Rev. Rul. 58-369

Advice has been requested whether an addition for underpayment of estimated tax may be asserted against a taxpayer under the facts and circumstances described below.

The taxpayer, an individual, files his Federal income tax returns on a calendar-year basis. The return filed by the taxpayer for the calendar year 1956 reported an item of adjusted gross income but no taxable income after applying a net operating loss carry-over. The taxpayer's status with respect to personal exemptions under section 151 of the Internal Revenue Code of 1954 will be the same for the year 1957 as it was in 1956 and his income for the year 1957 will approximate his 1956 income before application of the net operating loss deduction. The tax rates for the two years in question are the same.

Section 6654 of the Code reads, in part, as follows:

(a) ADDITION TO THE TAX.-In case of any underpayment of estimated tax by a individual, except as provided in subsection (d), there shall be added to the tax under chapter 1 for the taxable year an amount determined at the rate of 6 percent per annum upon the amount of the underpayment * * *

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(d) EXCEPTION.-Nowithstanding the provisions of the preceding subsections, the addition to the tax with respect to any underpayment of any installment shall not be imposed if the total amount of all payments of estimated tax made on or before the last date prescribed for the payment of such installment equals or exceeds whichever of the following is the lesser-

(1) The amount which would have been required to be paid on or before such date if the estimated tax were whichever of the following is the least-

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(B) An amount equal to the tax computed, at the rate applicable to the taxable year, on the basis of the taxpayer's status with respect personal exemptions undersection 151 for the taxable year, but otherwise on the basis of the facts shown on his return for, and the law applicable to, the preceding taxable year, * * *

It is clear that section 6654(d)(1)(B) of the Code provides for an exception to the addition to the tax imposed by section 6654(a) where the total amount of all payments of estimated tax made on or before the last date prescribed for the payment of such installations equals or exceeds an amount equal to the tax computed, at the rates applicable to the taxable year, on the basis of the taxpayer's status with respect to personal exemptions for the taxable year, but otherwise on the basis of the facts shown on his return for, and the law applicable to, the preceding taxable year.

Accordingly, it is held that section 6654(d)(1)(B) of the Code precludes the assertion of the addition to the tax for underpayment of estimated tax for the current year when the return for the prior year reflects no taxable income after giving effect to the taxpayer's status with respect to personal exemptions under section 151 of the Code for the current taxable year.