Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 56-3

1956-1 C.B. 685

IRS Headnote

Under the provisions of section 3477 of the Revised Statutes, a voluntary assignment of a right to file a claim for credit or refund of manufacturers excise tax is not recognized.

Full Text

Rev. Rul. 56-3

Advice has been requested whether a successor by purchase may file claims for refund or credit of manufacturers excise tax which has been paid by a prececessor.

A company purchased the plant and manufacturing activities of another company which was engaged in manufacturing musical instruments. Many of the musical instruments on which the predecessor had paid the manufacturers excise tax were still in the hands of dealers at the time the business was purchased by the successor. Subsequently, a number of those musicial instruments were sold to religious or nonprofit educational institutions. The predecessor is now engaged in other business activity and wishes to avoid, in the case of such tax-exempt sales, the necessity for reimbursing the dealers and filing claims for refund. Therefore, the predecessor executed, in favor of the successor, an assignment of its right to file any claims for refund or credit of the manufacturers excise tax paid by it on such instruments and authorized the successor to file such claims in its own name and to receive the payment or credit.

Section 3404(d) of the Internal Revenue Code of 1939 provides that musical instruments sold to religious or nonprofit educational institutions for exclusively religious or deducational purposes are exempt from tax. Section 3343(a)(3)(A)(i) of the Code provides for the allowance of a credit or refund on tax-paid musical instruments sold to either of the foregoing classes of institutions exclusively for the purposes stated.

Section 3477 of the Revised Statutes 31 U.S.C. 203 provides for the general rule that all transfers and assignments made of any claim upon the United States, or any part or share thereof, or interest therein, whether absolute or conditional, and whatever may be the consideration therefor, and all powers of attorney, orders, or other authorities for receiving payment of any such claim, or of any part or share thereof, shall, with certain exceptions not here material, be absolutely null and void, unless they are freely made and executed in the presence of at least two attesting witnesses, after the allowance of such a claim, the ascertainment of the amount due and the issuing of a warrant for the payment thereof.

Despite the broad sweep of the language of section 3477 of the Revised Statutes, some exceptions to the above general rule have become well recognized. Thus, it has been held that involuntary assignments, that is, transfers by operation of law, are not within the statute. Furthermore, some types of voluntary assignments, such as transfers by will and general assignments for the benefit of creditors, have been recognized as exceptions to section 3477. Similarly, the statute does not apply to a transfer resulting from a statutory merger or consolidation of two corporations.

In the instant case, the transfer of the assets was by purchase and the assignment was a voluntary act of the parties. Accordingly, it is held that, under these circumstances, only the prececessor has a right to file a claim for refund or credit of manufacturers excise tax paid by it, and that the assignment which has been executed in this case may not be recognized. Therefore, credit or refund will be allowed only to predecessor who actually paid the tax.