Rev. Rul. 57-305

Advice has been requested regarding the computation of interest on personal holding company surtax deficiencies where Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment, has been filed which is conditioned upon the execution of a closing agreement.

In the instant case, Form 870 covering deficiencies in income and personal holding company tax was submitted by a corporation. The waiver, Form 870, was conditioned so that it would have no force or effect unless, and until, a closing agreement was accepted by or on behalf of the Commissioner of Internal Revenue. Subsequent to acceptance of the closing agreement by the Commissioner, deficiency dividends were declared and timely paid.

Section 547(a) of the Internal Revenue Code of 1954 provides that even though the personal holding company tax is eliminated by the declaration of deficiency dividends the interest on the tax is not abated. Section 547(b)(1) of the Code provides that the deficiency dividend deduction shall be allowed as of the date the claim for the deficiency dividend deduction is filed.

Section 6213(a) of the Code prohibits the Commissioner from assessing a deficiency until a notice has been mailed to the taxpayer, or until the expiration of such 90-day or 150-day period, as the case may be, provided therein for the filing of a petition with the Tax Court of the United States, or, if a petition has been filed with the Tax Court, until the decision of the Tax Court has become final. Subsection (d) of section 6213 grants the taxpayer the right, at any time, to file a Form 870 waiving the restrictions provided in subsection (a) on the assessment of the whole, or any part of, the deficiency. When such a waiver is filed, section 6601(d) of the Code provides that interest shall not be imposed on the deficiency covered by the waiver for the period immediately after the 30th day following the filing of the waiver and prior to the date of notice and demand. Where the waiver submitted to the Commissioner is conditioned upon the execution by him of a closing agreement, such waiver has no force or effect prior to the execution by the Commissioner of the closing agreement and filing, as such, does not occur until that time ( i.e. , when the Commissioner complies with the stipulated condition). However, once a closing agreement has been executed by both the taxpayer and the Commissioner, the restrictions upon assessment which section 6213(a) of the Code imposes are no longer applicable and any waiver filed after that date is meaningless. Thus, in the instant case, since the waiver which was submitted did not become effective until after the closing agreement was executed, and since at that time there existed no restriction on assessment of the tax, section 6601(d) of the Code is not applicable.

In view of the foregoing, it is held that where a deficiency dividend deduction, determined under the provisions of section 547 of the Internal Revenue Code of 1954, is equal to the undistributed personal holding company income, interest is charged on the full amount of the deficiency in personal holding company tax from the due date of the income tax return to the date of filing Form 976, Claim for Deficiency Dividend Deduction. However, where the undistributed personal holding company income (before the deficiency dividend deduction) exceeds the deficiency dividend deduction, interest on the portion of the deficiency in tax attributable to such excess and interest on the income tax deficiencies are both computed to the date of assessment. In such cases, the execution of a waiver, Form 870, conditioned upon the execution of a closing agreement, has no effect on the computation of interest.