P&I Rules Calculate the Charge

Calculation Basis

In many cases the P&I charges are calculated as a percentage of outstanding debt, referred to as the calculation basis. The calculation basis may simply be the amount of unpaid tax or it may be the amount of unpaid tax plus other unpaid charges, such as unpaid penalty or unpaid interest.

The calculation basis can change over time based on changes to the legislation and recalculation of historic info should use the calculation basis in effect at the time of the charge. A change in calculation basis requires a new P&I control and a corresponding new set of rules to be created and linked to the obligation type for the correct effective date.

The base product P&I rule business objects allow the user setting up the P&I rule to configure one or more debt categories that are used as the calculation basis. The balance by debt category is calculated prior to the call to the P&I rules and is passed in using the working FT collection.

Adjustment / Debt Category Configuration

When the penalty or interest charge is posted to the system to affect the taxpayer's balance, an adjustment is used. The adjustment type is defined on the P&I rule.

Each penalty and interest charge is identified by a debt category and this debt category is important for P&I calculation. Because adjustment type references a debt category, the P&I rules supplied with the base product do not capture the debt category explicitly. They derive the penalty or interest rule's debt category from its adjustment type.

Calculating New Charges and Canceling Incorrect Charges

The Rule Processing algorithm is responsible for calculating the appropriate charge for the current time period. However, because P&I is recalculated from the beginning every time P&I is called for an obligation, it's possible for the calculated charge for this time period already exists in the database.

Once the new charge is calculated and added to the running FT collection, the algorithm should perform logic to align existing and running charges and update the working FT collection appropriately. The base product logic does the following:

• When the current calculation matches the existing P&I charge in the database, the existing charge is added to the working FT collection.

• When the current calculation is more than the existing P&I charge in the database, the existing charge is included in the working FT collection and a new entry for the incremental increase is added to the collection.

• When the current calculation is less than the existing P&I charge in the database, the existing charge is marked to cancel in the working FT collection and a new charge for the new amount is added to the collection. In other words, the base algorithms do not create negative P&I charges.

There are situations where a P&I charge is calculated and after that charge was created, something occurs to cause this P&I charge to no longer be applicable for the taxpayer or for the time period or for the assessment. For example, perhaps a backdated payment is entered and the calculation basis for this time period is now zero. In this case although no new calculation occurs, existing charges must still be marked to cancel. To do this, the algorithm should perform the logic to align existing and running charges whenever it detects that no charge is required. In this case, the running charges will have no entries for the time period / assessment so any existing charges get marked to cancel in the working FT collection.

Use Rates To Define the Penalty or Interest Rate

There are two ways that the actual percentage may be applied to the calculation basis: using a rate schedule or using a rate factor.

• Use a rate factor if the calculation is a simple percentage applied to the calculation basis. The rate factor can contain an effective dated list of percentage rates. Using this method, the appropriate rate factor is defined when configuring the P&I rule and the rule processing algorithm is responsible for retrieving the rate factor value and performing the calculation.

• Use a rate schedule if the calculation is more complicated and you would like to take advantage of the calculation logic built into the various types of rate components for a rate. For example, if your charge has a maximum amount that can be charged (for example, a penalty that is 2.5% of the outstanding tax up to a maximum 25% of the outstanding tax), this can be configured easily using the Maximum rate component type. Using this method requires the rule processing algorithm to set up all the amounts that the rate schedule requires to successfully apply the rate. For the current example, it must supply the outstanding tax amount that is the basis of calculation and the maximum amount allowed. Then it should call the rate application service. The P&I rule defines the rate schedule, rate quantity identifier (RQI) for passing in the calculation basis and any other information needed to supply to the rate application service. In this example, the Not to Exceed percentage and an RQI for passing to rates the calculated Not to Exceed amount.

Waiver Processing

As charges are being calculated for each period, rule processing algorithms must also determine whether or not these charges should be waived and enter appropriate entries in the working FT collection to represent the waived amounts.

The base product provides a separate algorithm for each supported waiver type in the system that should be plugged into any P&I rule whose charge may be waived. Each algorithm does the following:

• Determine if there is a waiver in effect for the current debt category / assessment. This information is in the Waiver information collection in the P&I - Internal Calculation Info data area assuming that the pre-processing algorithm to Determine if Active Waivers Exist is plugged in.

• The algorithm then does the appropriate logic to determine whether the amount should be waived based on the logic for the type of waiver.

• If the amount should be waived, an entry is added to the working FT collection. This ensures that subsequent balance calculations for this debt category do not include the amount that is waived.

No adjustments are created or canceled at this time. Post processing algorithms are responsible for that logic.

Sample P&I Rule Processing Logic

The following points highlight typical processing for a P&I rule processing algorithm that calculates a penalty or interest charge.

• The algorithm should first check whether the charge is applicable for the current period and for the current assessment. This information is populated in the base internalPenaltyAndInterestDataArea by a P&I pre-processing algorithm that may determine that this charge is only applicable for certain time periods and / or for certain assessments. If it's not applicable, the algorithm checks to see if existing charges need to be cleaned up using the 'align existing and running charges' logic (see below).

• If the charge is applicable, then the algorithm should apply the charge as per the business rules.
• If the P&I calculation is called with the P&I Detailed Forecast action, the algorithm should populate appropriate calculation details in the calculation info collection.
• The algorithm should include a step to Align Existing and Running Charges, which should compare the existing charges in the database (from the previous P&I update) to the current running P&I collection.

• If the total of the current running charges is more than the existing charges a new charge should be added to the working FT collection for the difference.

• If the total of the current running charges is less than the existing charges, the base recommendation is for the algorithm to mark the appropriate existing charges as "canceled" in the working FT collection by populating the Cancel Reason from the P&I Rule and to add a new entry for the new smaller amount.

• If the P&I calculation is called with the P&I Detailed Forecast action, the calculation details from the running charges should be added to the working FT collection.