Rev. Rul. 54-378

SECTION 1. PURPOSE.

The purpose of this Revenue Ruling is to authorize the acceleration of partial allowances of refunds and credits in certain income and excess profits tax cases where such action is deemed desirable from the standpoint of the Government.

SEC. 2. BACKGROUND.

It is the established policy of the Internal Revenue Service that, in cases in which the taxpayer does not indicate a willingness to agree to all adjustments involving a proposed deficiency, the taxpayer should be invited to submit a Form 870, Waiver of Restrictions on Assessments and Collection of Deficiency in Tax, waiving the restrictions on assessment and collection of the uncontested portion of the tax, thereby minimizing the accumulation of interest on the deficiency.

The policy announced herein of making partial allowances of refunds and credits in certain types of cases will provide the Government with an opportunity for saving accumulated interest in overassessment cases and, at the same time, will provide the taxpayer with the earlier use of the funds involved.

Furthermore, the policy of making partial allowances of refunds or credits in certain types of cases as described herein is within the ambit of the broad objective of achieving in a larger number of cases a greater degree of finality at the earliest possible administrative stage.

SEC. 3. SCOPE.

The policy stated in this Revenue Ruling contemplates the allowance of partial overassessments only in those cases where there has been an agreement insofar as the issue or issues resulting in the partial overassessment are concerned. It is not concerned with so called interim or tentative refunds which are the subject of express provisions of law, regulation or mimeograph and which are subject to a final determination of tax liability. The types of cases with respect to which the provisions of this Revenue Ruling contemplate the allowance of partial overassessments will generally fall into the following three categories:

(a) Cases for a specific year involving two or more tax-reducing issues;

(b) Cases for a specific year involving several issues, both tax-reducing and tax-increasing and where the over-all result, after giving effect to the tax-increasing issues, is a net overassessment; and

(c) Cases involving more than 1 year where the net result is an overassessment. Examples illustrating the foregoing categories follow:

The allowance of an agreed tax-reducing issue results in an overassessment of $15,000 for the taxable year 1953. A contested tax-reducing issue for the same year, if finally determined to be allowable, would result in an additional overassessment of $10,000. Under the provisions of this Revenue Ruling a partial allowance reflecting an overassessment not exceeding $15,000 could be scheduled.

A case for a specific year involves two tax-reducing issues, one of which is contested, and two tax-increasing issues which may or may not be contested. The allowance of one of the tax-reducing issues, being agreed to, results in a net overassessment of $50,000, after giving effect to the offsetting adjustments for the two tax-increasing issues. Pending final consideration of the contested issue or issues a net overassessment not exceeding $50,000 could be scheduled.

There is an unagreed proposed deficiency of $40,000 for the year 1952 but a complete agreement with respect to an overassessment of $70,000 for the year 1953. Under the provisions of this Revenue Ruling a partial overassessment not exceeding $30,000 ($70,000-$40,000) for the year 1953 could be scheduled.

The following types of cases are expressly excluded from the provisions of this Revenue Ruling:

Cases involving issues which, if resolved in the taxpayer's favor, would produce overassessments and/or overpayments in excess of $200,000 ($100,000 under the Internal Revenue Code of 1954) which are subject to review by the Office of the Chief Counsel of the Service or by the Joint Committee on Internal Revenue Taxation;

Cases for a specific year involving several issues, where there is no dispute with respect to a tax-reducing issue or issues but where, due to tax-increasing issues, a net over-all deficiency is apparent;

Cases involving more than 1 year where, for the several years, a net over-all deficiency is apparent even though the agreed result of 1 or more years would be an overassessment;

Cases involving the application of the provisions of section 721 and section 722 of the Internal Revenue Code; and

Cases docketed in The Tax Court of the United States.

In regard to the desirability of the allowance of partial refunds or credits falling into categories (a), (b) and (c) it is to be noted that (1) a partial allowance may be made in a particular case with respect to agreed items and the case kept open until the remaining issues are disposed of or settled and (2) in a case involving several issues where an over-all net overassessment is indicated, a partial overassessment may be allowed which is limited to the amount of such over-all net overassessment.

The policy announced herein does not contemplate the allowance of partial overassessments as a matter of routine in every contested case but only in those cases where the facts and circumstances are such that a departure from the existing practice or policy of not making an overassessment until there has been a final determination of the entire tax liability is warranted. Consequently, the decision as to whether a partial overassessment should be allowed in any given case must necessarily be a matter of sound judgment and discretion and such action must receive the approval of the Chief of the Director's Audit Division or the appropriate official of the Regional Appellate Division, as the case may be.

SEC. 4. AUTHORITY.

Since the partial allowances of overpayments of income and excess profits taxes in question will be predicated on a determination on behalf of the Commissioner that in an over-all consideration of the tax liability of the taxpayer there has been an overpayment of at least the partially allowed amount, it is considered that the Commissioner is authorized under section 322(a)(1) of the 1939 Code to make such allowances provided, of course, the interests of the Government are fully protected.

Accordingly, any overpayment resulting from a partial allowance under the provisions set forth herein would have to be credited against any income or excess profits tax assessed and then due from the taxpayer, and the balance, if any, then refunded to the taxpayer.

Furthermore, in considering the desirability of making partial allowances, care should also be exercised to ascertain the existence of any pending or proposed deficiency in income or excess profits tax concerning the taxpayer for any other year.

SEC. 5. EFFECTIVE DATE.

This Revenue Ruling is effective June 23, 1954.

/*/ Originally issued as IR-Mimeograph No. 54 111, dated June 23, 1954.