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Revenue Ruling

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 Rev. Rul. 63-63

1963-1 C.B. 10

Caution:Amplified by Rev. Rul. 66-336

Full Text

Rev. Rul. 63-63 /1/

Numerous inquiries have been received from corporate taxpayers concerning the effect of the new investment credit on the computation of earnings and profits.

Section 38 of the Internal Revenue Code of 1954 provides a credit against Federal income tax for investment in certain new or used depreciable property for the taxable year such property is placed in service. Section 48 of the Code requires adjustment to the basis of such property. The credit against Federal income tax, by reducing the tax liability, provides the corporation with funds not otherwise available. Further, in certain cases of early disposition, section 47 of the Code provides for an addition to the tax for the year of such disposition of a portion or all of the original credit.

Under these circumstances, it would be inappropriate in computing earnings and profits to allow as a decrease thereto the gross amount of Federal income tax liability before reduction by the amount of the investment credit. Similarly, the adjustment to basis required by section 48 of the Code for the year the property is placed in service may not be reflected as a reduction in earnings and profits for such year.

/1/ Based on Technical Information Release 458, dated Feb. 28, 1963.