2004 minimum required contribution = $100,000
2004 contribution made on 9/15/2005 = $110,000
Therefore, 12/31/2004 Credit Balance = $10,000

2005 quarterlies = $25,000

The entire contribution for 2005 is made on 9/15/2006.

175% AFR = 7%

Val Rate = 6%

What is the late quarterly interest on the 4/15/05 payment?

Obviously, we can't offset the quarterly by the credit balance until the 2004 contribution is made.

Further, it's certainly true that the credit balance should get interest from 1/1 once it is made.

Is this correct (I'll use months for elapsed time for simplicity):

CB @ 4/15 = 10,000 * 1.06^(3.5/12) = 10,171

Late 4/15 Q interest =

25,000 * (1.07^(5/12) - 1.06^(5/12)) Interest from 4/15 to 9/15/05

PLUS

(25,000 - 10,171) * (1.07^(12/12) - 1.06^(3.5/12)) Int from 9/15/05 to 9/15/06

I've heard arguments that the quarterly should be accumulated with interest to 9/15 and the CB should get interest to 9/15, then the difference should get penalty interest beyond that, but I have trouble crediting interest to the CB beyond 4/15 since it was not sufficient to meet the quarterly as of that date.

Any thoughts?

I was a little confused by your last couple of sentences. But I believe that you are asking if the credit balance is applied to the quarterly required payment even though it is contributed after the due date. The answer is that it is not, per Notice 89-52 Q & A 12.

My results are the same as yours although I did the calculation a little differently. I had an interest penalty of 1% (7%-6%) on the $25,000 required payment from 4-15-05 to 9-15-05, plus 1% (7%-6%) interest on $15,000 ($25,000-10000) from 9/15/05 to 12/31/05, plus 7% interest on $15,000 from 1-1-06 to 9-15-06.

Is the answer different if the 2005 contribution is made in 2007 - well after the funding deadline?

If a contribution is made after the 8-1/2 month deadline, it cannot be counted for the prior year's funding standard account. In the same vein, the interest penalty stops accruing on that deadline, whether or not the contribution has been made.