Rev. Rul. 78-125

The Internal Revenue Service has given further consideration to Rev. Rul. 75-239, 1975-1 C.B. 304, which holds that the interest expense payable by the executor on the unpaid balance of the decedent's federal estate tax, which the executor elected to pay in installments under section 6166 of the Internal Revenue Code of 1954, is not deductible from the decedent's gross estate as an administration expense under section 2053(a)(2). That Revenue Ruling relied upon the first sentence of section 6601(e)(1) which states that interest imposed on deferred tax payments shall be assessed, collected, and paid in the same manner as taxes.

Rev. Rul. 70-284, 1970-1 C.B. 34, superseding L.O. 922, 2 C.B. 227 (1920), holds that interest paid or accrued with respect to federal income taxes does not become part of the "tax" assessed under section 6601 of the Code. See also Rev. Rul. 70-560, 1970-2 C.B. 37, superseding G.C.M. 9575, X-1 C.B. 381 (1931); Rev. Rul. 69-402, 1969-2 C.B. 176.

Upon reconsideration, the Service now concludes that Rev. Rul. 70-284 correctly reflects the intent of Congress that interest does not become part of the "tax". Since no distinction can be made between the holding of Rev. Rul. 70-284 and the position taken by Rev. Rul. 75-239, Rev. Rul. 75-239 is hereby revoked. The Service acquiesces in the decision in Estate of Bahr v. Commissioner, 68 T.C. 74 (1977) which held that, under the circumstances, the interest on unpaid estate tax was deductible as an administration expenses. See page 1, this Bulletin.