Rev. Proc. 63-11

SECTION 1. PURPOSE.

The purpose of this Revenue Procedure is to restate and thereby supersede Revenue Procedure 58-18, C.B. 1958-2, 1131, and revise section 5 thereof so as to provide for the termination of the accrual of interest on so much of a deficiency as is satisfied by an advance payment at the date of payment or 30 days after the filing of a waiver of restrictions on assessment, whichever is the earlier. Section 5 is also supplemented to make clear that if the taxpayer designates the entire amount of an advance payment as principal in order to terminate the accrual of interest, the Internal Revenue Service will not accept a plea of hardship as a proper basis for deferring collection of the proportionate amount of interest due.

SEC. 2. BACKGROUND.

.01 Many difficulties have arisen in the past, in connection with advance payments of tax deficiencies, resulting in numerous suits and conflicting decisions by the courts. The enactment of the Internal Revenue Code of 1954, specifically section 6213(b)(3), and the conclusion of the United States Court of Appeals for the Fourth Circuit in the case of James G. McConkey v. Commissioner , 199 Fed.(2d) 892 (1952), certiorari denied, 345 U.S. 924 (1953), enabled the Service to re-examine the procedure being followed with respect to such payments and to take steps to avoid future conflicts.

.02 Section 6213(b)(3) of the Code provides, in effect, that any amounts paid as a tax or in respect of a tax may be assessed upon receipt, notwithstanding the restrictions on assessment imposed by subsection (a) of such section. In the McConkey case, which involved a tax deficiency imposed under the Internal Revenue Code of 1939, the court stated that if a taxpayer chooses to pay any additional amount proposed to be assessed against him as a deficiency before the Commissioner of Internal Revenue has made an official determination that there is a deficiency, he has forfeited the statutory remedy afforded him of proceeding in The Tax Court of the United States and has instead elected to pursue the alternative remedy of payment and suit for refund.

SEC. 3. SCOPE.

The provisions of this Revenue Procedure are applicable to all advance payments of tax deficiencies made after December 1, 1958, under both the 1939 and 1954 Codes.

SEC. 4. GENERAL.

.01 An advance payment made after the mailing of a statutory notice of deficiency (90-day letter), which is made by a taxpayer as a payment in respect of the proposed deficiency, will be assessed upon receipt or as soon thereafter as is practicable. Such assessment shall be consistent with any designation of the payment as to tax and interest which may have been made by the taxpayer. An advance payment which is made after the mailing of the statutory notice of deficiency does not deprive The Tax Court of the United States of jurisdiction over the deficiency.

.02 An advance payment made before the mailing of a statutory notice of deficiency (90-day letter), which is made by a taxpayer as a payment in respect of a pending deficiency, may also be assessed upon receipt or as soon thereafter as is practicable, provided the District Director of Internal Revenue is in a position to ascertain the amount of the deficiency. As in the case of advance payments made after the mailing of a statutory notice of deficiency, the assessment shall be consistent with any designation of the payment as to tax and interest which may have been made by the taxpayer. If the amount paid or any portion thereof is designated by the taxpayer as a payment of deficiency and such payment satisfies the entire deficiency, no statutory notice of deficiency will be mailed, since several courts have held that under these circumstances The Tax court of the United States has no jurisdiction. Where less than the total deficiency is paid and assessed, such assessment will be taken into account in determining the amount for which a statutory notice of deficiency must be mailed.

.03 Advance payments received before the mailing of a statutory notice of deficiency will not be assessed in any case where the District Director is unable to ascertain the amount of the deficiency at the time the payment is received. An advance payment which is not assessed will be treated as a deposit made in the nature of a cash bond for the payment of taxes thereafter found to be due. As such, it will have no effect on the computation of interest or on the running of the period of limitation for filing a claim for refund. The taxpayer will be placed on notice by certified mail as to the status of the payment. At such time as the amount of the deficiency is determined, an assessment will be made and the advance payment will be applied as a payment of tax and/or interest made on the date of the assessment. Upon request by the taxpayer, the deposit will be returned to him, without interest, at any time prior to assessment of the deficiency. In this event the case will be processed as though no payment had ever been made.

SEC. 5. INTEREST.

.01 The running of interest on any amount of the deficiency which is satisfied by application of the advance payment will generally be terminated on the date the payment is received. However, in any case in which a waiver of restrictions on assessment has been filed with respect to the amount covered by an advance payment, the running of interest on such amount will be terminated at the date of payment or 30 days after the waiver is filed, whichever is the earlier. In all cases, interest will be assessed at the same time as the tax. In those cases where the taxpayer designates the entire amount of an advance payment as being with respect to tax, a plea of hardship will not be accepted as a proper basis for forbearance in the collection of the amount of interest due on that portion of the liability satisfied by the payment.

.02 The assessment of an advance payment of interest only will not affect the running of interest on the deficiency.

.03 No interest will be allowed on advance payments or portions thereof which are returned to taxpayers prior to assessment.

.04 Advance payments which are applied against assessed tax or interest will be treated in the same manner as any other assessed amount and the allowance of interest on any resulting overpayment is mandatory under the provisions of section 6611 of the 1954 Code and section 3771 of the 1939 Code.

SEC. 6. PRIOR PAYMENTS.

Advance payments received by District Directors prior to December 1, 1958, the effective date of Revenue Procedure 58-18, will be processed in accordance with the procedure in effect at the time the payment was received.

SEC. 7. EFFECTIVE DATE.

This Revenue Procedure is effective immediately.

SEC. 8. EFFECT ON OTHER DOCUMENTS.

Revenue Procedure 58-18, C.B. 1958-2, 1131, is hereby superseded.