Rev. Proc. 59-1

SECTION 1. PURPOSE.

The purpose of this Revenue Procedure is to set forth the conditions under which Form 2198, Determination of Liability for Personal Holding Company Tax, revised January 1959, may be accepted by the Internal Revenue Service and to announce the procedure established for the assessment of deficiencies in personal holding company tax cases where a Form 2198 has been approved.

SEC. 2. BACKGROUND.

.01 Section 547(c)(3) of the Internal Revenue Code of 1954 provides for the execution of an agreement form to be used in those cases where an assessment is proposed to the personal holding company tax liability and where the taxpayer seeks to offset this assessment by the timely payment of deficiency dividends. Form 2198 has been designed for this purpose.

.02 Section 547(f)(2) of the Code provides for a stay of collection on these cases until the expiration of 120 days after the determination. However, there is no provision for the suspension of making assessments for a similar period.

SEC. 3. PROCEDURES.

.01 Form 2198 will not be signed by the District Director of Internal Revenue or such other official to whom authority to sign Form 2198 is delegated unless all times relating to the personal holding company tax liability and other income tax liability are agreed upon by the taxpayer and the Revenue Service.

.02 Form 2198 will be approved only where sufficient time remains in which to make an assessment under the provisions of section 6501 of the Internal Revenue Code of 1954. If insufficient time remains in which to make such assessment, Form 2198 will be approved only if the taxpayer and the Service have signed an agreement under section 6501(c)(4) extending the period of limitation upon assessment.

.03 A Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment, or 870-AD, Offer of Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment, is presently required to be signed by the taxpayer and submitted concurrently with Form 2198. In such a case, Forms 870 and 870-AD should contain the following conditions:

(1) The waiver of restrictions on assessment and collection contained herein is subject to the approval of the District Director of Form 2198 relating to the taxpayer's liability for Income and Personal Holding Company Tax.

(2) This agreement will not take effect until after the expiration of the 120 days period to begin with the date Form 2198 is approved by the District Director or such other official to whom authority to sign Form 2198 is delegated.

(3) If the taxpayer complies with section 547 of the Code, relating to the payment of deficiency dividends, by paying the deficiency dividends within 90 days after the date of approval of Form 2198 and filing a proper claim on Form 976, Claim for Deficiency Dividends Deduction or Credit or Refund under Section 547 of the Internal Revenue Code of 1954, within 120 days after the approval of Form 2198, the amount of the deficiency stated on this waiver shall be reduced by the amount necessary to give effect to the timely paid deficiency dividends and the remainder, if any, will be assessed.

(4) Where at the expiration of the 120 day period beginning with the date of the approval of Form 2198, a Form 976 has not been filed or timely deficiency dividend payments have not been made, the entire amount of the deficiency shown on this form will be assessed.

.04 The terms of the above conditions state, in effect, that no assessment may be made on the basis of the waiver until 120 days from the date of the acceptance by the Service of Form 2198.

.05 Interest will not be imposed on the deficiency for the period beginning immediately after the 30th day after the date Form 870 is effective (120 days from the date of the approval of Form 2198) and ending with the date notice and demand is made for payment of such deficiency.

SEC. 4. INQUIRIES.

Inquiries relating to this Revenue Procedure should be addressed to the Assistant Commissioner (Operations), for the attention of O:A:PPr.