Various events may cause the system to recalculate historic penalty and interest:
Back-dated payment
Waive existing penalty or interest
Change to the obligation's override filing due date
Canceling an assessment
For normal requests from the system to "bring P&I up to date", where historical calculations are not affected, the system still recalculates the P&I from the beginning every time.
One reason for this logic is to ensure that P&I is always accurate. It could be that something has changed in the system that does affect historical calculations and a request to recalculate historical P&I was not performed. The next time P&I runs, recalculating from the beginning ensures that the latest calculation reflects the correct charge.
Another important reason to recalculate P&I from the beginning every time P&I is brought up to date is to avoid rounding issues that may occur over time.
Consider the following example.
A monthly penalty amount for a delinquent taxpayer is 34.3444
If the system calculates, rounds and posts, each month ignoring the running total, the penalty after 2 months is
Month 1 calculation: 34.3444, rounded to 34.34
Month 2 calculation: 34.3444, rounded to 34.34
Total: 68.68
If instead the system keeps track of the running total and creates the adjustment based on the latest running total, the calculation is as follows:
Month 1 calculation: 34.3444, rounded to 34.34
Month 2 calculation: 34.3444 + 34.3444 = 68.6888 less amount already posted (34.34): 34.3488, rounded to 34.35
Total: 68.69
Over time these rounding differences add up. To avoid that the system calculates from the beginning every time P&I is calculated and the running total is kept throughout the calculations.
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