Rev. Rul. 59-405

Advice has been requested whether the timely filing of a return for a coin-operated amusement device which is later determined to be a coin-operated gaming device precludes the assessment of the delinquency penalty for failure to file a return for the coin-operated gaming device. Further advice has been requested whether, under such circumstances, a credit or refund of the special tax paid on the coin-operated amusement device is allowable.

For several years a person timely filed a return on Form 11-B, Special Tax Return, and paid the special ten-dollar tax on coin-operated amusement devices for certain machines which he maintained for use on his premises. Subsequently it was determined that such machines were in fact coin-operated gaming devices rather than amusement devices.

Under the provisions of section 4461 of the Internal Revenue Code of 1954, a special tax is imposed upon every person who maintains for use or permits the use of, on any place or premises occupied by him, a coin-operated amusement or gaming device as defined by section 4462 of the Code.

Section 6651(a) of the Code provides, in part, that in the case of a failure to file a required return, unless it is shown that such failure to file a return is due to reasonable cause and not due to willful neglect, there shall be added to the amount required to be shown as tax on such return five percent of the amount of such tax if the failure is for not more than one month, with an additional five percent for each additional month or fraction thereof during which such failure continues, not exceeding 25 percent in the aggregate.

Section 6402(a) of the Code provides the general rule that in the case of any overpayment, the Secretary of the Treasury or his delegate, within the applicable period of limitations, to constitute an overpayment solely such overpayment, including interest thereon, against any liability in respect of an internal revenue tax on the part of the person who made the overpayment and shall refund any balance to such person. Under the provisions of section 6401(c) of the Code, an amount paid as tax shall not be considered not to cosntitute an overpayment solely by reason of the fact that there was no tax liability in respect of which such amount was paid. Section 6511(a) of the Code provides, in part, that a claim for credit or refund of an overpayment of any tax imposed under the Code, in respect of which tax the taxpayer is required to file a return, shall be filed by the taxpayer within three years from the time the return was filed, or two years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within two years from the time the tax was paid.

Although the special taxes on coin-operated amusement devices and coin-operated gaming devices are imposed under the same section of the Code, these devices are separate classes of coin-operated devices as defined in section 4462 of the Code. The rate of tax is ten dollars per annum on coin-operated amusement devices and $250.00 per annum on coin-operated gaming devices.

A separate return on Form 11-B is required for each class of special tax. Therefore, the filing of a return for an amusement device covers only that one class of device. Under such circumstances, no return has been filed for a gaming device.

Accordingly, it is held that the timely filing of a coin-operated amusement device tax return for a machine that is later determined to be a coin-operated gaming device does not preclude, in the absence of reasonable cause, the assessment of the delinquency penalty for failure to file a return for a coin-operated gaming device.

It is further held that the special tax paid in prior years on coin-operated amusement devices may be applied as a credit, within the period of limitations prescribed by section 6511(a) of the Code, toward payment of the special tax on coin-operated gaming devices which is due for such prior years. However, for the current year of liability, the taxpayer must file a return and pay the full $250.00 special tax for each gaming device in order to purchase the special tax stamp for coin-operated gaming devices. The taxpayer then may file a claim for refund of the ten dollars special tax on coin-operated amusement devices that he mistakenly paid for the current year.