Rev. Rul. 73-513

Advice has been requested whether, under the facts described below, the penalty under section 6681(b) of the Internal Revenue Code of 1954 (125 percent of the interest equilization tax for issuing without reasonable cause false comparison or broker-dealer confirmation) is in lieu of the interest equalization tax imposed under section 4911.

The taxpayer, a broker, made certain acquisitions and sales of stock in a Canadian corporation. These acquisitions are subject to the interest equalization tax imposed by section 4911 of the Code. The taxpayer purchased shares of stock for its own account which were later sold to U.S. citizens with a written comparison or broker-dealer confirmation other than in accordance with the provisions of section 4918 of the Code. The taxpayer failed to file interest equalization tax returns as required by section 6011(d) of the Code and pay the tax imposed by section 4911 for the shares of stock purchased for its own account.

Section 6681(b)(1)(B) of the Code imposes a penalty equal to 125 percent of the amount of interest equalization tax imposed by section 4911 on a participating firm who furnishes without reasonable cause written comparison or broker-dealer confirmation other than in accordance with the provisions of section 4918(e).

The legislative history indicates that section 6681(b) of the Code as originally enacted was intended to enable the Government to collect the interest equalization tax which might be lost by the failure of a member or member firm of national securities exchanges or associations to comply with the requirements of section 4918, plus an extra amount (25 percent of the amount of tax) imposed to discourage members and member firms from failure to comply with the requirements of section 4918. H.R. Rep. No. 1046, 88th Cong., 1st Sess. 75 (1963), 1964-2 C.B. 708, 760. Therefore, where the section 6681(b) penalty applies, it is in lieu of the interest equalization tax imposed by section 4911 that would otherwise apply.

Since the taxpayer furnished without reasonable cause written comparison or broker-dealer confirmations other than in accordance with the provisions of section 4918(e) of the Code, the penalty imposed by section 6681 is applicable. Accordingly, the taxpayer is liable for the penalty imposed by section 6681(b), but is not liable for the interest equalization tax.