Rev. Rul. 87-53

1987-1 C.B. 348, 1987-26 I.R.B. 29.

INTEREST ON UNDERPAYMENTS

Published: June 29, 1987

Section 6601.-Interest on Underpayment, Nonpayment, or Extensions of Time for Payment of Tax, 26 CFR 301.6601-1: Interest on underpayments

  Interest on underpayments. A fiscal year taxpayer whose 1986 income tax was due before enactment of the Tax Reform Act of 1986, and whose income tax was underpaid because of a retroactive provision of the Act, owes interest on the underpayment from the last date prescribed for payment of the taxpayer's 1986 taxes.

ISSUE

  If a fiscal-year taxpayer's income tax was due before enactment of the Tax Reform Act of 1986, 1986-3 (Vol. 1) C.B. ___ (Act), and the taxpayer underpaid its tax because deductions or credits claimed on the return were subsequently repealed by the Act, does interest accrue on the underpayment from the due date of the return, which is the last date prescribed for payment of taxes, or from October 22, 1986, the date of enactment of the Act?

FACTS

  TP is a fiscal year taxpayer. TP paid its 1986 income tax on September 15, 1986, the last date prescribed for payment of TP's tax liability. The amount of tax paid by TP on September 15, 1986, was the proper amount as of that date. The retroactive repeal of the investment tax credit by section 211(a) of the Act increased TP's income tax liability for the fiscal year ending in 1986. Thus, TP's 1986 income tax was underpaid.

LAW AND ANALYSIS

  Section 6601(a) of the Internal Revenue Code provides that if any amount of tax is not paid on or before that last date prescribed for payment, interest on such amount at the rate established under section 6621 shall be paid for the period from such last date to the date paid.

  Section 6601(b) of the Code provides that the last date prescribed for payment of the tax shall be determined under chapter 62 with the application of certain rules set forth in paragraphs (1) through (5) of section 6601(b). Section 6601(b)(5) of the Code provides that in cases in which the last date for payment is not otherwise prescribed, the last date for payment is deemed to be the date the liability for tax arises.

  Section 6151(a) of the Code, which is in chapter 62, provides that the person required to make a return of tax shall pay such tax at the time and place fixed for filing the return (determined without regard to any extension of time for filing the return).

  Sections 6012, 6013, and 6017 of the Code impose requirements to make a return of income.

  Section 6072 of the Code fixes the time for filing returns.

  Because the provisions of chapter 62 expressly prescribe the last date for payment of income taxes, section 6601(b)(5) of the Code does not apply.

  Section 1543 of the Act provides that no addition to tax shall be made under section 6654 or 6655 of the Code (relating to failure to pay estimated tax) for any period before April 16, 1987 (March 16, 1987, in the case of a taxpayer subject to section 6655), with respect to any underpayment, to the extent the underpayment was created or increased by any provision of the Act. The Act does not provide similar relief with respect to interest under section 6601 for any period before April 16, 1987 (March 16, 1987), in the case of a corporate taxpayer). Rev. Rul. 86-136, 1986-48 I.R.B. 9, interprets section 1543 of the Act and indicates that because the Act provides no relief from interest imposed on underpayments of tax liability, fiscal year taxpayers may owe interest on underpayments for periods that include time before the date of enactment of the Act, regardless of the cause of the underpayments.

  Interest is due on retroactive tax increases unless Congress forgives it. Brown & Williamson, Ltd. v. United States, 688 F.2d 747, 749 (Ct. Cl. 1982), concerned an overpayment caused by retroactive application of a treaty. The court held that the government owed the taxpayer interest on the overpayment from the date of payment of the tax and not from the effective date of the treaty. The court cited as support for its result the general rule that a taxpayer is liable for interest on underpayments resulting from a retroactive increase in tax, even though the payments were proper when made. Rev. Rul. 84- 133, 1984-2 C.B. 309, holds that the Service will follow the decision in Brown & Williamson.

  In the absence of specific legislative relief, the Internal Revenue Service is required to assess the additions to tax, interest, and penalties attributable to the tax-increasing provisions of retroactive legislation. S. Rep. No. 66, 95th Cong., 1st Sess. 86 (1977), 1977-1 C.B. 469, 497.

HOLDING

  A fiscal-year taxpayer whose 1986 income tax was due before the enactment of the Act and whose income tax was underpaid because of a retroactive provision of the Act owes interest on the underpayment from the last date prescribed for payment of the taxpayer's 1986 taxes.

Rev. Rul. 87-53, 1987-1 C.B. 348, 1987-26 I.R.B. 29