Rev. Rul. 73-545

Advice has been requested whether the enactment of section 4918(e)(8) of the Internal Revenue Code of 1954 by the Interest Equalization Tax Extension Act of 1973 has changed the procedures to be used by a participating firm in the issuance of written comparison or broker-dealer confirmation and whether section 4918(e)(8) affects the requirement that a participating firm file Form 3780-A, Interest Equalization Transaction Tax Return, and pay the interest equalization tax (hereinafter referred to as IET) due with such return.

Section 4911 of the Code imposes the IET on each acquisition by a United States person (as defined in section 4920(a)(4)) of stock of a foreign issuer, or of a debt obligation of a foreign obligor, if such debt obligation has a period remaining to maturity of one year or more.

Section 4918(a) of the Code exempts from IET any acquisition of foreign stock or debt obligations due to prior American ownership and compliance. Section 4918(e)(1) through (7) prescribes several specific methods under which a participating firm, as defined in section 4918(c), selling, or effecting the sale of, stock of a foreign issuer or a debt obligation of a foreign obligor, may issue a written comparison or broker-dealer confirmation, which indicates the exemption for prior American ownership and compliance provided in section 4918(a) applies to the acquisition of such stock or debt obligation. The method set forth in section 4918(e)(7) provides, in part, that the participating firm withholds from the proceeds of a sale of foreign stock or a debt obligation (with the consent of the seller) an amount equal to the IET which would be imposed on the acquisition of such stock or debt obligation by the purchaser if such acquisition were not exempt from the IET under section 4918.

Section 4918(e)(8) of the Code, as added by section 3(h) of the Interest Equalization Tax Extension Act of 1973 (1973-1 C.B. 712), provides, with respect to acquisitions made on or after July 15, 1967, that a participating firm may issue a written comparison or a broker-dealer confirmation, which indicates that an exemption from the IET for prior American ownership and compliance applies to the acquisition of foreign stock or a foreign debt obligation, if such participating firm sells such stock or debt obligation for its own account and pays the IET on its acquisition of such stock or debt obligation not later than the time it would be required to pay over such tax to the Secretary or his delegate if such tax were withheld under section 4918(e)(7).

Section 6011(d)(1)(A) of the Code provides, in part, that every person shall make a return for each calendar quarter during which he incurs liability for the IET, or would so incur liability but for the provisions of section 4918. Section 6011(d)(1)(B) provides, in relevant part, that every person who incurs liability for the IET shall, if he disposes of the stock or debt obligation with respect to which such liability was incurred prior to the filing of the return required by section 6011(d)(1)(A), make a return of such tax.

Section 6076(a) of the Code provides that each return made under section 6011(d)(1)(A) shall be filed on or before the last day of the first month following the period for which it is made. Form 3780, Interest Equalization Quarterly Tax Return, is used for this purpose. Section 6076(b) provides that each return made under section 6011(d)(1)(B) shall be filed on or before the date of disposition of the stock or debt obligation with respect to which such return is made. Form 3780-A, Interest Equalization Transaction Tax Return, is used for purposes of section 6076(b). Both Forms 3780 and 3780-A must be filed with the Director, Internal Revenue Service Center, 310 Lowell Street, Andover, MA 01812.

Thus, if during a calendar quarter a United States person makes an acquisition of foreign stock or of a foreign debt obligation upon which the IET is due or would be due but for section 4918 of the Code, a return must be filed on Form 3780 and the IET paid thereon. If a United States person acquires foreign stock or a foreign debt obligation upon which the IET is due or would be due but for section 4918, and sells such stock or debt obligation within the same calendar quarter in which the acquisition was made, a return must be filed on Form 3780-A and the IET paid thereon.

Section 6151(a) of the Code provides, in relevant part, that when a return of tax is required under the Code or regulations, the person required to make such return shall, without assessment or notice and demand from the Secretary or his delegate, pay such tax to the Internal Revenue Officer with whom the return is filed, and shall pay such tax at the time and place fixed for filing the return (determined without regard to any extension of time for filing the return).

A participating firm withholding money pursuant to section 4918(e)(7) of the Code shall make a return on Form 4410, Interest Equalization Tax Quarterly Return Withheld by Participating Firm, and pay over any money withheld and not released to the seller during the calendar quarter to the Director, Internal Revenue Service Center, 310 Lowell Street, Andover, MA 01812, not later than the last day of the month following the end of the calendar quarter. See section 147.5-2(f)(2) of the Temporary Regulations.

Section 6651(a)(1) of the Code provides, in part, that in the case of failure to file certain tax returns (including Forms 3780, 3780-A, and 4410) on the date prescribed therefor (determined with regard to any extension of time for filing), unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be added to the amount required to be shown as tax on such return five percent of the amount of such tax if the failure is for not more than one month, with an additional five percent for each additional month, or fraction thereof during which such failure continues, not exceeding 25 percent in the aggregate.

Section 6651(a)(2) of the Code provides, in part, in the case of failure to pay the amount shown as tax on any return specified in section 6651(a)(1) on or before the date prescribed for payment of such tax (determined with regard to any extension of time for payment), unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be added to the amount shown as tax on such return 0.5 percent of the amount of such tax if the failure is for not more than one month, with an additional 0.5 percent for each additional month or fraction thereof during which such failure continues, not exceeding 25 percent in the aggregate.

Section 6681(b)(1)(B) of the Code provides, in part, that unless it is shown that such action is due to reasonable cause and not due to willful neglect, a participating firm shall be liable to a penalty equal to 125 percent of the amount of the IET due on the acquisition of a stock or a debt obligation which, but for the provisions of section 4918, would be payable by the person acquiring the stock or debt obligation, if such participating firm furnishes a written comparison or broker-dealer confirmation other than in accordance with the provisions of section 4918(e).

Accordingly, the enactment of section 4918(e)(8) of the Code has not changed the procedures to be used by a participating firm in the issuance of written comparison or broker-dealer confirmation. Further, since section 4918(e)(8), as added, in no way affects the requirements of section 6011(d)(1)(B), a participating firm must still file Form 3780-A if an acquisition and subsequent sale for its own account of a foreign stock or a foreign debt obligation upon which the IET is due occurs within the same calendar quarter. Furthermore, section 4918(e)(8), as added, in no way affects section 6151(a) with respect to the requirement for payment of tax to the Internal Revenue Officer with whom the return is filed (in this instance with the Director, Internal Revenue Service Center at Andover, Massachusetts). Failure by a participating firm to file the prescribed tax return or to pay the amount shown as tax thereon will subject such firm to the penalties provided by section 6655(a)(1) and (2). However, a participating firm that complies with section 4918(e)(8), as added, will not be subject to the 125 percent penalty provided under section 6681(b)(1)(B).

¹ Also released as Technical Information Release 1262, dated November 12, 1973.