Internal Revenue Service
Revenue Ruling
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smRev. Rul. 61-58
1961-1 C.B. 414
IRS Headnote
Where refunds of Federal estate tax are made in cases involving credit for state inheritance taxes, (1) a refund based entirely on credit for state inheritance taxes will be made without interest, (2) a refund based partially on credit for state inheritance taxes and partially on other adjustments will bear interest only on that portion of the refund attributable to adjustments other than the credit for state inheritance taxes, and (3) a refund based entirely on adjustments other than credit for state inheritance taxes will bear interest on the entire amount of the refund.
Revenue Ruling 55-69, C.B. 1955-1, 461, superseded.
Full Text
Rev. Rul. 61-58
In view of th decision of the United States Court of Claims in the case of Morgan Guaranty Trust Company of New York, et al. v. United States , 227 Fed.(2d) 466, the position stated in Revenue Ruling 55-69, C.B. 1955-1, 461, has been reconsidered.
Section 2011(a) of the Internal Revenue Code of 1954 provides, in effect, that the Federal estate tax shall be credited with the amount of any estate, inheritance, legacy, or succession taxes actually paid to a State or Territory or the District of Columbia. With respect to this credit, section 2011(c) of the Code provides as follows:
The credit allowed by this section shall include only such taxes as were actually paid and credit therefor claimed within 4 years after the filing of the return required by section 6018, except that-
(1) If a petition for redetermination of a deficiency has been filed with the Tax Court within the time prescribed in section 6213(a), then within such 4-year period or before the expiration of 60 days after the decision of the Tax Court becomes final.
(2) If, under section 6161, an extension of time has been granted for payment of the tax shown on the return, or of a deficiency, then within such 4-year period or before the date of the expiration of the period of the extension.
(3) If a claim for refund or credit of an overpayment of tax imposed by this chapter has been filed within the time prescribed in section 6511, then within such 4-year period or before the expiration of 60 days from the date of mailing by certified mail or registered mail by the Secretary or his delegate to the taxpayer of a notice of the disallowance of any part of such claim, or before the expiration of 60 days after a decision by any court of competent jurisdiction becomes final with respect to a timely suit instituted upon such claim, whichever is later. Refund based on the credit may (despite the provisions of sections 6511 and 6512) be made if claim therefor is filed within the period above provided. Any such refund shall be made without interest . (Italics added)
Revenue Ruling 55-69 holds that where an allowance of credit for state inheritance taxes is made after a final determination of the Federal estate tax liability, the refund attributable to the allowance of such credit would not bear interest.
In the Morgan Guaranty Trust Company decision the court held that the estate there involved was entitled to interest on the entire amount of a refund since no part of the refund could be based upon the allowance of credit for state taxes where such taxes were paid before to the filing of the Federal estate tax return and no additional state taxes were later paid.
The decision reached in Morgan Guaranty Trust Company is thus contrary to Revenue Ruling 55-69 and is distinguishable on the facts from the decision of the United States Court of Appeals for the Second Circuit in Guaranty Trust Company of New York v. United States , 192 Fed.(2d) 164, upon which the Revenue Ruling was based.
It is evident, however, that the reasoning in Morgan Guaranty Trust Company , which follows the decisions in Georgette G. V. Fahnestock v. United States , 95 Fed.Supp. 232, and J. P. Morgan & Company, Inc. v. United States , 145 Fed.Supp. 927, represents the weight of case law in this issue.
In the determination of whether a refund of an overpayment of Federal estate tax should bear interest, the refund will fall into one of three general categories, namely (1) a refund based entirely on credit for state inheritance taxes, (2) a refund based partially on credit for state inheritance taxes and partially on other adjustments, or (3) a refund based entirely on adjustments other than credit for state inheritance taxes.
A refund based entirely on credit for state inheritance taxes may be characterized as a refund of Federal estate taxes which would never have been assessed and paid if state inheritance taxes for which credit was allowable actually had been paid and the proper credit claimed.
The typical refund based entirely on credit for state inheritance taxes is exemplified by the situation wherein a Federal estate tax return is filed indicating the gross estate tax to be $65,700. At the time the return is filed, no state inheritance tax had been paid, no credit was claimed, and the gross estate tax shown on the return was paid. Three years later various differences with the state tax authorities are settled, inheritance taxes in the amount of $10,000 are paid to the state, and a credit against the Federal estate tax is claimed in the amount of $3,920. No other adjustment to the return has been proposed. In this example, the resulting refund would be based entirely on credit for state inheritance taxes, within the meaning of section 2011(c) of the 1954 Code, and would be made without interest.
The facts presented in Revenue Ruling 55-69 are illustrative of refunds which, being based partially on credit for state inheritance taxes and partially on other adjustments, fall into the second category. That Revenue Ruling involved a case where the executor of the estate filed a Federal estate tax return showing a gross estate tax liability of $65,700, credit for state inheritance tax of $3,920, and a net tax liability of $61,780 which was assessed and paid. Upon audit of the return an additional deduction of $10,000 was allowed for administration expenses, which reduced the gross estate tax liability to $62,700. As the evidence in support of the credit claimed for state inheritance taxes was not submitted, the credit was disallowed and the audit resulted in a deficiency of $920. A statutory notice was subsequently issued determining a deficiency of $920. As a petition was not filed with The Tax Court of the United States, the deficiency was duly assessed and paid. Thereafter, the executor filed a timely claim for refund of $3,600 and submitted therewith evidence which entitled the estate to a credit of $3,600 for state inheritance taxes paid, resulting in an overpayment of $3,600.
In this case $920 of the amount of the overpayment of $3,600 would be considered to be based on the allowance of the credit for state inheritance taxes and that portion of the refund would not bear interest. The remaining $2,680 of the overpayment would be considered to be based on other adjustments and that portion of the refund would bear interest accordingly.
Facts illustrative of a case involving the third or final category would be one in which the executor of the estate filed a Federal estate tax return showing a gross estate tax liability of $65,700, credit for state inheritance tax of $3,920, and a net tax liability of $61,780 which was assessed and paid. Upon audit of the return and additional deduction of $20,000 was allowed for administration expenses, which reduced the gross estate tax liability to $59,700. As the evidence in support of the credit claimed for state inheritance taxes was not submitted, the credit was disallowed and the audit resulted in an overpayment of $2,080, which was duly refunded. Thereafter, the executor filed a timely claim for refund of $3,360 and submitted therewith evidence which entitled the estate to a credit of $3,360 for state inheritance taxes paid, resulting in an additional overpayment of $3,360.
Following the rationale of the decision in the Morgan Guaranty Trust Company case, where the refund was due to adjustments other than credit for state inheritance taxes, and an excessive credit was taken for such state taxes when the return was filed, the correct credit only served to reduce the overassessment from a higher amount. Thus, if there had been no adjustment of the Federal estate tax other than the submission of evidence entitling the estate to a credit for state inheritance taxes paid, there would have been no overassessment of any kind and no overpayments to be refunded. Consequently, both refunds, in the amounts of $2,080 and $3,360, would be considered to be based on adjustments other than credit for state inheritance taxes and would bear interest accordingly.
In view of the foregoing, it is held that, even though an adjustment may be made to the credit for state inheritance taxes claimed on the return, if such an adjustment does not, in the final analysis, tend to increase the amount of any refund otherwise allowable, the entire amount of such refund is based on other adjustments and will bear interest. Conversely, if an adjustment of the credit for state inheritance taxes claimed on the return tends to increase the amount of any refund otherwise allowable, then that portion of the refund which, in the final analysis, represents the increase in the refund due to the adjustment of the credit will not bear interest.
Attention is called to the fact that while, under section 2011(c) of the Code, a period of four years is granted within which to make a timely claim for refund of state inheritance taxes paid, any claim for a refund based on other adjustments must be made within the period prescribed by section 6511 of the Code.
Revenue Ruling 55-69, C.B. 1955-1, 461, is hereby superseded.