Rev. Rul. 56-457

The Internal Revenue Service has received inquiries from carriers regarding the applicability of Public Law 796, 84th Congress, 70 Stat. 644, page 1180, of this Bulletin, which exempts certain additional foreign travel from the tax on the transportation of persons imposed by section 4261 of the Internal Revenue Code of 1954.

The inquiries relate to the treatment of fares paid by passengers prior to October 1, 1956, for transportation which will not commence until on or after October 1, 1956. The carriers anticipate that prior to October 1, 1956, these passengers will request a return of the fares paid but, nevertheless, will expect the carriers to continue to hold or reserve their transportation, and the passenger will then make payment for the contemplated transportation on or after October 1, 1956. The carriers indicate their willingness to comply with the passenger's request but desire to reserve a portion of the fare as a deposit in any case where a passenger requests refund of the fare and yet wishes to hold his reservation. The inquiries also relate to the treatment of payments made prior to October 1, 1956, for roundtrip transportation consisting of an out-bound journey before October 1, 1956, and a home-bound journey on or after that date.

Under the specific provision of section 6 of Public Law 796, the amendments made by that law apply only to amounts paid on or after October 1, 1956, for transportation commencing on or after that date. Therefore, in any case where a payment for transportation is made to a carrier prior to October 1, 1956, the amendments made by Public Law 796 do not apply and the carrier must collect the tax in accordance with the provisions of the law prior to such amendments even though the transportation does not begin until October 1, 1956, or a later date. However, where an amount is paid to a carrier as a deposit for the purpose of reserving accommodations, such amount does not, at that time, constitute a payment for the transportation of persons within the meaning of the statute. At the time the passenger pays the remainder of his fare and is given credit for the deposit against the total amount due for his transportation, the amount of the deposit will then constitute a payment for transportation and the taxability of such payment will be determined by the provisions of the statute in effect at that time. Therefore, carriers will not be required to collect any tax on deposits received by them prior to October 1, 1956, to reserve accommodations for transportation which will commence on or after that date and for which the passenger will make payment on or after that date.

Regarding refunds of transportation payments on which the tax has been collected, section 6415 of the Code provides as follows:

(a) ALLOWANCE OF CREDITS OR REFUNDS.-Credit or refund of any overpayment of tax imposed by section * * * 4261 * * * may be allowed to the person who collected the tax and paid it 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.

(b) CREDIT ON RETURNS.-Any person entitled to a refund of tax imposed by section * * * 4261 * * * paid, or collected and paid, to the Secretary or his delegate by him may, instead of filing a claim for refund, take credit therefor against taxes imposed by such section due upon any subsequent return.

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(d) REFUND OF TAXABLE PAYMENT.-Any person making a refund of any payment on which tax imposed by section * * * 4261 * * * has been collected may repay therewith the amount of tax collected on such payment.

In accordance with the foregoing provisions of the Code, where a payment is made prior to October 1, 1956, for transportation commencing on or after that date but the passenger subsequently cancels his reservation and the carrier, in accordance with its usual business practices and procedures, refunds the transportation payment to the passenger, the carrier may also refund the amount of the tax collected on such payment and take credit therefor on a subsequent quarterly return. In such cases, if the carrier makes a refund of all the transportation payment except the amount normally required by it as a deposit to hold a reservation, the refund will be considered to constitute a refund of the total transportation payment and the carrier may refund all of the tax collected on such payment.

In the case of tax collected on payments made prior to October 1, 1956, for round-trip transportation consisting of an out-bound journey before October 1, 1956, and a home-bound journey on or after that date, if, before commencing the return trip, the passenger (1) actually cancels his contract with the carrier for his return transportation thereby relinquishing his right to receive any reduction in his fare by reason of such return transportation, and (2) is charged the one-way fare for the out-bound journey and the one-way fare for any transportation subsequently purchased by him for the home-bound journey, the carrier, at the time it makes a refund to the passenger of the amount paid in excess of the one-way fare for the out-bound journey, may also refund the tax collected on such amount. Unless there is compliance with the conditions set forth in (1) and (2) of the preceding sentence, the carrier is not considered to have made a refund of the payment for the home-bound journey within the meaning of section 6415(d) of the Code, and the carrier is not authorized to refund any part of the tax collected by it on the payment for the round-trip transportation.

In any case where a carrier is authorized to make a refund of the tax on a transportation payment refunded by it, the carrier, instead of refunding the tax at that time, may obtain the written consent of the person from whom the tax was collected to the allowance of a credit or refund of the tax to the carrier. The carrier may either take a credit on a subsequent quarterly return for the tax it has repaid or for which it has written consents, or file a claim for refund thereof in accordance with the applicable requirement of subpart G of Regulations 42, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47.