Med James, Inc. - Page 13

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          on the reduced amount of $63,573.11  The parties agree that the             
          normal underpayment rate under section 6621(a)(1) applies from              
          the due date of the return for the tax year ended January 31,               
          1994, until December 5, 1998.12                                             
               Petitioner argues that hot interest does not apply because             
          the underpayment of tax for the tax year ended January 31, 1994,            
          was $63,573, which is below the $100,000 amount required to                 
          trigger application of the increased interest rate.  Petitioner             
          claims that the deficiency amount decided by this Court and then            
          assessed by respondent is the proper amount to use in determining           
          whether hot interest applies.                                               
               Respondent contends that hot interest applies because it is            
          undisputed that before the carryback of the NOL from the tax year           
          ended January 31, 1995, petitioner’s corporate income tax was               
          understated by $225,753.  Respondent’s argument is based on the             
          position that an NOL carryback, regardless of whether it is                 
          applied preassessment or postassessment, does not reduce the                
          amount of the underpayment for an earlier taxable period.                   


               11The interest and penalty detail reports computing the                
          amount of interest owed by petitioner state that the period from            
          July 5, 2002, through Sept. 9, 2002, was an “interest free                  
          period”.                                                                    
               12The interest computation report prepared by respondent               
          states that the 30-day letter date was Nov. 5, 1998.  Respondent            
          started imposing hot interest on Dec. 5, 1998.  If we decide that           
          there was a large corporate underpayment, then petitioner does              
          not challenge the use of this date as the applicable date.                  




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