Rev. Rul. 76-493

Advice has been requested concerning the computation of interest on a deficiency under the circumstances described below.

X, a calendar year corporation, made timely estimated tax payments during 1974 amounting to $100,000. On March 14, 1975, X filed a Form 7004, Application for Automatic Extension of Time to File Corporation Income Tax Return, showing an expected tax liability of $90,000. On June 15, 1975, X filed a Form 7005, Application for Additional Extension of Time to File Corporation Income Tax Return. On September 15, 1975, X filed its 1974 Form 1120, U.S. Corporation Income Tax Return, indicating a tax liability of $80,000 and an overpayment of $20,000, that was refunded to X. The Internal Revenue Service subsequently audited X's 1974 return and determined a deficiency of $5,000.

The question presented is whether the interest computation date on the $5,000 deficiency is March 15, 1975, the last date prescribed for payment of any portion of the tax not shown on the Form 7004, or from June 15, 1975, the last date prescribed for payment of the second installment of the unpaid amount of tax shown on the Form 7004, since the total tax liability of $85,000 determined by the Service did not exceed the $90,000 shown as the tax liability on Form 7004.

Section 6152(a) of the Code provides that a corporation subject to taxes imposed by Chapter 1 may elect to pay the unpaid amount of such taxes in two equal installments.

Section 1.6152-1(a)(2) of the regulations provides that a corporation shall be considered to have made an election to pay its taxes in installments if it timely files its return and pays 50 percent of the reported unpaid amount of the tax at such time, or if it files an application on Form 7004 for an automatic extension of time to file the return and pays 50 percent of the amount of the tax at such time.

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

Rev. Rul. 68-258, 1968-1 C.B. 541, provides that interest runs from the due date of the income tax return only on unpaid tax not shown on the Form 7004. Interest on any unpaid tax shown on the Form 7004, with respect to which the installment privilege has been properly elected, runs only from the installment dates.

Rev. Rul. 68-258, and Rev. Rul. 75-465, 1975-2 C.B. 486, provide that where an unpaid tax liability exists and the taxpayer makes an election to pay such amount in installments, the amount of the second installment has an extended date of June 15, for a calendar year taxpayer, but any other amount has a date of March 15 for computing interest.

In the instant case X could not elect the installment privilege under section 6152 of the Code since there was no unpaid tax liability shown on the Form 7004 filed March 14, 1975, for the year 1974.

Accordingly, interest will start to run under section 6601(a) of the Code on the deficiency from March 15, 1975, to the date paid.