Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 60-99

1960-1 C.B. 363

Sec. 1481

IRS Headnote

Where a governmental agency has charged a taxpayer interest on the repayment, by installments, of gross excessive profits under a price redetermination settlement, the amount of the credit or refund otherwise allowable to the taxpayer  as a result of the elimination of such excessive profits will include an amount equivalent to the interest so charged.

Full Text

Rev. Rul. 60-99

Advice has been requested regarding the applicability of section 1481(b) of the Internal Revenue Code of 1954 to a refund or credit allowed under section 1481(c) of the Code in connection with repayments of gross excessive profits to a government agency under a price redetermination settlement.

In the instant case, installment repayments of gross excessive profits under a price redetermination settlement were made to a contracting agency by the taxpayer without any tax credit. The contracting agency charged and collected interest at the rate of four percent per annum on the gross repayments for certain respective periods, representing interest charged for the right to make the repayments in installments. Since no tax credit was allowed in conjunction with the repayments, the credit allowable was later scheduled and allowed as an overpayment as provided by section 1481(c), computed and allowed in accordance with the provisions of section 1481(b)(3) of the Code and Revenue Ruling 54-82, C.B. 1954-1, 286.

The question for consideration is whether, in computing the credit or refund under section 1481(c), the amount determined to be due to taxpayer should be increased by any part of the interest charged the taxpayer by the renegotiation agency for the privilege of making installment repayments.

Section 1481(b)(3) of the Code, dealing with the allowance of interest in connection with a credit against repayment on account of the renegotiation or allowance of government contracts, provides that in determining the amount of the credit under this subsection no interest shall be allowed with respect to the amount ascertained under paragraph (1) of section 1481(b); except that if interest is charged by the United States or the agency thereof on account of the disallowance for any period before the date of the payment, repayment or offset, the credit shall be increased by an amount equal to interest on the amount ascertained under such paragraph at the same to interest for the period (prior to the date of the payment, repayment, or offset) as interest is so charged.

Under the circumstances of this case, the interest was charged by the contracting agency for loss of the use of the money (on account of the excessive profits eliminated) during the installment payment period. Since the United States Government has had the use of the money which the taxpayer paid in taxes on the excessive profits eliminated for the same respective periods, it is within the intendment of section 1481(b)(3) of the Code than an amount equivalent to interest should be allowed the taxpayer at the same rate for the use of its money during the installment payment period.

Accordingly, it is held that where the governmental contracting agency has charged a taxpayer interest on the repayment, by installments, of gross excessive profits under a price redetermination settlement, the amount of the credit or refund otherwise allowable to the taxpayer as a result of the elimination of such excessive profits shall be increased by an amount equal to interest on such amount at the same rate and for the period (prior to the date of the repayment) as interest was charged. The amount thus used to increase the allowable credit or refund does not constitute statutory interest but becomes a part of the interest-bearing refund. Statutory interest on the overpayment of tax will be allowed on the total refund computed from the respective dates of the overpayments.