Rev. Rul. 73-337

Advice has been requested whether and in what manner the additions to tax provided by sections 6651(a)(1) and (a)(2) of the Internal Revenue Code of 1954 is applicable in the case of a failure to timely file a Form 3780 (Interest Equalization Quarterly Tax Return) and timely pay the tax shown on the Form 3780, under the circumstances described below.

The taxpayer, on June 15, 1972, acquired a Canadian debt obligation that qualified for exclusion from interest equalization tax under section 4917 of the Code. Form 3779 (Notice of Acquisition of Original or New Canadian Stock or Debt Obligation) with respect to this debt obligation acquisition was not filed by the taxpayer until January 15, 1973. No extension of time to file Form 3779 was requested or granted. The purpose of this Revenue Ruling is to illustrate the operation of section 4917(d) and 6651 when a taxpayer fails to file a timely Form 3779 Notice, thereby incurring interest equalization tax liability, and then fails to file a timely Form 3780 return, on which he is required to report such liability. This Revenue Ruling sets forth the responsibilities and the liabilities of the taxpayer as of January, 1973.

Section 4911 of the Code imposes the interest equalization tax. In the case of late filing of the Form 3779 notice, section 4917(d) provides for a reduction of the exclusion from interest equalization tax set forth in section 4917(a). Such reduction is one percent of such acquisition for each 30-day period or fraction thereof after the last day, provided in the regulations for filing the notice of acquisition, during which the failure to file the notice continues. However, in no event shall such exclusion be reduced by more than five percent of the acquisition. Section 147.4-1(c)(3)(ii) of the Temporary Excise Tax Regulations under the Interest Equalization Tax Act provides that, with respect to acquisitions on or after June 25, 1965, the notice is to be filed on or after the date of acquisition and on or before the last day of the month following the month in which the acquisition occurs, unless an extension of time for filing the notice is granted. In the present case, Form 3779 was more than five 30 days periods overdue, measured from July 31, 1972. Therefore, the maximum five percent reduction to the section 4917 exclusion applies and interest equalization tax is due on five percent of the value of the debt obligation.

Section 6011(d)(1)(A) of the Code provides that every person shall make a return for each calendar quarter during which he incurs liability for the interest equalization tax imposed by section 4911.

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.

The calendar quarter during which the taxpayer first incurs interest equalization tax liability, and the period for which a Form 3780 return is first required, is the third calendar quarter of 1972--the quarter during which the period for filing Form 3779 expires (after July 31, 1972). Therefore, the Form 3780 return for the third calendar quarter is due, under section 6076(a) of the Code, on or before October 31, 1972.

Section 6651(a)(1) of the Code provides for an addition to the tax, in case of failure to file any return required under authority of subchapter A of chapter 61 (with certain exceptions not pertinent here) on the date prescribed therefor (determined with regard to any extension of time for filing), unless such failure is due to reasonable cause and not to willful neglect. The amount of the addition to the tax is five percent of the amount required to be shown as tax on the return if the failure to file 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 for an addition to the tax in 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 such failure is due to reasonable cause and not to willful neglect. The amount of the addition to the tax is 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 6651(c)(1)(A) of the Code provides that the amount of addition under section 6651(a)(1) must be reduced by the amount of the addition under section 6651(a)(2) for any month to which an addition applies under both paragraphs.

The taxpayer's failure to timely file a return for the third calendar quarter of 1972 or timely pay the tax shown on the return was not due to reasonable cause.

The amount of tax required to be shown on the Form 3780 return that was due on or before October 31, 1972, is determined by multiplying the applicable interest equalization tax rate times three percent of the amount of the acquisition, due to a three percent reduction in the section 4917 exclusion. The reason that the reduction in the exclusion is three percent is that September 30, 1972 (the last day of the third calendar quarter) is 61 days, two 30-day periods and a fraction thereof, after the July 31, 1972, due date of Form 3779.

Since the Form 3780 is not delinquent until after October 31, 1972, the additions to tax provided by sections 6651(a)(1) and (a)(2) will not be imposed unless the return is filed after that date.

If the Form 3780 return for the third calendar quarter of 1972 is filed and the tax shown on the return is paid during January 1973, it will be two and a fraction months delinquent. Therefore, under section 6651(a)(2) of the Code, a 1.5 percent addition to the interest equalization tax shown on the return, due on October 31, 1972, will be imposed. Also under section 6651(a)(1), a 15 percent addition to the interest equalization tax required to be shown on the return due on October 31, 1972, will be imposed, but will be reduced by the 1.5 percent addition imposed under section 6651(a)(2) since for the two and fraction months of delinquency the addition applies under both sections 6651(a)(1) and (a)(2).

Similarly, the taxpayer is required to file a Form 3780 return to report the interest equalization tax he incurred during the fourth calendar quarter of 1972, as a result of the final two percent reduction in the section 4917 exclusion occurring during that quarter. The Form 3780 return for such quarter is due on or before January 31, 1973. Therefore, if the taxpayer, before February 1, 1973, files a Form 3780 return to report the interest equalization tax liability incurred during the fourth quarter of 1972, there will be no further addition to tax due under sections 6651(a)(1) or (a)(2) of the Code.