Rev. Proc. 60-17

                           TABLE OF CONTENTS

The purpose of this Revenue Procedure is to outline the provisions of the Internal Revenue Codes of 1939 and 1954 relating to restricted interest on internal revenue taxes and to set forth the procedure to be followed in the computation of restricted interest.

SEC. 2. AUTHORITY FOR AND GENERAL NATURE OF RESTRICTED INTEREST.

.01 General provisions .-The payment of interest is mandatory on underpayments and overpayments of any internal revenue tax unless specifically prohibited by law or by mutual agreement. See section 6601 and 6611 of the Internal Revenue Code of 1954; and sections 292, 294 and 3771 of the Internal Revenue Code of 1939.

(1) Under the general rule, interest is paid on a tax overpayment for the time the government has the use of the taxpayer's money. Interest is collected, similarly, for the time the taxpayer has the use of the government's money. The underlying objective is to determine in a given situation whose money it is and for how long the other party had the use of it.

(2) There are special provisions in law which limit or prohibit interest under certain conditions which the law stipulates. These give rise to the term `restricted interest.'

.02 Code provisions restricting and prohibiting interest .-The 1939 and 1954 Codes define, in some instances generally and in others in specific terms, the conditions under which interest is either restricted or prohibited on internal revenue taxes. The table below lists the sections of the 1954 Code and certain other provisions having the effect of law, which govern adjustments to income resulting in deficiencies or overassessments on which interest is restricted. It also lists an identifying title of the item of income and the related provision which governs the computation of interest.

                                             Interest restricted on--

                      1954 Code any                 1939 Code any

.01 General .-(1) The income of a taxpayer for any taxable period may be adjusted under the provisions of a single section of law, resulting in a deficiency or overassessment in tax attributable to that adjustment on which interest is restricted or prohibited. However, it more often happens that an audit determination involves income adjustments under more than one section of law, resulting in a deficiency or overassessment attributable to each. This is referred to as a combination of adjustments. These deficiencies and overassessments are offset against each other resulting in (a) no change, (b) a net deficiency to be assessed or, (c) a net overassessment to be allowed. Interest is computed separately on each of the deficiencies or overassessments resulting from these adjustments and will be restricted on some adjustments but not on others.

(2) Interest on unscheduled overpayments .-a. In some instances when a net deficiency is to be assessed for a given taxable period, the interest computed on overpayments for the same taxable period which are not to be scheduled is less than interest computed on the deficiencies. In these instances the interest due the taxpayer is deducted from interest due the government and the deficiency is assessed together with the net amount of interest.

b. On the other hand, if interest on the overpayments which are not to be scheduled is greater than interest computed on deficiencies, the entire amount of deficiency interest is assessed, and the allowable interest is formally scheduled for credit to the deficiency and interest assessed.

c. Interest is never allowable on interest computed on an overpayment.

.02 Technical Amendments Act of 1958 Sec. 83, P.L. 85-866, C.B. 1958-3, 254 .-(1) Under the previous law, situations arose when even though underpayments and overpayments offset each other, the Service collected more interest than it paid or the taxpayer received more interest than he paid.

(2) Section 83 of P.L. 85-866 eliminates these differences by amending 1954 Code sections 6601 and 6611(b), and 1939 Code sections 3794 and 3771(b). These amendments are applicable to credits made after December 31, 1957. The charts under paragraphs (3) and (4) will be used as a guide in determining interest.

(3) Interest on underpayments satisfied by credit.-General rule .-If any portion of a tax is satisfied by credit of an overpayment, then no interest shall be imposed on the portion of the tax so satisfied for any period during which, if the credit had not been made, interest would have been allowable. The table on the following pages shows the dates to be used in computing interest:

                                         Assess and collect interest

                                       Compute and allow interest

a. The due date of tax is the due date of the return without regard to any extension of time for filing. In interest restricted cases, the due date is the restricted date fixed by law.

b. The due date of interest, penalty, or addition to the tax, is the date of assessment.

c. The date of overpayment is the actual date of receipt of the remittance rather than the date the schedule was signed, as provided in 1954 Code sections 7422(d) and 6407. Taxes withheld at the source or paid as estimated tax are deemed to have been paid on the due date of the return.

d. The date of overpayment in a restricted interest case is the date from which interest is allowable on the overpayment. This same date is the terminating date for charging interest on a deficiency satisfied by credit of an overpayment, or extinguished by an overassessment, attributable to a restricted interest adjustment, except that when a 1954 Code overpayment is attributable to a carryback loss, the terminating date for interest on the deficiency is the last day of the loss year.

e. The date of overpayment of an amount satisfied by credit, when recredited to other taxes outstanding, or refunded, is:

(a) if no interest was allowable under the law when the credit was made, allow interest on the amount recredited from the date the schedule was signed on which the original overpayment was certified.

(b) if no interest was payable because there was no period, allow interest on the amount recredited from the date of overpayment of the original amount credited.

(c) if interest was allowed on the credit at the time it was made, allow interest from the date to which interest was previously allowed on the amount applied as credit.

f. Different taxpayers .-The rules are equally applicable whether credit is applied to an open account of the same or a different taxpayer.

SEC. 4. NET OPERATING LOSS CARRYBACK.

.01 Years to which loss may be carried

If a net operating loss exceeds the income for the preceding years to which it may be applied, the excess may be carried forward to succeeding taxable years. The years to which the loss may be carried forward is not here involved. The carryback of a net operating loss requires special consideration with respect to interest. Interest is computed under the regular rules when the loss is carried forward. Any net operating loss carried back from any taxable year must be applied first to the income for the earliest preceding taxable year to which it may be applied. If the loss exceeds the income for that year, it must be applied to the next year to which it is applicable, immediately following the earliest year, until absorbed.

.02 General rule for determining interest period .-(1) Interest on overpayments .-If the taxes for any year to which a carryback loss is applied were imposed by the 1954 Code, the taxpayer's right to relief arises on the first day after the end of the loss year. Accordingly, interest on an overpayment attributable to the carryback loss begin on that date. This is true unless the overpayment was made later than the last day of the loss year. In that event, interest begins on the actual overpayment date. If a loss occurring in a 1954 Code tax year is carried back to a year in which the taxes were imposed by the 1939 Code the taxpayer's right to relief is considered to arise on the due date of the return for the loss year. However, no interest is allowable on an overpayment attributable to the carryback loss unless a claim, or a petition to the Tax Court of the United States was filed for the year to which the loss is applied. Interest is then allowable from the date the claim or petition was filed, or from the date of overpayment, if later.

(2) Interest on deficiencies extinguished by overpayment due to carryback loss .-Interest is terminated on any deficiency extinguished by an overassessment attributable to a net operating loss carryback on the last day of the loss year provided the deficiency is for a 1954 Code tax year. If the deficiency is for a 1939 Code tax year interest is terminated on the due date of the return for the loss year. This is true regardless of whether the loss year is governed by the 1939 or 1954 Code.

.03 Specific rules for determining interest periods .-(1) Table section 4.03(2) should be used for determining applicable interest periods when making a tentative carryback adjustment or when the carryback loss is the only adjustment involved. Use table section 4.03(3) when there are combination adjustments.

 (2) Rules for determining interest period in carryback loss

(2) If deficiency interest was initially computed to a date beyond the last day of the loss year, it will be necessary to recompute interest to the last day of the loss year on that portion of the deficiency extinguished by the net operating loss carryback.

.05 Penalties .-(1) Not reduced .-Penalties for delinquency in filing, negligence in reporting income, and fraud will not be reduced to reflect the effect of carryback losses. In the case of an overassessment resulting from a carryback loss, when penalty has been assessed on original or additional tax, no portion of the penalty will be allowed.

(2) Prorated .-If part of the allowance is due to general adjustments, the ad valorem penalty, as well as deficiency interest, will be prorated and any portion of the penalty applicable to the general adjustment overassessment will be allowed in the notice of adjustment.

(3) Due on general adjustments deficiency .-When penalty is to be assessed in a case involving general and carryback adjustments, the penalty is computed on the general adjustments deficiency only. The amount of penalty to be assessed should be included in the agreement, Form 870.

(4) No credit to delinquency interest and penalty .-No part of an overpayment is applied as a credit to penalty and interest charges asserted for delinquency when an offer in compromise has been invited or is pending, since amounts paid cannot be compromised. Taxpayers may be required to waive refunds of tax for the same year for which delinquency penalty is compromised. Forms 656, Offer and Consent, and 656-C, Offer and Consent (Deferred Installment Payments), contain an agreement and waiver regarding retention of payments previously made. Accordingly, when assessed penalty has not been paid it will be necessary to ascertain whether an offer in compromise has been invited or is pending, before applying any portion of an overpayment as a credit to the amount.

.06 Technical Amendments Act of 1958, Public Law 85-866, C.B. 1958-3, 254-Special carryback features .-(1) Net operating loss deduction .-Sections 172(f) and (g) of the 1954 Code are amended to provide a more liberal method for computing the net operating loss deduction for years beginning in 1953 and ending in 1954 and for short taxable years beginning in 1954 and ending before August 17, 1954. A claim may be filed for credit or refund of an overpayment resulting from this amendment at any time before March 3, 1959. No interest is allowable on the overpayment.

(2) Limitations on assessment and collection .-Section 6501 of the 1954 Code is amended to provide that a deficiency for any year attributable to the application of a net operating loss carryback, including deficiencies arising from excessive tentative carryback allowances, may be assessed at any time within the period of limitation on assessment applicable to the taxable year in which the loss occurred. The same provisions are now applicable to both 1939 and 1954 Code taxes.

(3) Limitations on credit or refund .-Section 6511(d)(2)(A) of the 1954 Code is amended to correlate the period of limitations for filing claims for credit or refund, relating to an overpayment attributable to a net operating loss carryback, with the due date of the returns of taxpayers other than corporations. The amendment provides for filing the claim within the period which expires with the 15th day of the 40th month (or 39th month, in the case of a corporation) following the end of the loss year.

(4) Interest attributable to net operating loss carryback for certain taxable years ending in 1954 .-Section 83(e) of the Act provides that when, by reason of enactment of section 172(b)(1)(A), the reapplication of a net operating loss from a 1954 Code tax year to the second preceding year created a deficiency in the first year preceding the loss year and an overpayment in the second preceding year, no interest is payable on the deficiency for any period during which no interest was allowable on the overpayment. Credit or refund of overpayments of such interest may be allowed within the period of limitation applicable to the filing of a claim for the taxable period involved.

.07 Special carryback features-Public Law 86-280, C.B. 1959-2, 689 .-(1) Net operating loss deduction resulting from renegotiation .-Section 6511(d)(2)(A) of the 1954 Code was further amended by Public Law 86-280 to extend the time for filing a claim for credit or refund of an overpayment attributable to the creation of, or an increase in, a net operating loss carryback as a result of the elimination of excessive profits by a renegotiation. The period shall not expire before September 1, 1959, or before the end of the 12th month following the month in which the agreement or order for the elimination of such excessive profits becomes final, whichever is the later. Section 322(b)(6) of the 1939 Code is similarly amended, except that it applies only to claims resulting from renegotiations of excessive profits received or accrued for taxable years ending after December 31, 1952.

SEC. 5. WAR LOSS RECOVERIES.

.01 Definition .-Upon the recovery in a taxable year of any money or property considered under section 127(a) of the 1939 Code as destroyed or seized, the amount of the recovery is included in gross income to the extent provided in section 1332 of the 1954 Code unless the taxpayer elects to have the provisions of section 1333 of the 1954 Code apply. Section 1333 relates to tax adjustment measured by prior tax benefits.

.02 Time and manner of making election .-An election under section 1335, once made is irrevocable and is applicable to all taxable years beginning after December 31, 1941, in which a recovery is received, whether such year is before or after the date of making the election.

.03 Period of limitation for making assessments .-If the taxpayer elected section 1333 for any taxable year, the period of limitation for assessment and collection shall not expire until two years after the date he made the election, with respect to (a) the amount to be added to the tax for such taxable year resulting from the application of section 1333, and (b) any deficiency for such taxable year, or any other taxable year, to the extent attributable to the basis of the recovered property being determined under section 1336(b).

04. Period of limitation for credit or refund .-If the taxpayer elected section 1333 for any taxable year, and refund or credit of any overpayment attributable to such adjustment is prevented by statute on the date of making such election, or within one year thereof (except in a compromise case) the credit or refund of an overpayment may nevertheless be allowed if a claim therefor is filed within one year from such date. Thus, the amount which may be refunded or credited is not subject to the limitations contained in section 6511 or 6512(b).

.05 Taxable years ended before date election made .-(1) When interest is restricted .-In the case of any taxable year ended before the date of an election under section 1335, no interest shall be allowed on an overpayment specified in section 5.04 above, and no interest shall be assessed on any deficiency specified in section 5.03 above, for any period before the expiration of six months after the date of the election. Interest begins to accrue on such a deficiency or overpayment on the first day after the end of the six months' period.

(2) When interest is not restricted .-Interest is not restricted if the election under section 1335 was made prior to the end of the taxable year being adjusted.

(3) Combination adjustments .-a. If a general adjustments deficiency is partly or entirely extinguished by an overassessment attributable to the application of section 1333, interest is computed on that part of the deficiency from the due date of the tax to a date six months after the taxpayer's election under section 1335. No interest is allowable on the part of the overassessment so offset.

Explanation: If the adjustments were to be made separately, the taxpayer would be entitled to interest on the overpayment attributable to the war loss recovery, for the period from the first day after the end of the six months' period following the date the election was made to a current date, and interest would be computed on the deficiency from the due date of the tax to a current date. Thus a mutual interest period exists from the first day after the expiration of the six months' period to the current date. The net result is obtained by terminating interest on the part of the deficiency extinguished, at the same time interest begins to accrue on the overpayment.

b. The same interest rules apply when an overpayment attributable to general adjustments is partly or entirely offset by a deficiency arising from the application of section 1333.

.06 Change in interest provisions relating to war loss recoveries under the 1939 Code .-Treasury Decision 6163, C.B. 1956-1, 635, amends Regulations 118 and 111 by deleting the existing interest provisions contained in section 39.127(c)-1(d)(3) and (4) and by adding a new subparagraph 39.127(c)-1(d)(5) which provides that no interest shall be assessed on any deficiency (specified in section 5.03 above) or allowed on any overpayment (specified in section 5.04 above) for any period before the expiration of six months following the making of an election under section 127(c)(5). Prior to this amendment no interest was allowable for any period on an overpayment attributable to the application of the provisions of section 127(c)(3) of the 1939 Code, but interest was charged on a deficiency from the first day after expiration of the six months' period to the current date. Thus, the interest provisions have now been equalized on deficiencies and overpayments of 1939 Code taxes arising from this adjustment.

SEC. 6. FOREIGN TAX CREDIT.

.01 Allowance of credit .-Section 901(a) of the 1954 Code provides for the allowance of a credit against the income tax liability of individuals, partnerships and corporations, for the taxes paid or accrued during the taxable year to any foreign country or possession of the United States, as provided in section 901(b). The application of the credit does not require special consideration with respect to interest unless adjustments are made as set forth in the paragraphs immediately following.

.02 Adjustments to the credit .-If the accrued taxes, when paid to the foreign country or possession of the United States, differ from amounts claimed as credits by the taxpayer on his return, or if any part of the tax actually paid is refunded to the taxpayer by the foreign country, the taxpayer must report the adjustment to the Secretary of the Treasury or his delegate and the tax liability will be redetermined for the year for which the adjustment was made.

.03 Special interest rules when credit adjusted .-(1) Reduction in credit allowable .-If the adjustment results in a reduction of the credit previously allowed, income tax liability is increased. Interest is computed on the increase from the date the taxpayer received the refund of foreign taxes paid, to the date of payment of the increase in tax. If interest on the refund was paid to the taxpayer by the foreign country:

a. An amount is added equal to such interest received by the taxpayer to the interest computed on the increase; and

b. The increase in tax together with the sum of the two amounts of interest is assessed. Sec. 905(c) and G.C.M. 18801, C.B. 1937-2, 302.

(2) Accrued foreign tax abated .-If the credit claimed on the return was for accrued taxes which were abated by the foreign country or possession of the United States, interest is computed on the increase in tax resulting from the reduction in the credit allowable, from the date such adjustment was made by the foreign country to the date of payment of the tax.

(3) Increase in credit allowable .-If the adjustment results in an increase in the credit previously claimed and allowed, income tax liability is decreased. There are no special rules with respect to the allowance of interest on overpayments attributable to an increase in the credit allowable. Accordingly, interest will be allowed on any overpayment resulting from an increase in the amount of credit allowable from the date of overpayment of the tax to a date determined under the rules applicable to credits and refunds.

.04 Time for filing claim for foreign taxes paid or accrued .-If a claim for credit or refund relates to an overpayment attributable to an adjustment of taxes paid or accrued to a foreign country or possession of the United States, for which a credit has been allowed under section 901, the period for filing is 10 years from the due date of the return for the year with respect to which the claim is made. The amount of the credit or refund based on such a claim may exceed the part of the tax paid within the period prescribed in section 6511(b) or (c) to the extent the overpayment is attributable to the allowance of a credit under section 901.

.05 Carryback and carryover of foreign tax credit .-(1) Section 904(c) was added to the 1954 Code, by the Technical Amendments Act of 1958, P.L. 85-866, C.B. 1958-3, 254. This section provides for the carryback and carryover of foreign tax credit. The credit may be carried back only to taxable years beginning on or after January 1, 1958.

(2) Section 6611(g) was also added to the 1954 Code by the 1958 Act. This section provides that for the purpose of allowing interest on an overpayment resulting from a carryback of foreign tax credit under section 904(c), the overpayment shall be deemed not to have been paid or accrued prior to the close of the taxable year in which such taxes were in fact paid or accrued. Accordingly, interest on the overpayment will be allowed from the first day after the close of that year.

.06 Foreign tax credit for United Kingdom income tax paid with respect to royalties, etc. -Section 905(b) of the 1954 Code, relates to proof of credits with respect to income from sources without the United States. The Technical Amendments Act of 1958 amended section 905(b) to provide that the recipient of a patent or copyright royalty from the United Kingdom can take a foreign tax credit equal to the tax deducted from royalty payments received from the United Kingdom if he elects to include the amount of the United Kingdom tax in his income. A similar amendment is made to 1939 Code section 131(e). These amendments apply to all taxable years beginning after 1949. No interest is allowable on any overpayment resulting from these amendments.

SEC. 7. PERSONAL HOLDING COMPANY TAX.

.01 Deficiency dividend deduction .-Section 547(a) of the 1954 Code provides that if liability for personal holding company tax is established for any taxable year, the taxpayer shall be allowed a deduction for the amount of deficiency dividends (as defined in section 547(d)) for the purpose of determining the personal holding company tax for that year, but not for the purpose of determining interest, additional amounts, or assessable penalties with respect to the tax. Section 506(a) of the 1939 Code provides for a deficiency dividend credit against the tax established instead of a deduction for the amount of deficiency dividends for the purpose of determining the tax.

.02 How liability is established .-Under section 547(c ) (or comparable section of prior law) liability for personal holding company tax may be established by

(1) a decision by the Tax Court or a judgment, decree, or other order by any court of competent jurisdiction, which has become final;

(2) a closing agreement under section 7121 (Form 866, Agreement as to Final Determination of Tax Liability);

(3) an agreement (Form 2198, Determination of Liability for Personal Holding Company Tax)-(new provision under the 1954 Code)

.03 How and when to claim deficiency dividend deduction .-The Internal Revenue Service informs the taxpayer how he may secure the benefits of section 547 and furnishes him Form 976, Claim for Deficiency Dividends Deduction. To qualify for such benefits the taxpayer must

(1) have committed no fraud;

(2) distribute the dividend within 90 days after the deficiency was established; and

(3) file his claim (Form 976) after such distribution and within 120 days after the deficiency was established.

.04 Processing in Collection Division.

(1) If established agreement Form 2198 or closing agreement Form 866.

                            Collection           Compute interest

                            Collection           Compute Interest

                            Collection           Compute Interest

.01 Definition .-Section 1481(a) of the 1954 Code provides in part that if any contract between the United States, or any agency thereof, and a taxpayer is renegotiated and an amount of excessive profits is eliminated, the taxpayer is required to pay or repay to the contracting agency of the Government the amount of the excessive profits.

.02 Tax credit .-If the excessive profits have been reported in income for a prior year, section 1481(b) provides that a credit shall be allowed, by the contracting agency of the government , against the repayment, in an amount equal to the tax applicable to the income so reported which was reduced by renegotiation. This credit is never scheduled by the District Director of Internal Revenue.

.03 Renegotiation stamp on return .-After the excessive profits have been repaid to the contracting agency, the Renegotiation Board (or the agency) will inform the District Director with respect to the amount of taxes assessed or paid which have been allowed in the renegotiation settlement. Upon receipt of this information, the original return will be properly stamped to indicate the necessary information.

.04 No interest allowable when credit deducted from repayment .-No interest is allowable on the tax credit when deducted by the contracting agency from the repayment of excessive profits. Section 1481(b)(3) provides that if interest has been charged (by the contracting agency) on an item of cost disallowed in a cost-plus-a-fixed-fee contract, the amount so charged is added (by the agency) to the amount of the credit deducted from the excessive profits. This adjustment for interest charged by the contracting agency is an audit adjustment, to be considered when the amount of credit allowable is determined and is not to be added to the tax credit.

.05 Interest allowable when credit not deducted from repayment .-If the amount allowable as a credit has not been deducted by the contracting agency, or if an insufficient amount has been deducted, the additional credit allowable shall be scheduled by the Internal Revenue Service as an overpayment for the purpose of allowing interest under section 6611. The tax is considered overpaid on the date repayments of the excessive profits to the contracting agency were completed. If a part of the tax liability, for the year affected by renegotiation, was paid after repayments of excessive profits to the contracting agency were completed, interest is allowable only from the date the tax was actually paid.

.06 Subsequent overassessments .-Credits under section 1481(b) are considered as having been allowed from the most recent payments of tax made before the date the contracting agency notifies the District Director that the credit has been allowed. If the tax paid prior to that date is not sufficient to absorb the full credit, the balance is considered as having been allowed from payments immediately following the date of notification. Any refund or credit subsequently allowed by the District Director must be made from payments of tax not previously allowed in the 1481(b) credit. This is important in determining the validity of a claim, depending for statute purposes on amounts paid within two years of filing.

.07 Preparation of allowance documents .-Allowance documents prepared for any year for which the return bears a renegotiation stamp will indicate the credit as an addition to the tax liability rather than as a previous allowance, as follows:

 Assessed:

 Assessed:

 The Taxpayer reported income of $500,000 and tax

.11 Termination of applicable provisions .-The provisions of the Renegotiation Act of 1951 were extended by Public Law 86-89, C.B. 1959-2, 680, to continue its application to receipts and accruals attributable to performance under contracts or subcontracts, through June 30, 1962. The previous termination date was June 30, 1959.

.12 Computation of tax where taxpayer restores substantial amount held under claim of right .-The Technical Amendments Act of 1958, Public Law 85-866, C.B. 1958-3, 254, amends Section 1341(b)(2) of the 1954 Code. This section provides special rules applicable to the recomputation of tax when the taxpayer restores a substantial amount held under claim of right. The new provision relates to price redeterminations in connection with certain subcontracts subject to statutory renegotiation with the United States Government. The amendment is applicable to 1954 Code years with respect to subcontracts entered into before January 1, 1958. No interest is allowable on any overpayment resulting from the application of this amendment.

SEC. 9. TIME FOR PERFORMING CERTAIN ACTS POSTPONED BY REASON OF WAR.

.01 Period of time to be disregarded .-Section 7508(a) of the 1954 Code provides in part for disregarding a period of time when determining whether certain acts were performed within the time prescribed, or in determining the amount of any credit or refund, including interest. In the case of an individual serving in the Armed Forces, or in support of the Armed Forces, the period to be disregarded is that during which the individual serves in a combat zone during a period of combatant activities, or is hospitalized outside the United States as a result of such services, and the next 180 days thereafter. No interest is charged on any deficiency or allowed on any overpayment during the period to be disregarded.

.02 Period of combatant activities .-The period of combatant activities is determined by Executive Order. June 27, 1950, is considered the date combatant activities began in the combat zone designated in Executive Order 10195, C.B. 1951-1, 6, relating to the conflict in Korea. The period of time which may be disregarded in determining the period of limitations for performing any of the acts designated under section 7508(a) of the 1954 Code, or 3804(f) of the 1939 Code, ended July 30, 1955. This is the 180th day after January 31, 1955, designated in Executive Order 10585 C.B. 1955-1, 17, as the date combatant activities in Korea ceased. Rev. Rul. 56-298, C.B. 1956-1, 597.

SEC. 10. CONSTRUCTION RESERVE FUND-MERCHANT MARINE ACT OF 1936.

.01 Definition .-Section 511 of the Merchant Marine Act of 1936 (as added by the Act of October 10, 1940 (54 Stat., 1106; 46 U.S.C. 1161), and as amended by the Act of June 17, 1943, P.L. 78, 78th Cong., provides that for the purposes of promoting the construction of vessels * * * certain taxpayers may, upon application, establish a construction reserve fund (with the Maritime Commission) for the construction or acquisition of new vessels. The fund contains deposits of proceeds from sales of vessels, indemnities on account of losses of vessels, earining from operation of vessels and receipts (interest or otherwise) from amounts previously deposited. Earnings may accumulate in the fund without regard to the provisions of section 102 of the 1939 Code (531 of the 1954 Code), and are included in taxable income only when withdrawn.

.02 Withdrawals from the fund .-Section 511(i) of the Act prescribes the circumstances under which earnings deposited in the fund must be reported in income for any taxable year. That is the date when funds are withdrawn for purposes other than those for which the fund was established, or when the taxpayer has failed to comply with certain requirements.

.03 Period of limitations upon assessment .-Any additional tax due on account of withdrawals from the fund, or failure to comply with the provisions of the statute or the regulations, is collectible as a deficiency and may be assessed, together with the interest thereon, or a proceeding in court for the collection thereof may be begun without assessment, at any time, without regard to any period of limitations. Treasury Decision 5330, C.B. 1944, 720.

.04 Interest period .-(1) Begins with date of withdrawal .-Section 511(j) of the Act provides that interest upon any deficiency resulting from the inclusion in gross income of any gain (previously deposited in the fund) shall not begin until the date of such gain is required to be reported in income.

(2) Combination of adjustments .-If an audit determination results in a combination of general and carryback adjustments together with a deficiency arising from withdrawals from the construction reserve fund, interest will be computed as follows:

                                                Allow interest

.01 Definition .-Section 166(a) of the 1954 Code provides for allowance as a deduction of any debt which becomes worthless within the taxable year. Section 832(c)(6) provides for allowance as a deduction against the income of an insurance company, of certain debts which become worthless within the taxable year. Section 165(g) provides that if any security which is a capital asset becomes worthless during the taxable year, the resulting loss shall be treated as a loss from the sale or exchange of a capital asset.

.02 Seven-year period of limitation .-Section 6511(d)(1) provides that if a claim for credit or refund relates to an overpayment of income tax resulting from a deduction under one of the sections mentioned in the preceding paragraph, in lieu of the 3-year period of limitation prescribed in section 6511(a), the period shall be 7 years from the due date of the return for the year with respect to which the claim is made. If the claim relates to the effect a bad debt or worthless security deduction has on a carryback, the period shall be either

(1) 7 years from the due date of the return for the year of the loss, or

(2) the period ending with the 15th day of the 40th month (39th month if the taxpayer is a corporation) following the end of the loss year, or

(3) the period ending 6 months after the expiration of the period within which an assessment may be made under a consent, Form 872, Consent Fixing Period of Limitation Upon Assessment of Income and Profits Tax,

whichever of such periods expires last.

.03 Interest restricted on 1939 Code taxes only .-Section 3771(d) of the 1939 Code, relating to claims based on deduction for bad debts or worthless securities, provides that if credit or refund of an overpayment would be barred except for the special 7-year period provided in section 322(b)(5), or 322(d)(2) relating to Tax Court cases, no interest shall be allowed on any overpayment for any period beginning after the expiration of the period provided in section 322(b)(1) and ending at the expiration of six months after the date the claim was filed, or if no claim was filed and the overpayment was found by the Tax Court, ending with the date the petition was filed. Interest will be allowed on such an overpayment if the year is still open under the regular statute. If the special statutory provision is required for allowance, then interest will be allowed on such an overpayment only from the day after the end of the six-month period following the date the claim was filed to the date of allowance. The 1954 Code contains no provisions restricting the allowance of interest in connection with bad debts and worthless securities.

SEC. 12. CREDIT FOR STATE AND FOREIGN DEATH TAXES.

.01 Definition .-(1) Section 2011(a) of the 1954 Code allows the estates of citizens or residents of the United States, dying after August 16, 1954, to claim as a credit against their Federal estate tax an amount equal to any State estate, inheritance, legacy or succession taxes owed and paid by the decedent.

(2) Section 2014(a) provides a similar credit for such taxes paid to a Foreign Country with respect to property situated therein. If the decedent was not a citizen of the United States, the credit is allowed only if the country of which he was a citizen allows a similar credit to citizens of the United States residing in that country.

.02 Time for filing claim and making allowance .-The credit shall include only those taxes for which the proof required has been established and for which a claim has been filed,

(1) In general, within 4 years after the estate tax return was filed, or

(2) If a petition to the Tax Court was filed, then within the 4-year period or within 60 days after the decision of the Tax Court becomes final, or

(3) If an extension of time was granted for paying the tax, then within the 4-year period or before extension period ends, or

(4) If the claim for credit was filed within the time prescribed in section 6511, then within the 4-year period or within 60 days after the mailing of a registered notice of disallowance of any part of the claim, or within 60 days after a court decision becomes final with respect to a timely suit based on the claim, whichever is later. This provision was added by the Technical Amendments Act of 1958, Public Law 85-866, C.B. 1958-3, 254. The 1939 Code was similarly amended.

.03 No interest allowable on overpayments .-Sections 2011(c) and 2014(e) provide that refunds of overpayments based on credits for State and foreign death taxes may be made (despite the provisions of sections 6511 and 6512) if the claim is filed within the period prescribed in the preceding paragraph. No interest is allowable on these refunds.

.04 Recovery of taxes claimed as credit .-Section 2016 provides that if any tax claimed as a credit under section 2011 or 2014 is recovered (from a state or foreign government) by the taxpayer, notice shall be given to the Secretary or his delegate. The estate tax will be redetermined; and, without regard to the statute of limitations provided in section 6501, the amount of any estate tax due upon redetermination shall be paid upon notice and demand.

.05 Interest on deficiency due to recovery. -(1) Interest is computed under the regular rules (section 6601) on a deficiency resulting from recovery of any part of a State tax claimed as a credit.

(2) Interest is computed on a deficiency resulting from recovery of any foreign tax claimed as a credit from the date the refund was received by the executor of the estate. To the interest so computed is added an amount equal to any interest paid on the refund by the foreign government.

.06 Combination adjustments.

                                          Interest computation

.01 Taxes on sales and services. -Section 6416(a) of the 1954 Code prescribes the conditions under which credit or refund of an overpayment of retailers or manufacturers excise taxes, or cabaret or certain admissions taxes may be allowed. Interest is allowable on any overpayment unless specifically prohibited. Section 6416(b) sets forth special cases in which tax payments may be considered overpayments to be allowed without interest , as follows:

(1) Price readjustments .-If the retailers or manufacturers excise tax has been paid and the price of the article is readjusted by reason of return or repossession of the article or a covering or container, or by a bona fide discount, rebate, or allowance, a proportionate part of the tax paid is an overpayment. Exception: When the tax was computed under section 4223(b)(2) the rule applies only when the article is returned or repossessed. This section contains an elective provision.

(2) Specified uses and resales .-All manufacturers and only those retailers' excise taxes paid under section 4041(a)(1) or 4041(b)(1), are deemed to be overpayments if the article was exported, used, sold or resold, for any of the purposes set forth in section 6416(b)(2)(A) to (Q), inclusive. Exception: Section 6416(g) provides that section 6416(b)(2)(A) shall apply to the tax imposed by section 4061(a), 4111, 4121, and 4141, only if the article was sold for export after notice was received of intent to export or resell for export.

(3) Tax-paid articles used for further manufacture, etc. -If the manufacturers excise tax has been paid on the sale of an article and the article was sold to a second manufacturer or producer, section 6416-(b)(3)(A) to (D) prescribes the circumstances under which the tax is an overpayment allowable to the second manufacturer or producer.

(4) Tires, inner tubes, and automobile radio and television receiving sets. -If the manufacturers excise tax has been paid on any of the subject articles and the article is sold or used by the manufacturer, producer, or importer, on or in connection with, or with the sale of, or as a component part of any other article, and the other article is (1) exported, (2) sold to a State or local government, or to a nonprofit educational organization for its exclusive use, (3) used or sold for use as supplies for vessels or aircraft, the tax paid on the first article is an overpayment.

(5) Return of certain installment accounts.-If the tax was paid under section 4053(b)(1) or 4216(e)(1) on the sale of any installment account by a retailer or manufacturer, and the account is later returned (by agreement) at an adjusted price, to the person who sold it, a proportionate part of the tax paid is an overpayment.

.02 Credit for tax paid on tires, inner tubes, radio or television receiving sets. -Section 6416(c) provides for a credit without interest against the tax imposed under chapter 32 upon the sale of an article in connection with which one of the subject articles, also taxed under Chapter 32, was sold. The credit is computed as prescribed in section 641(c)(1) or (2), and is allowable only upon the first sale of the article.

.03 Mechanical pencils taxable as jewelry .-Section 641(d) provides for a credit, without interest , to the retailer, in an amount equal to the tax paid under section 4201 on an article used by the retailer in the further manufacture of an article taxable as jewelry under section 4001.

.04 Certain radio receiving sets and radio and television components .-Section 163(e) of the Excise Tax Technical Changes Act of 1958, Public Law 85-859, C.B. 1958-3, 92, provides for allowance of an overpayment without interest to a manufacturer, producer, or importer under the following conditions:

(1) If a radio receiving set, an automobile radio receiving set, or a radio or television component was initially used as a component part of any other article, and

(2) Such other article was exported, or sold to a State or local government for their own exclusive use, the manufacturers excise tax paid on the set or component is an overpayment made by the manufacturer, producer, or importer of such other article. Proof is required that the amount of the tax was not included in the sale price of the other article, or that the tax has been repaid to the ultimate purchaser, or his written consent to the allowance obtained.

.05 Club dues. -(1) Section 4243(c) was added to the 1954 Code by the Excise Tax Technical Changes Act of 1958. This section exempts from tax, club dues or fees including assessments for construction paid on or after January 1, 1958, to a nonprofit organization operated primarily to provide swimming or skating facilities for the members.

(2) No interest is allowable on any overpayment with respect to dues or fees paid between January 1 and September 2, 1958, if the overpayment is allowable only by reason of section 4243(c). Sec. 132(d), P.L. 85-859.

.06 Floor stocks taxes. -(1) 1956 floor stocks taxes .-Section 4226 imposes a `1956' dealers' floor stocks tax at certain prescribed rates on stocks held by a dealer for sale on July 1, 1956, as follows:

a. trucks, truck trailers, buses, etc., taxed under section 4061(a)(1);

b. tires of the type used on highway vehicles, taxed under section 4071(a)(1);

c. tread rubber, taxed under section 4071(a)(4);

d. gasoline, taxed under section 4081.

(2) 1959 tax on gasoline .-Section 4226 as amended by Public Law 86-342, C.B. 1959-2, 697, imposes a floor stocks tax of 1 cent a gallon (on gasoline taxed under section 4081) applicable to gasoline held by a dealer on October 1, 1959, (in storage) for sale. For sale. The tax does not apply to retail stocks held at the place where intended to be sold at retail, nor to gasoline held for sale by a producer or importer of gasoline. The return is due to be filed and the tax paid on or before January 15, 1960. See Treasury Decision 6417, C.B. 1959-2, 313.

(3) Overpayments without interest .-Section 4226(b) provides that all of the provisions of section 6416 are applicable to overpayments. Section 6416(b) sets forth special cases for allowing overpayments without interest.

.07 Floor stocks refunds. -(1) Passenger automobiles, etc. -Section 6412(a)(1) provides that if an article subject to tax under section 4061(a)(2) has been sold by a manufacturer, producer, or importer, before July 1, 1960, and on such date is held by a dealer for sale, the manufacturer, producer, or importer is entitled to a credit or refund without interest , in an amount equal to the difference between the tax paid on the sale of the article and the tax made applicable thereto on and after July 1, 1960. A claim must be filed by the manufacturer, etc., on or before November 10, 1960, based upon a request submitted by the dealer before October 1, 1960. Reimbursement must have been made to the dealer on or before November 10, 1960, or written consent obtained from the dealer to the allowance of the credit or refund.

(2) Trucks and buses, tires, tread rubber, and gasoline .-Section 6412(a)(2) provides that if an article subject to tax under section 4061(a)(1), 4071(a)(1) or (4), or 4081, has been sold by a manufacturer, producer, or importer, before, July 1, 1972, and on that date is held for sale by a dealer, the manufacturer, etc., is entitled to a credit or refund, without interest in an amount equal to the difference in the tax paid and the amount made applicable to such article after July 1, 1972. A claim must be filed by the manufacturer, etc., on or before November 10, 1972, based upon a request submitted by the dealer before October 1, 1972. Reimbursement must have been made to the dealer on or before November 10, 1972, or his written consent obtained to the allowance of the credit or refund.

(3) Sugar.-Section 6412(d) provides that if the import tax imposed by section 4501(b) has been paid on any sugar or articles made chiefly of sugar, and on June 30, 1961, the same goods are still held by the importer for sale, there shall be refunded to him without interest, an amount equal to the tax paid, provided a claim is filed on or before September 30, 1961. Section 4501(c) terminates the tax on sugar imposed by sections 4501(a) and (b) as of June 30, 1961.

(4) Gasoline held on July 1, 1961. -Public Law 86-342, 86th Cong., adds a new paragraph (3) to section 6412(a) which provides for a credit or refund without interest of an amount equal to the difference between the tax paid on gasoline (imposed by section 4081) and the amount made applicable on and after July 1, 1961. The credit will be made to the producer or importer and is applicable to gasoline sold before July 1, 1961, and on such date is held by a dealer intended for sale. A claim must be filed on or before November 10, 1961, based on a request submitted by the dealer to the producer or importer before October 1, 1961. The producer or importer must have reimbursed the dealer on or before November 10, 1961, or obtained his consent to the allowance of the credit or refund. The provisions are not applicable to retail stocks of gasoline being sold, but only to gasoline held in storage tanks by either the dealer or the producer or importer.

.08 Gasoline used on farms or for nonhighway purposes or by local transit systems .-(1) Section 6420(a) provides for a rebate without interest to the ultimate purchaser of gasoline used on a farm for farming purposes. The amount is determined by multiplying the number of gallons used by the rate in effect (under section 4081) at the time of purchase.

(2) Section 6421(a) provides for a rebate without interest to the ultimate purchaser of gasoline used for certain nonhighway purposes. The amount is 1 cent for each gallon so used on which tax was paid at the rate of 3 cents a gallon and 2 cents for each gallon on which tax was paid at the rate of 4 cents a gallon. Amendment made by Public Law 86-342.

(3) Section 6421(b) provides for a rebate without interest to the ultimate purchaser of gasoline used during any calendar quarter in a vehicle engaged in the transportation of persons, but only if 60 percent of the fare revenue was tax exempt. The amount is determined as provided in this section, as amended by P.L. 86-342.

(4) One claim only may be filed for any one-year period ending on June 30 of any year. No claim shall be allowed unless filed on or before September 30 of the year in which the one-year period ends. An exception to this rule is made if $1,000 or more is payable under this section for gasoline used during a calendar quarter by a local transit system.

.09 Prepayments of retailers' excise tax .-(1) Definition. - Revenue Ruling 56-261, C.B. 1956-1, 556, provides that a retailer of articles subject to tax under the provisions of 1954 Code sections.

4001, on jewelry, and related items

4011, on furs

4021, on toilet preparations, and

4031, on luggage, handbags, etc.,

may, upon approval of his local District Director, compute and prepay the tax at the time the taxable articles are purchased, rather than when they are sold.

(2) Adjustments to the tax prepaid. -a. Additional tax. -If after prepayment of the retailers excise tax, articles are sold at prices higher than those used as a basis for computing the tax the additional excise tax must be included in the quarterly return for the period in which the articles are sold.

b. Excess prepayments. -If an excess prepayment arises from the sale of articles at prices lower than the retail price upon which the prepayment was based, or from a reduction in the applicable tax rate, or from the loss, destruction, or return to suppliers, of articles upon which the tax has been prepaid, interest will not be allowed upon such excess prepayments.

.10 Erroneous payments of excise tax. - Revenue Ruling 55-272 C.B. 1955-1, 199, holds that amounts of manufacturers excise taxes erroneously or mistakenly paid by retail dealers will be regarded as overpayments of tax upon which interest is allowable under section 6611(a) of the 1954 Code or section 3771(a) of the 1939 Code. The earlier policy, that interest was not allowable on credits or refunds to dealers pursuant to claims filed to recover amounts paid by them as excise taxes properly due and payable by manufacturers, will no longer be followed.

.11 Coconut and palm oil. -(1) Sales to States or political subdivisions. -Section 6417(a) provides for the allowance of a credit or refund of the tax imposed by section 4511 and paid on the processing of coconut and palm oil, when the oil, or an article containing the oil in combination or mixture, has been sold to a State or its political subdivision for use in the exercise of an essential governmental function. No interest is allowable on such credit or refund.

(2) Export .-Section 6417(b) provides for the allowance of a refund of tax paid under section 4511 (on the processing of coconut and palm oil) when the oil is exported to any foreign country or possession of the United States. No interest is allowable on the refund.

.12 Special rules is case of manufactured sugar .-(1) Use as livestock feed or for distillation of alcohol .-Section 6418(a) provides that if manufactured sugar or anything in which it is used, is ultimately used as or to produce livestock feed, or for the distillation of alcohol, the user is entitled to a rebate of any tax-paid under section 4501(a) and (b) for its manufacture or import.

(2) Export .-Section 6418(b) provides that if tax-paid manufactured sugar is being exported, except to Puerto Rico, the Secretary or his delegate will pay to the consignor (or to the shipper or manufacturer if the consignor waives any claim thereto) the amount of the tax originally paid. If the sugar had been imported and a drawback of any import tax had been or was to be claimed under section 4504, the payment would not be made.

(3) Time for filing claim. -Section 6511(e)(1) and (2) provides that no payment shall be allowed under section 6418(a) or (b) unless a claim is filed within 2 years after the right to such payment under either section has accrued. Under section 3494(b) of the 1939 Code, the period for filing this claim is one year .

(4) No interest allowable .-A payment made pursuant to section 6418(a) or (b) does not constitute a payment of tax erroneously, illegally, or otherwise wrongfully collected, but is a payment dependent upon the performance of certain acts after the liability for the tax was legally incurred and paid by manufacturers of the sugar. Thus, there is no authority in the law for the allowance of interest on such a payment (Revenue Ruling 55-650, C.B. 1955-2, 497).

.13 Excise tax on wagering. -Section 6419(b) provides that a credit or refund shall be allowed, without interest to any taxpayer who paid a tax on a wager and then lays off part or all of such wager with another person who is liable for a proportionate part of the tax.

SEC. 14. EMPLOYMENT TAXES.

.01 General .-If more or less than the correct amount of tax is paid with respect to employment taxes imposed by 1954 Code sections

3101 FICA tax on employees

3111 FICA tax on employers

3201 RRTA tax on employers

3221 RRTA tax on employers, and

3402 Income tax collected at source

proper adjustments of both the tax and the amount to be deducted will be made without interest . Overpayments are adjusted under section 6413(a); underpayments under section 6205(a).

.02 Foreign subsidiaries of domestic corporations. -(1) Foreign subsidiary agreements .-Domestic corporations employing U.S. citizens in their foreign subsidiaries may enter into agreements under section 3121(1) whereby Federal old age and survivors insurance is extended to those citizens. Under these agreements the corporations pay amounts equivalant to the FICA taxes imposed by sections 3101 and 3111. Whether the tax is over or underpaid, adjustments are without interest.

(2) Special rule for overpayment not `adjusted '.-Any overpayment which cannot be adjusted will be refunded only if a claim is filed within 2 years from the time the tax was paid. (Generally, claims for overpayments of F.I.C.A. Taxes may be filed within the applicable period of limitations for making credits and refunds.) Any claim filed under section 3121(1)(7)(B) must be plainly marked `claim under section 3121(1).'

.03 Nonprofit organizations-waiver certificates .-(1) Religious, charitable and certain other organizations which are exempt from income taxes may file a certificate certifying that they desire to have the Social Security insurance system extended to their employees (1954 Code section 3121(k)(1)).

(2) The Social Security Amendments Act of 1958 (Public Law 85-840, C.B. 1958-3, 85) amended section 3121(k)(1) to provide that an organization which filed a waiver certificate after 1955 but before August 28, 1958, covering only part of its employees, may file a request at any time before 1960 to have such certificate effective with respect to the service of additional individuals. The effective date would begin with the first day of the any calendar quarter preceding the first calendar quarter for which it was effective and following the last calendar (quarter of 1955. (Prior to this amendment, a supplemental list (of additional employees) could be filed only within 2 years following the first calendar quarter for which it was effective, or before January 1, 1959, whichever was later.)

a. If a request is filed under this provision-

(a) for the purpose of computing interest and additions to the tax for failure to file a return, the due date for the return and payment of tax for any calendar quarter resulting from the filing of such request shall be the last day of the calendar month following the calendar quarter in which the request is filed; and

(b) the statutory period for the assessment of such tax shall not expire before 3 years from such date.

b. If a certificate is effective for one or more calendar quarters prior to the quarter in which the certificate is filed, then-

(a) for purposes of computing interest and additions to the tax for failure to file a tax return, the due date for the return and payment of the tax for such prior calendar quarters resulting from the filing of such certificate shall be the last day of the calendar month following the calendar quarter in which the certificate is filed; and

(b) the statutory period for assessment of such tax shall not expire before 3 years from such due date.

.04 Computation of interest.

(1) FICA tax.--

                                         Compute interest

                                         Compute interest

(2) Extension of time within which ministers may elect Social Security coverage.-a. Definition. -Section 1402(e)(2) of the 1954 Code as amended by Public Law 85-239, C.B. 1957-2, 1061, extends the time within which ministers, members of religious orders, and Christian Science practitioners may file a waiver certificate electing coverage under the old-age, survivors, and disability insurance program. The election is irrevocable.

b. Retroactive coverage.--

        Waiver certificates                  Is effective

(a) for purposes of computing interest, the due date for payment of the increase in tax for such year or years shall be the last day of the 6th month following the month in which the certificate is filed;

(b) the period for assessment of any deficiency shall not expire before the end of 3 years from such due date; and

(c) the addition to tax for failure to file a return (sec. 6651 of the 1954 Code) shall not include such increase in tax.

(3) Trade or business. -a. Definition .-Section 1402(c)(5) of the 1954 Code, relating to the definition of the term `trade or business' with respect to self-employment income, as amended by Public Law 880, C.B. 1956-2, 1188, extends coverage for social security purposes to lawyers, dentists, osteopaths, veterinarians, chiropractors, naturopaths, optometrists, architects, certified public accountants, other registered or practicing accountants, funeral directors, and professional engineers, all of whom were formerly excluded.

b. Applicability .-This provision is applicable to taxable years ending after 1955.

c. Special interest provisions .-Section 201(m)(2)(F) of Public Law 880, provides that any tax on self-employment income which is due solely by reason of this amendment, for any taxable year ended on or before August 1, 1956, shall be considered timely paid if payment was made in full on or before February 28, 1957. In no event shall any interest be inposed on any amount of tax due under section 1401(a) solely by reason of this amendment for any period before August 2, 1956.

(4) Share-farming arrangements .-a. Definition .-Section 1402(a)(1), relating to the definition of net earnings from self-employment, as amended by Public Law 880, provides that rentals from real estate and personal property leased with the real estate, derived by the owner or tenant of land under certain share-farming arrangements, which income was formerly excluded from net earnings from self-employment will be included in computing self-employment income or net earnings from self-employment.

b. Applicability .-This amendment relates to taxable years ending after 1955.

c. Interest provisions .-Section 201(m)(2)(F) of Public Law 880 provides that no interest shall be assessed or collected on the tax due on self-employment income by reason of enactment of this section for any taxable year ended on or before the date of enactment of this section (August 1, 1956).

The tax shall be considered timely paid if payment was made in full on or before February 28, 1957.

In no event shall interest be imposed on the amount of any such tax due for any period before the day after the date of enactment (August 1, 1956) of this Act.

Accordingly, interest accrues from August 2, 1956, to the date of payment on any tax which would have been due before August 1, 1956, but not paid on or before February 28, 1957.

(5) Death of a partner .-1954 Code section 1402(f) contains special provisions for computing net earnings, from self-employment of a partner whose death occurs after August 28, 1958, because, as a result of his death, his taxable year ends before that of the partnership. (Subsection (f) was added by the Social Security Amendments Act of 1958, Public Law 85-840, C.B. 1958-3, 85.) This provision is also applicable to an individual who dies after 1955 and on or before August 28, 1958, (1) if there is filed before January 1, 1960, a self-employment tax return (or amended return) for the taxable year ending as a result of the individual's death, and (2) in the case of a return filed solely to obtain the benefit of this provision, it is accompanied by the amount of the tax attributable to the net earnings reported. No interest or penalty shall be assessed or collected on any tax due by reason of the application of this section.

.06 Federal Unemployment Tax Act .-(1) Credit against tax imposed by section 3301 .-Section 3302(a) provides for the allowance of a credit against the tax imposed by section 3301 on employers of four or more individuals. The credit consists of the amount of contributions paid by the employer into a State unemployment fund in any taxable year. An additional credit is also allowable under section 3302(b).

(2) Refund or credit of Federal Unemployment Tax. -Section 6413(d) provides that any credit allowable under section 3302, to the extent not previously allowed, shall be considered an overpayment, but no interest shall be allowed or paid with respect to such overpayment.

SEC. 15. STAMP TAXES.

.01 Authorization for allowance or redemption. -Section 6805 of the 1954 Code provides that upon receipt of satisfactory evidence of the facts, the Secretary or his delegate may make allowance for, or redeem such of the stamps issued under authority of any internal revenue law, (a) as may have been spoiled, destroyed or rendered useless or unfit for the purpose intended, or (b) for which the owner may have no use, or (c) which through mistake may have been improperly or unnecessarily used.

.02 Time for filing claims . -Claims for redemption or allowance under section 6805(c) of the 1954 Code must be presented within 3 years after purchase of such stamps. (The period of limitations for filing a claim under 1939 Code section 3304 is 4 years, except for tobacco tax.)

.03 Interest on overpayments. -Interest is allowable on overpayments of stamp taxes (including excise tax value stamps) in accordance with the provisions of section 6611 of the 1954 Code. This is true irrespective of whether the tax was paid by stamp or through assessment. However, interest is allowable only when the stamps were used in payment of a tax (from the date the stamps were affixed and cancelled to the date of allowance). No interest is allowable on amounts paid in redemption of stamps, including unused excise tax value stamps.

SEC. 16. SPECIAL INTEREST PROVISIONS RELATING TO 1939 CODE TAXES.

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.01 General .-Under the provisions of Chapters 51 and 52 of the 1954 Code, as amended, and regulations thereunder, taxes imposed on alcohol and tobacco are paid on the basis of a return or pursuant to assessment. Refunds under the following circumstances will be scheduled without interest:

(1) Distilled spirits voluntarily destroyed. Section 5008(b)(2).

(2) Losses of distilled spirits when lost after withdrawal from bond but before completion of bottling and casing or other packaging for removal from the bottling premises.

Section 5008(c)(1).

(3) Distilled spirits withdrawn and later returned to the bonded premises. Section 5008(d)(1).

(4) Samples of distilled spirits removed from the bonded premises for analysis or testing by the United States. Section 5008(e).

(5) Wine produced in the United States and returned to bond as unmerchantable. Section 5044(a).

(6) Beer removed from the market and returned to the brewery or destroyed, or beer lost (other than by theft), or destoryed by fire, casualty, or act of God, before the transfer of title to any other person. Section 5056(a) and (b).

(7) Amounts allowed equal to the difference between the tax paid and the rate applicable after July 1, 1961, P.L. 86-564, page 681, this Bulletin, when the articles constituted floor stocks on that date. Section 5063(a).

(8) Amounts representing internal revenue taxes and customs duties paid on distilled spirits, wines, rectified products, and beer previously withdrawn and intended for sale, which were lost, rendered unmarketable, or condemned by a duly authorized official by reason of a major disaster occurring after June 30, 1959. Section 5064(a). Section 210(a)(3) of P.L. 85-859, C.B. 1958-3, 92, makes these provisions applicable to disasters occurring after September 2, 1958 but not later than June 30, 1959.

(9) Amounts equal to the tax imposed by section 3150(a) of the 1939 Code and paid on beer lost, rendered unmarketable, or condemned by a duly authorized official, by reason of the floods of 1951, or the hurricanes of 1954. Section 207 of P.L. 85-859.

(10) Amounts representing taxes or custom duties paid on distilled spirits, wines, rectified products, and beer, previously withdrawn, which were lost, rendered unmarketable, or condemned by a duly authorized official, by reason of a disaster occurring after December 31, 1954 but not later than September 2, 1958. Section 208, P.L. 85-859.

(11) Refunds of taxes imposed by section 5701 of the 1954 Code and paid on any tobacco products, cigarette papers and tubes withdrawn from the market, lost (other than by theft), or destroyed by fire, casualty, or act of God, while in possession or ownership of the claimant. Section 5705(a).

(12) Amounts allowable equal to the difference between the tax paid and the tax applicable on July 1, 1961, P.L. 86-75, with respect to floor stocks of cigarettes held for sale on that date. Section 5707(a).

(13) Amounts allowable equal to the tax or customs duties paid on tobacco products and cigarette papers and tubes removed, which were lost, rendered unmarketable or condemned by a duly authorized official by reason of a major disaster occurring after December 31, 1954 but not later than September 2, 1958. Section 209, P.L. 85-859.

(14) Amounts equal to the taxes and customs duties paid on tobacco products and cigarette papers and tubes removed, which were lost, rendered unmarketable, or condemned by a duly authorized official, by reason of a major disaster occurring on or after September 2, 1958. Section 5708(a).

(15) Amounts allowable equal to the difference between the tax paid and the tax applicable on July 1, 1961, on articles from foreign trade zones:

 a. Articles taxed under 1939 Code sections

SEC. 18. ESTATE TAX-REVOCABLE TRANSFERS-EFFECT OF DISABILITY IN CERTAIN CASES.

.01 Definition .-Section 2038 of the 1954 Code relates to the treatment of certain revocable transfers for purposes of the estate tax. Public Law 86-141, C.B. 1959-2, 685, adds a new subsection (c) which relates to the effect of disability in certain cases.

.02 Applicability .-This amendment applies to estates of decedents dying after August 16, 1954.

.03 Interest .-No interest is allowable on any overpayment resulting from the application of this amendment with respect to any payment made before August 7, 1959.

SEC. 19. SPECIAL PROVISIONS RELATING TO LIFE INSURANCE COMPANIES.

.01 Limitations on assessment and collection .-(1) Section 6501(c) of the 1954 Code, as amended by section 3(g) of the Life Insurance Company Income Tax Act of 1959, P.L. 86-69, C.B. 1959-2, 654, provides an additional exception to the general rule for limitations on assessment and collection, effective for taxable years beginning after December 31, 1957.

(2) A new paragraph (6) added by this law provides that in the case of any tax imposed under section 802(a)(1) by reason of section 802(b)(3)-

a. on account of a termination of the taxpayer as an insurance company such tax may be assessed within 3 years after the return was filed (whether filed on or after the date prescribed) for the taxable year for which the taxpayer ceases to be an insurance company; or

b. on account of a termination of the taxpayer as a life insurance company to which section 815(d)(2)(A) applies, such tax may be assessed within 3 years after the second taxable year for which the taxpayer is not a life insurance company; or

c. on account of a distribution by the taxpayer to which section 815(d)(2)(B) applies, such tax may be assessed within 3 years after the taxable year in which the distribution is actually made.

.02 Estimate tax for 1958 .-No addition to the tax shall be made under section 6655 for failure to pay estimated tax for any taxable year beginning in 1958, in the case of any taxpayer subject to tax under section 811 as it was prior to amendment by Public Law 86-69.

.03 Income tax returns for 1958 .-(1) Every life insurance company subject to tax under section 802(a), as amended by Public Law 86-69, must file a return after June 25, 1959, and on or before September 15, 1959, for tis taxable year beginning in 1958, with respect to the tax imposed by section 802, as amended. The return so filed will be the return for such taxable period and no return filed on or before June 25, 1959, with respect to tax imposed by section 802 as it was before amendment by Public Law 86-69 shall be considered for any purpose as a return for such taxable year.

(2) All payments made on or before June 25, 1959, with respect to tax imposed by section 802(a) before amendment (to the extent not credited or refunded) shall be considered payments made on September 15, 1959, of the tax imposed by section 802(a) as amended. The installment payment privilege under section 6152(a)(1) is not applicable to this tax for such taxable year.