Rev. Rul. 81-77
1981-1 C.B. 582, 1981-10 I.R.B. 36.
Internal Revenue Service
Revenue Ruling
REPORT TO JOINT COMMITTEE; OVERPAYMENT EXCEEDING $200,000 OFFSET BY
MERGER PARTNER'S DEFICIENCY
Published: Publication Date: March 9, 1981
SECTION 6405.--REPORTS OF REFUNDS AND CREDITS, 26 CFR 301.6405-1: Reports of refunds and credits
Report to Joint Committee; overpayment exceeding $200,000 offset by merger partner's deficiency. A merged corporation's deficiency for a tax year before the merger may not offset an overpayment of its merger partner for a premerger tax year to determine whether a refund report must be made to the Joint Committee on Taxation.
ISSUE
If corporation Y, which has a deficiency of $400,000 for 1978, and corporation Z, which has made an overpayment of $300,000 for 1978, both merge into corporation X, can the premerger overpayment and deficiency be aggregated for purposes of determining whether there is a credit or refund that must be reported to the Joint Committee on Taxation?
FACTS
After the close of business on December 31, 1978, Y and Z, both of whom filed returns on a calendar year basis, were merged into X. Separate returns were filed for each corporation for the taxable year 1978. The tax shown on the returns had been paid by deposits of estimated tax. Upon examination, the Internal Revenue Service determined that Y had a deficiency of $400,000 for 1978. The Service also determined that Z had made an overpayment of $300,000 for 1978.
LAW AND ANALYSIS
Section 6402(a) of the Internal Revenue Code provides that the Secretary may credit the amount of any overpayment against any liability in respect of an internal revenue tax on the part of the person who made the overpayment and shall refund the balance to such person.
Section 6405(a) of the Code provides that no refund or credit of any income tax in excess of $200,000 shall be made until after the expiration of 30 days from the date upon which a report giving the name of the person to whom the refund or credit is to be made, the amount of refund or credit, and a summary of the facts and the decision of the Secretary is submitted to the Joint Committee on Taxation.
The laws of many states specify that the corporation surviving a statutory merger assumes all the powers, rights, debts, and liabilities of the corporation merged into it. Under such laws, the successor corporation becomes primarily liable with regard to the tax liabilities of the merged corporation. See Missile Systems Corp. v. Commissioner, T.C.M. 1964-212. In the present situation, X, as the successor corporation, is primarily liable with regard to the tax liabilities of Y and Z, but, the income tax liability of each of the absorbed corporations remains separate and distinct. Each liability arose from a different set of facts, was reported on a separate return, and would present a distinct cause of action upon which proceedings would be maintained independently.
Although section 6402(a) authorizes the Service to credit an overpayment for one type of tax against a deficiency relating to a different type of tax, the amount due as a refund or credit relating to one type of tax is initially determined without regard to whether the taxpayer also owes a deficiency for another type of tax, or for the same type of tax but for a different tax year. It follows that an overpayment and a deficiency relating to two separate tax liabilities of two separate taxpayers, which have been reported on two separate returns, cannot be aggregated under section 6405(a) of the Code, since each liability is dealt with independently. Thus, for purposes of section 6405(a), the income tax liabilities relating to the absorbed corporations cannot be aggregated but must be dealt with separately.
HOLDING
The deficiency of Y may not be netted against the overpayment of Z in determining whether the Service must make a report to the Joint Committee.
Rev. Rul. 81-77, 1981-1 C.B. 582, 1981-10 I.R.B. 36.