Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 70-13

1970-1 C.B. 272

IRS Headnote

Credits by a telephone company to the individual capital accounts of its patrons for communications tax paid on amounts in excess of operating costs and expenses constitute repayments to the patrons within the meaning of section 6415(a) of the Code; Revenue Ruling 68-206 amplified.

Full Text

Rev. Rul. 70-13

Advice has been requested whether, under the circumstances described below, a credit to the individual capital account of a patron subscribing to the service of a telephone cooperative constitutes a repayment to the patron within the meaning of section 6415(a) of the Internal Revenue Code of 1954.

The cooperative, which is exempt from Federal income tax under section 501(c)(12) of the Code, provides complete telephone service to its patrons. The communications tax imposed by section 4251 of the Code is collected on monthly assessments made against patrons for such service. The cooperative is obligated by its bylaws to credit individual capital accounts of patrons with a proportionate part of any amount received during the year in excess of operating costs and expenses.

The bylaws provide that the amounts credited to the patrons' accounts shall have the same status as though they had been paid to the patron in cash in pursuance of a legal obligation to do so and the patrons had then furnished the cooperative corresponding amounts for capital. They also provide that each patron must be notified of the amount of capital so credited to his account.

Upon dissolution or liquidation of the cooperative the capital account of each patron must be retired. However, in the case of death of a patron the board of directors may retire the capital credited to the decedent's account. Furthermore, if at any time prior to dissolution or liquidation, the board of directors determines that the financial condition of the cooperative will not be impaired the capital accounts of the patrons may be retired in full or in part.

The bylaws state that, by dealing with the cooperative, the patrons acknowledge that the terms and provisions of the articles of incorporation and the bylaws constitute a contract between the cooperative and each patron and that both parties are bound by the contract as though the patron had individually signed a separate instrument containing the terms and provisions of the bylaws.

Section 6415(a) of the Code provides that credit or refund of any overpayment of the communications tax imposed by section 4251 of the Code may be allowed to the person who collected the tax and paid it over to the Secretary or his delegate if such person establishes, under such regulations as the Secretary or his delegate may prescribe, that he has repaid the amount of such tax to the person from whom he collected it, or obtains the consent of such person to the allowance of such credit or refund.

Under section 130.78 of Regulations 42, (made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47) relating to the "collected" excise taxes, when a collecting agency has erroneously or illegally overcollected and overpaid any communications taxes due, it may claim a refund of the overpayment if it is established by affidavit or otherwise as may be required that (1) the tax so overcollected and overpaid has been returned to the person from whom collected or (2) the collecting agency has obtained the written consent of such person to the granting of the refund.

Revenue Ruling 68-206, C.B. 1968-1, 557, holds, under circumstances similar to those in this case, that credit or refund of the tax paid on amounts in excess of operating costs and expenses may be allowed to a telephone cooperative, provided it pays the amount of the tax to the members of the cooperative from whom the tax was collected, or obtains the consent of the members to the allowance of the credit or refund.

In this case the patron, by subscribing to the services of the cooperative, is bound by the bylaws of the cooperative and, therefore, has agreed that the cooperative, instead of directly refunding to him any overpayment of communications tax, will credit his capital account with the overpayment and that the credit has the same effect as if the cooperative had refunded the overpayment to him and he had returned it as additional capital.

Accordingly, it is held that, under the bylaws and accounting method described, the credits to the individual capital accounts include tax paid on amounts paid by patrons in excess of operating costs and expenses and, to the extent of such tax, constitute repayments of the communications tax within the meaning of section 6415(a) of the Code and section 130.78 of the regulations. Upon the filing of a claim such repayments must be substantiated by an affidavit, executed by the board of directors of the telephone cooperative and attached to the claim, stating that credits have actually been made to the individual capital accounts in an aggregate amount equal to excess charges for service, including the excess payments of communications taxes being claimed.

Revenue Ruling 68-206 is hereby amplified.