Rev. Rul. 75-465

Advice has been requested concerning the date that interest under section 6601(a) of the Internal Revenue Code of 1954 will start to run on a deficiency under the following circumstances.

A corporation timely filed on March 15, Form 7004, Application for Automatic Extension of Time to File Corporation Income Tax Return, showing a tentative income tax liability due of $100,000 and pursuant to section 6152 of the Code the corporation elected to pay the tax in two equal installments. The first installment of $50,000 was paid on March 15. On June 15 the corporation filed Form 1120, U.S. Corporation Income Tax Return, showing a tax liability of $80,000 and timely paid $30,000 as the last installment. Upon subsequent examination of the return a deficiency in the amount of $45,000 was determined.

Section 6152(b)(2) of the Code provides that in the case the tax is paid in two installments, the first installment shall be paid on the date prescribed for the payment of the tax, and the second installment shall be paid on or before 3 months after such date.

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

Section 6601(b)(2)(A) of the Code provides for purposes of section 6601, that in the case of an election under section 6152(a) to pay the tax in installments the date prescribed for payment of each installment of the tax shown on the return shall be determined under section 6152. Section 6601(b)(2)(B) provides that the last date prescribed for payment of the first installment shall be deemed the last date prescribed for payment of any portion of the tax not shown on the return. The Form 7004 has been held to be a return for purposes of section 6601(b)(2)(B), Hayden Publishing Company v. United States 341 F. 2d. 646 (Ct. Cl. 1965).

Rev. Rul. 68-258, 1968-1 C.B. 541, holds that interest runs from the due date of the income tax return only on the unpaid tax not shown on the Form 7004. Interest on any unpaid tax reported on the Form 7004, with respect to which the installment privilege has been properly elected, runs only from the installment dates. Once having properly elected the installment privilege with respect to a declared amount of tax, the taxpayer does not lose the privilege by underpaying a subsequent installment unless the installment privilege is revoked pursuant to the provisions of section 6152(d) of the Code.

In the instant case the tax shown on the Form 7004 was $100,000 of which one-half, $50,000, was properly paid as the first installment. Therefore, $20,000 of the deficiency, the difference between $50,000, the amount shown on the Form 7004 as due on the second installment date, and $30,000, the amount properly paid as the second installment, is available for payment on the last date prescribed for payment of the second installment, June 15, for purposes of computing interest under section 6601 of the Code.

Accordingly, interest will start to run on $20,000 of the deficiency from June 15, the last date prescribed for payment of the second installment. Interest will start to run on $25,000, the remaining portion of the deficiency, from March 15, the last date prescribed for payment of any portion of the tax not shown on the Form 7004.

Rev. Rul. 68-258 is amplified.