE-CORRECTED VERSION: SEPTEMBER 9, 1999

***THIS MESSAGE IS ANOTHER REPLACEMENT FOR EARLIER DOCUMENTS WITH THE
SAME TITLE. THE EARLIER VERSION OF 8/12/99 SHOWED INCORRECT NUMBER
OF DAYS. THIS WAS DUE TO THE IMPROPER USE OF A COMMERCIAL SPREADSHEET
FUNCTION THAT ASSUMES TWELVE 30-DAY MONTHS. THE NUMBER OF DAYS AND
CALCULATIONS WERE THEREFORE INCORRECT, ALTHOUGH THE GENERAL
ILLUSTRATION OF THE CONCEPTS WERE ACCURATE. COPIES OF ALL EARLIER
VERSIONS SHOULD BE DESTROYED. WE APOLOGIZE FOR THE INCONVENIENCE,
AGAIN.***

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."
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. (SEE EXAMPLE BELOW.)

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 AMOUNT OF DUTIES, TAXES, AND FEES 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 THRU03/31/99 (86
DAYS) AT 7 PERCENT
04/01/99 THRU 06/30/99 (9
DAYS) AT 8 PERCENT
07/01/99 THRU 09/15/99 (7
DAYS) AT 8 PERCENT

010289-2 04/12/99 $670 04/12/99 THRU 06/30/99 (8
DAYS) AT 8 PERCENT
07/01/99 THRU 09/15/99 (7
DAYS AT 8 PERCENT)

010346-8 05/28/99 $600 05/28/99 THRU 06/30/99 (3
DAYS) AT 8 PERCENT
07/01/99 THRU 09/15/99 (7
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. 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. PRINCIPAL INTEREST APPLICABLE

010104-5 $300.00 01/05/99 THRU 03/31/99 (86 DAYS)
AT 7 PERCENT = $ 4.99
$304.99 04/01/99 THRU 06/30/99 (91 DAYS)
AT 8 PERCENT = $6.14
$311.13 07/01/99 THRU 09/15/99 (77 DAYS)
AT 8 PERCENT = $5.29

TOTAL INTEREST FOR THIS ENTRY.....$16.42

010289-2 $670.00 04/12/99 THRU 06/30/99 (80 DAYS)
AT 8 PERCENT = $11.85
$681.85 07/01/99 THRU 09/15/99 (77 DAYS)
AT 8 PERCENT = $11.60

TOTAL INTEREST FOR THIS........ ENTRY $23.45

010346-8 $600.00 05/28/99 THRU 06/30/99 (34 DAYS)
AT 8 PERCENT = $4.49
$604.49 07/01/99 THRU 09/15/99 (77 DAYS)
AT 8 PERCENT = $10.29

TOTAL INTEREST FOR THIS ENTRY ..........$14.78
TOTAL INTEREST FOR RECONCILIATION ......$54.65

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 144 DAYS BETWEEN
THESE DATES. HALFWAY IS 72. 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 SECTION V ABOVE WE GET THE AMOUNT OF
INTEREST APPLICABLE TO THE MONETARY ADJUSTMENT ON THE RECONCILIATION
RECON NO. PRINCIPAL INTEREST APPLICABLE

090966-8 $1570.00 03/17/99 THRU 03/31/99 (15 DAYS) AT 7
PERCENT = $ 4.52
$1574.52 04/01/99 THRU 06/30/99 (91 DAYS) AT 8
PERCENT = $31.72
$1606.24 07/01/99 THRU 09/15/99 (77 DAYS) AT 8
PERCENT = $27.34

TOTAL INTEREST FOR RECONCILIATION ....................$63.58

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 PACKAGE
(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.)

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.

Referenced By

CSMS #00-000274