Section 355. Whether creation of an Internal website to sell shoes at retail, by a

corporation that conducts a retail shoe store business, is an expansion of the original business or an acquisition of a new or different business under section 355(b) of the Code.

Rev. Rul. 2003–38

ISSUE

Whether the creation by a corporation engaged in the retail shoe store business of an Internet web site on which the corporation will sell shoes at retail constitutes an expansion of the corporation’s business rather than the acquisition of a new or different business under § 1.355–3(b)(3)(ii) of the Income Tax Regulations.

FACTS

Corporation D has operated a retail shoe store business, under the name “D,” since Year 1 in a manner that meets the requirements of § 355(b) of the Internal Revenue Code. D’s sales are made exclusively to customers who frequent its retail stores in shopping malls and other locations. D’s business enjoys favorable name recogni

Section 61.—Gross Income Defined

26 CFR 1.61–1: Gross income.

Overrecovered fuel costs. Taxpayers may exclude fuel cost and energy conservation cost overrecoveries from gross income in cases involving facts substantially similar to Houston Industries Inc. v. United States, 32 Fed. C1. 202 (1994), appeal on other grounds dismissed, 78 F.3d 564 (Fed. Cir. 1996), aff’d, 125 F.3d 1442 (Fed. Cir. 1997), Florida Progress Corp. v. Commis- sioner, 114 T.C. 587 (2000), and Cinergy Corp. v. United States, Nos. 99–750 T and 00–572T (Fed. C1. filed March 10, 2003).

Rev. Rul. 2003–39

The Internal Revenue Service will follow Houston Industries Inc. v. United States, 32 Fed. Cl. 202 (1994), appeal on other grounds dismissed, 78 F.3d 564 (Fed. Cir. 1996), aff’d, 125 F.3d 1442 (Fed. Cir. 1997), and the treatment under § 61 of the Internal Revenue Code of fuel cost and energy conservation cost overrecoveries in Florida Progress Corp. v. Commissioner, 114 T.C. 587 (2000). The Service also will follow the treatment under § 61 of fuel cost overrecoveries in Cinergy Corp. v. United States, Nos. 99–750 T and 00–572 T (Fed. Cl. filed March 10, 2003). Accordingly, the Service will treat as excludable from gross income fuel cost and energy conservation cost overrecoveries (customer payments in excess of actual fuel and energy conservation costs) in cases involving facts substantially similar to Houston Industries, Florida Progress, and Cinergy .

In Houston Industries, the taxpayer billed its customers for electricity according to rates prescribed by the state public utility commission. The rates included a fuel cost component designed to recover the taxpayer’s fuel costs. The rates generally were effective for a rate period of at least 12 months, as determined by the public utility commission. Under state law, the taxpayer could retain only its actual fuel costs. On a monthly basis, the taxpayer determined whether it had an overrecovery or underrecovery of its fuel costs. Underrecoveries and overrecoveries were netted against each other to determine the taxpayer’s net fuel cost recovery for a rate pe

riod. Under state law the taxpayer was required to return a net fuel cost overrecovery for a rate period, with interest, by direct payments or credits to the accounts of customers during a subsequent rate period.

The fuel cost components of the taxpayer’s rates in effect for rate periods during the years in issue resulted in a net overpayment of fuel costs by the taxpayer’s customers. The taxpayer did not include the fuel cost overrecoveries in gross income and deducted the interest accrued on the overrecoveries.

The Court of Federal Claims ruled for the taxpayer. The court concluded that, because the taxpayer had an unconditional obligation to repay to its customers all overrecoveries received, the overrecoveries could not be characterized as income. The Court of Appeals for the Federal Circuit affirmed, noting that the overrecoveries were similar in several respects to the deposits in Commissioner v. Indianapolis Power and Light Co., 493 U.S. 203 (1990). First, the taxpayer derived no benefit from the overrecoveries. The stated purpose of the regulatory scheme that caused the overrecoveries was to benefit the customers, not the taxpayer. Moreover, the taxpayer was required to pay interest on the overrecoveries. Further, the taxpayer had a statutory obligation to repay the overrecoveries at the time it collected its customers’ payments. Although an overrecovery could be offset by a later underrecovery, this alternative method of repayment did not affect the taxpayer’s obligation to repay.

In Florida Progress, the Tax Court held that fuel cost and energy conservation cost overrecoveries under a similar regulatory scheme were excludable from the taxpayer’s gross income. The court rejected the Service’s argument that the taxpayer held the cost overrecoveries under a claim of right and subject to a conditional obligation to repay only if offsetting underrecoveries did not occur before the end of a rate period. Rather, the court found that the taxpayer had a fixed and certain obligation to refund any overrecoveries, and that offsetting subsequent underrecoveries was merely one means by which the taxpayer met that obligation. Accordingly, the court concluded that the taxpayer did not enjoy com

2003–17 I.R.B. 811 April 28, 2003

ANALYSIS

The product of the retail shoe store business and the product of the web site are the same (shoes), and the principal business activities of the retail shoe store business are the same as those of the web site (purchasing shoes at wholesale and reselling them at retail). Selling shoes on a web site requires some know-how not associated with operating a retail store, such as familiarity with different marketing approaches, distribution chains, and technical operations issues. Nevertheless, the web site’s operation does draw to a significant extent on D’s existing experience and know-how, and the web site’s success will depend in large measure on the goodwill associated with D and the D name. Accordingly, the creation by D of the Internet web site does not constitute the acquisition of a new or different business under § 1.355–3(b)(3)(ii). Instead, it is an expansion of D’s retail shoe store business. Therefore, each of D and C is engaged in the active conduct of a five-year active trade or business immediately after the distribution. See Rev. Rul. 2003–18 and § 1.355–3(c), Examples (7) and (8).

HOLDING

The creation by a corporation engaged in the retail shoe store business of an Internet web site that sells shoes at retail constitutes an expansion of the retail shoe store business rather than the acquisition of a new or different business under § 1.355– 3(b)(3)(ii).

DRAFTING INFORMATION

The principal author of this revenue ruling is Russell P. Subin of the Office of Associate Chief Counsel (Corporate). For further information regarding this revenue ruling, contact Mr. Subin at (202) 622– 7790 (not a toll-free call).

tion, customer loyalty, and other elements of goodwill in the retail shoe market. In Year 8, D creates an Internet web site and begins selling shoes at retail on the web site. To a significant extent, the operation of the web site draws upon D’s experience and know-how. The web site is named “D.com” to take advantage of the name recognition, customer loyalty, and other elements of goodwill associated with D and the D name and to enhance the web site’s chances for success in its initial stages. In Year 10, D transfers all of the web site’s assets and liabilities to corporation C, a newly formed, wholly owned subsidiary of D, and distributes the stock of C pro rata to D’s shareholders. Apart from the issue of whether the web site is considered an expansion of D’s business and therefore entitled to share the business’s five-year history at the time of the distribution in Year 10, the distribution meets all the requirements of § 355.

LAW

Section 355(a) provides that a corporation may distribute stock and securities in a controlled corporation to its shareholders and security holders in a transaction that will not cause the distributees to recognize gain or loss, provided that, among other requirements, (i) each of the distributing corporation and controlled corporation is engaged, immediately after the distribution, in the active conduct of a trade or business, (ii) each trade or business has been actively conducted throughout the fiveyear period ending on the date of the distribution, and (iii) neither trade or business was acquired in a transaction in which gain or loss was recognized, in whole or in part, within the five-year period. Sections 355(b)(1)(A), 355(b)(2)(B), and 355(b)(2)(C). In determining whether an active trade or business has been conducted by a corporation throughout the five-year period preceding the distribution, the fact that a trade or business underwent change during the five-year period (for example, by the addition of new or the dropping of old products, changes in production capacity, and the like) shall be disregarded, provided that the changes are not of such a character as to constitute the acquisition of a new or different business. Section 1.355–3(b)(3)(ii). In particular, if a corporation engaged in the active conduct of one trade or business dur

ing that five-year period purchased, created, or otherwise acquired another trade or business in the same line of business, then the acquisition of that other business is ordinarily treated as an expansion of the original business, all of which is treated as having been actively conducted during that five-year period, unless that purchase, creation, or other acquisition effects a change of such character as to constitute the acquisition of a new or different business. Id .

In Example (7) of § 1.355–3(c), corporation X had owned and operated a department store in the downtown area of the City of G for six years before acquiring a parcel of land in a suburban area of G and constructing a new department store. Three years after the construction, X transferred the suburban store and related business assets to new subsidiary Y and distributed the Y stock to X’s shareholders. Citing § 1.355– 3(b)(3)(i) and (ii), the example concludes that X and Y both satisfy the requirements of § 355(b).

In Example (8) of § 1.355–3(c), corporation X had owned and operated hardware stores in several states for four years before purchasing the assets of a hardware store in State M where X had not previously conducted business. Two years after the purchase, X transferred the State M store and related business assets to new subsidiary Y and distributed the Y stock to X’s shareholders. Citing § 1.355–3(b)(3)(i) and (ii), the example concludes that X and Y both satisfy the requirements of § 355(b).

Rev. Rul. 2003–18, 2003–7 I.R.B. 467, concludes that the acquisition by a dealer engaged in the sale and service of brand X automobiles of a franchise (and the assets needed) to sell and service brand Y automobiles is an expansion of the brand X business and does not constitute the acquisition of a new or different business under § 1.355–3(b)(3)(ii) because (i) the product of the brand X automobile dealership is similar to the product of the brand Y automobile dealership, (ii) the business activities associated with the operation of the brand X automobile dealership ( i.e., sales and service) are the same as the business activities associated with the operation of the brand Y automobile dealership, and (iii) the operation of the brand Y automobile dealership involves the use of the experience and know-how that the dealer developed in the operation of the brand X automobile dealership.

April 28, 2003 812 2003–17 I.R.B.

Section 2033.—Property in Which the Decedent Had an Interest

26 CFR 20.2033–1: Property in which the decedent had an interest.

What portion of a life insurance policy on a spouse’s life is includible in a decedent’s gross estate if the noninsured spouse predeceases the insured spouse? See Rev. Rul. 2003–40, on this page.

Section 2042.—Proceeds of Life Insurance

26 CFR 20.2042–1(c)(5): Proceeds of life insurance. (Also § 2033; 20.2033–1.)

Estate tax; taxation of life insurance. If a Louisiana decedent purchases a life insurance policy on the decedent’s life during marriage, names the decedent as owner of the policy, and does not transfer ownership of the policy, the policy is presumed to be community property under Louisiana law. As a result, one-half of the proceeds is includible in the decedent’s gross estate.

Rev. Rul. 2003–40

ISSUE

If a Louisiana decedent purchases a life insurance policy on the decedent’s life during marriage, names the decedent as owner of the policy, and does not transfer ownership of the policy, to what extent are the proceeds of insurance on the decedent’s life includible in the decedent’s gross estate under § 2042 of the Internal Revenue Code?

FACTS

Decedent, D, and D ’s spouse, S, are married and domiciled in Louisiana. D purchased a life insurance policy on D ’s life. D designated D as owner of the policy and designated S as beneficiary of the policy. D and S paid all of the premiums on the policy from community funds. During D ’s life, D did not transfer ownership in the policy. Upon D ’s death, the insurance proceeds were paid to S .

LAW AND ANALYSIS

Section 2031 provides that the value of the gross estate of the decedent is determined by including the value at the time of

Section 847.—Special Estimated Tax Payments

Special estimated tax payments. Insurance companies taking deductions under section 847 of the Code are provided guidance with respect to discontinuing the deduction.

Rev. Rul. 2003–34

ISSUE

If an insurance company takes a deduction under § 847 of the Internal Revenue Code in a taxable year, must the company request the permission of the Secretary of the Treasury (Secretary) or his delegate in order to discontinue using § 847 in a subsequent year?

FACTS

IC is an insurance company subject to tax under § 831 or a life insurance company subject to tax under § 801. IC discounts its unpaid losses under § 846. IC files its federal income tax returns on a calendar year basis. For the 2002 calender tax year, IC claimed a deduction for special estimated tax payments pursuant to § 847(1) and made the special estimated tax payments described in § 847(2).

For the 2003 tax year, IC decided not to take the deduction described in § 847(1) for the 2003 accident year and, accordingly, did not make the special estimated tax payments for that year. IC continued to account for adjustments due to its 2002 deduction with respect to the 2002 accident year and its 2002 special estimated tax payments on its 2003 return and later returns.

LAW AND ANALYSIS

For taxable years beginning after December 31, 1987, § 847(1) allows an insurance company that is required to discount unpaid losses (as defined in § 846) a deduction for the taxable year if special estimated tax payments are made as required by § 847(2). This deduction cannot exceed (i) the excess of - (A) the undiscounted, unpaid losses (as defined in § 846(b)) attributable to losses incurred in taxable years beginning after December 31, 1986, over (B) the discounted unpaid losses determined under § 846(b) less (ii) any

amounts deducted under this paragraph in a preceding tax year.

Section 847(2) provides, in part, that the deduction under § 847(1) shall be allowed only to the extent that such a deduction would result in a tax benefit for the taxable year for which such deduction is allowed or any carryback year. In addition, the deduction is allowable only if special estimated tax payments are made in an amount equal to the tax benefit attributable to such a deduction on or before the due date (determined without regard to extensions) for filing the return for the taxable year for which the deduction is allowed.

Section 847(3) provides that each company that is allowed a deduction under § 847(1) shall, for purposes of this part, establish and maintain a special loss discount account.

Section 847 imposes no requirement upon an insurance company that is required to discount its unpaid losses under § 846 to continue to avail itself of the § 847 deduction on an annual basis. Further, the legislative history of § 847 does not suggest that an insurance company having once used § 847 is obligated to continue to do so in subsequent tax years. See H.R. Conf. Rep. No. 1104 (Vol. II), 100 ^th Cong., 2 ^nd

Sess. 172 (1988), 1988–3 C.B. 662. Even though IC had used § 847 in 2002, IC may chose not to utilize the § 847 deduction in 2003 for accident year 2003 without securing the approval of the Secretary or his delegate.

HOLDING

If an insurance company takes a deduction under § 847 in a taxable year, the company is not required to request the permission of the Secretary or his delegate in order to discontinue using § 847 in a subsequent year.

DRAFTING INFORMATION

The principal author of this revenue ruling is William T. Sullivan of the Office of Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue ruling, contact Mr. Sullivan at (202) 622–3970 (not a tollfree call).

2003–17 I.R.B. 813 April 28, 2003

policy is includible in S ’s gross estate under § 2033 and § 20.2031–8(a)(2).

Taxpayers will be held to a duty of consistency in reporting the tax treatment of life insurance policies in the estates of a husband and a wife in appropriate circumstances. See Cluck v. Commissioner, 105 T.C. 324 (1995). For example, under the facts presented in this revenue ruling, D ’s estate may be required to include one hundred percent of the proceeds of a life insurance policy in D ’s gross estate if S died before D and a community property share of the value of the policy was not included in S ’s estate.

HOLDING

If a Louisiana decedent purchases a life insurance policy on the decedent’s life during marriage, names the decedent as owner of the policy, and does not transfer ownership of the policy, the policy is presumed to be community property under Louisiana law. As a result, one-half of the proceeds is includible in the decedent’s gross estate under § 2042 and § 20.2042–1(c)(5).

DRAFTING INFORMATION

The principal author of this revenue ruling is DeAnn Malone of the Associate Chief Counsel (Passthroughs and Special Industries) (CC:PSI:B09). For further information regarding this revenue ruling, contact DeAnn Malone at (202) 622–7830 (not a toll-free call).

Section 7503.—Time for Performance of Acts Where Last Day Falls on Saturday, Sunday, or Legal Holiday

26 CFR 301.7503–1. (Also Section 1.6511–1.)

Filing a timely claim for refund. This ruling holds that section 7503 of the Code does not affect the time for filing a timely claim for refund under section 6511 when the last day for filing a return falls on a Saturday, Sunday, or legal holiday, and the taxpayer does not file a return on the next succeeding day that is not a Saturday, Sunday, or legal holiday. Section 7503 provides an extension of time to file a return, within the meaning of section 6511(b)(2)(A), only when the due date (or

his or her death of all property, real or personal, tangible or intangible, wherever situated.

Section 2033 provides that the value of the gross estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his or her death.

Section 2042(2) provides that the proceeds of insurance on a decedent’s life payable to a named beneficiary are includible in the decedent’s gross estate if the decedent possessed any incidents of ownership in the policy at the time of death.

Section 20.2042–1(c)(2) of the Estate Tax Regulations provides that the term “incidents of ownership” is not limited to ownership of the policy in the technical legal sense, but includes the power to change the beneficiary, to surrender or cancel the policy, to assign the policy, to revoke an assignment, to pledge the policy for a loan, or to obtain from the insurer a loan against the surrender value of the policy. Section 20.2042–1(c)(5) explains that state law determines whether and to what extent a decedent held incidents of ownership in a life insurance policy.

In general, if life insurance is acquired by a spouse domiciled in a community property state during marriage and premiums are paid from community funds, the incidents of ownership constitute community property rights. Freedman v. United States, 382 F.2d 742 (5 ^th Cir. 1967); Davis v. Prudential Ins. Co. of America, 331 F.2d 346 (5 ^th Cir. 1964). Under those circumstances, one-half of the proceeds is includible in the gross estate of the insured spouse. Section 20.2042–1(c)(5).

In Catalano v. United States, 429 F.2d 1058, 1060 (5 ^th Cir. 1969), the Fifth Circuit held that, under Louisiana law, a life insurance policy on the life of a husband, is, as a matter of law, deemed part of the wife’s separate estate when the husband has transferred ownership of the policy to his wife. The court noted that in Louisiana the use of community funds to pay the premiums on a life insurance policy held as the separate property of the noninsured spouse does not cause any of the incidents of ownership to be attributed to the community and does not affect the separate property status of the policy. Accordingly, no portion of the proceeds was included in the insured spouse’s estate under § 2042. See also Estate of Marks v. Commissioner, 94 T.C.

720, 724 (1990); Bergman v. Commissioner, 66 T.C. 887, 893 (1976); Estate of Saia v. Commissioner, 61 T.C. 515, 520 (1974).

The Service issued Rev. Rul. 94–69, 1994–2 C.B. 241, after the courts’ opinions in Catalano, Estate of Saia, Bergman and Estate of Marks . In Rev. Rul. 94–69, the decedent, who was domiciled in Louisiana, purchased a life insurance policy on the decedent’s life. The decedent designated the decedent’s spouse as owner of the policy, which conferred all of the incidents of ownership in the policy on the spouse. The decedent and spouse paid all of the premiums on the policy from community funds. Based on the Fifth Circuit’s and Tax Court’s interpretations of Louisiana law in Catalano, Estate of Saia, Bergman and Estate of Marks, Rev. Rul. 94–69 concludes that when a Louisiana decedent purchased an insurance policy on the decedent’s life during marriage, named the spouse as owner of the policy, and paid all premiums from community funds, none of the proceeds are includible in the decedent’s estate under § 2042(2).

In Estate of Burris v. Commissioner, T.C. Memo. 2001–210, the Tax Court held that, under Louisiana law, a life insurance policy on the life of a husband is, as a matter of law, presumed to be community property when the husband is named as the owner of the policy. The court, accordingly, held that one-half of the proceeds of the insurance policy was includible in the husband’s estate under § 2042.

Under the facts presented in this revenue ruling, D designated D as owner of a life insurance policy on D ’s life and D retained incidents of ownership in that policy. Based on the Tax Court’s interpretation of Louisiana law, the policy is presumed to be community property.

Unlike Rev. Rul. 94–69, there is no evidence in the facts presented in this revenue ruling that S intended to transfer S ’s community property interest in the policy to D to overcome that presumption. D, therefore, possessed one-half of the incidents of ownership in his own right and held one-half of the incidents of ownership as agent for the community. Accordingly, only one-half of the proceeds of the life insurance policy is properly includible in D ’s gross estate under § 2042 and § 20.2042–1(c)(5). In the event that S predeceases D, one-half of the value of the

April 28, 2003 814 2003–17 I.R.B.

tion 6511(a) (three years from the filing date of the individual income tax return) fell on a Sunday, the claim was deemed timely by section 7503. Rev. Rul. 66–118 holds that, to prevent nullifying the effectiveness of section 7503, the Service will deem the filing of the claim for refund to have occurred, for purposes of section 6511(b), on April 15, 1962, so that section 6511(b)(2)(A) does not preclude a refund of amounts deemed paid on April 15, 1959.

In Rev. Rul. 76–511, 1976–2 C.B. 428, the taxpayer filed his 1972 individual income tax return on April 30, 1976. Rev. Rul. 76–511 holds that the taxpayer filed a claim for refund within the three-year limitation period under section 6511(a) because the limitation period runs from the date the taxpayer files his individual income tax return and the taxpayer included the claim on his individual income tax return. Rev. Rul. 76–511 further holds that section 6511(b)(2)(A) does not allow a credit or refund of amounts withheld from wages during the 1972 taxable year because those amounts were deemed paid by section 6513(b)(1) on April 15, 1973, which was more than three years before the April 30, 1976, filing of the late-filed individual income tax return.

ANALYSIS

Situation 1. In order to satisfy section 6511(a), the Taxpayers must have filed their claim for refund for the 1994 taxable year within three years of the date they filed their joint income tax return for 1994, or two years from the time they paid the tax, whichever is later. Section 6513(b)(1) deems the wages withheld from the Taxpayers’ income during 1994 as paid on April 15, 1995, more than two years before the April 17, 1998, claim for refund. Because April 15, 1995, is more than two years prior to the filing of the claim for refund, the April 17, 1998, claim for refund will not fall within the two-year period prescribed by section 6511(a).

The Taxpayers’ claim for refund also fails to fall within the three-year period of section 6511(a). Although they filed their joint income tax return on March 1, 1995, section 6513(a) treats the joint income tax return as filed on April 15, 1995, the last day prescribed by section 6072(a) for filing that joint income tax return. Because the Taxpayers filed their claim for refund on Friday, April 17, 1998, two days more than

extended due date) for filing a return falls on a Saturday, Sunday, or legal holiday and the taxpayer actually files a return on the next succeeding day that is not a Saturday, Sunday, or legal holiday. Rev. Rul. 66– 118 distinguished.

Rev. Rul. 2003–41

ISSUE

How does section 7503 of the Internal Revenue Code affect the limitation on the amount of a refund allowed under section 6511(b)(2)(A) when the last day for filing a return for the taxable year to which a claim for refund relates falls on a Saturday, Sunday, or legal holiday?

FACTS

Situation 1. The Taxpayers timely filed their 1994 joint income tax return on Wednesday, March 1, 1995. The due date for filing that joint income tax return was Saturday, April 15, 1995. Their sole source of income for 1994 was wages. On Friday, April 17, 1998, the Taxpayers filed a claim for refund of a portion of the income taxes withheld from their wages during 1994.

Situation 2. The Taxpayer timely filed a request for a four-month automatic extension to file an individual income tax return for the 1997 taxable year. The automatic extension extended the due date of the individual income tax return from Wednesday, April 15, 1998, until Saturday, August 15, 1998. The Taxpayer, however, did not file a 1997 individual income tax return until Friday, August 17, 2001, three years and two days later. That 1997 individual income tax return included a claim for refund of income taxes withheld from wages.

Situation 3. The Taxpayer filed a 1994 individual income tax return on Monday, April 17, 1995. On Friday, April 17, 1998, the Taxpayer filed a claim for refund for income taxes withheld from wages during the 1994 taxable year.

LAW

Section 6511(a) provides, in pertinent part, that a taxpayer shall file a claim for credit or refund of an overpayment within three years from the time of filing the rel

evant return or two years from the time of payment of the tax, whichever period expires later.

Section 6511(b)(2)(A) limits the amount of refund or credit. If a taxpayer files a claim for refund or credit during the threeyear period prescribed in section 6511(a), the amount of the refund or credit shall not exceed the portion of the tax paid within the period, immediately preceding the filing of the claim for refund or credit, equal to three years plus the period of any extension of time for filing the relevant return.

Section 6513(a) treats, for purposes of section 6511, any return filed before the last day prescribed for filing that return as filed on that last day. Section 6513(a) treats, for purposes of section 6511(b)(2), payment of tax before the last day prescribed for payment as paid on that last day.

For purposes of section 6511, section 6513(b)(1) deems any tax actually deducted and withheld at the source during any calendar year to have been paid by the recipient of the income on the 15th day of the fourth month following the close of the taxable year with respect to which the tax is allowable as a credit under section 31 (relating to credit for tax withheld on wages).

Section 7503 provides that, if the last day prescribed under authority of the internal revenue laws for performing any act falls on a Saturday, Sunday, or legal holiday, the act shall be considered timely if the act is performed on the next succeeding day that is not a Saturday, Sunday, or legal holiday. For purposes of section 7503, the last day for the performance of any act is determined by including any authorized extension of time.

Section 6072(a) provides that an individual income tax return is due on the fifteenth day of the fourth month following the end of the taxable year.

Treas. Reg. § 1.6081–4(a)(1) allows, for an individual who is required to file an individual income tax return, an automatic four-month extension of time to file upon meeting certain application requirements.

In Rev. Rul. 66–118, 1966–1 C.B. 290, the taxpayer filed his 1958 individual income tax return on or before the April 15, 1959, due date. On Monday, April 16, 1962, the taxpayer filed a claim for refund of taxes deemed paid pursuant to section 6513(b)(1) on April 15, 1959. Because the due date of the claim for refund for purposes of sec

2003–17 I.R.B. 815 April 28, 2003

last day for filing a return falls on a Saturday, Sunday, or legal holiday, and the taxpayer does not file a return on the next succeeding day that is not a Saturday, Sunday, or legal holiday. Section 7503 provides an extension of time to file a return, within the meaning of section 6511(b)(2)(A), only if the due date (or extended due date) for filing a return falls on a Saturday, Sunday, or legal holiday and the taxpayer files a return on the next succeeding day that is not a Saturday, Sunday, or legal holiday.

EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 66–118, 1966–1 C.B. 290, is hereby distinguished.

DRAFTING INFORMATION

The principal author of this revenue ruling is Emly B. Berndt of the Office of the Associate Chief Counsel (Procedure and Administration) Administrative Provisions and Judicial Practice Division. For further information regarding this revenue ruling, contact Emly Berndt at (202) 622– 4940 (not a toll-free call).

three years after April 15, 1995, section 6511(a) bars their claim for refund. Section 7503 does not alter this result. Section 7503 applies only if (i) the last day prescribed under authority of the internal revenue laws falls on a Saturday, Sunday, or legal holiday and (ii) the taxpayer files on the next succeeding day that is not a Saturday, Sunday, or legal holiday. In those circumstances only, section 7503 deems timely what would otherwise be late. In this case, section 7503 does not apply to the filing of the joint income tax return on March 1, 1995, because that filing did not occur on the day next succeeding Saturday, April 15, 1995, that was not a Saturday, Sunday, or legal holiday. Nor does section 7503 apply to the filing of the claim for refund, because the last day prescribed under authority of the internal revenue laws to file the claim for refund was a Wednesday, April 15, 1998, not a Saturday, Sunday, or legal holiday. The three-year period within which the Taxpayers must have filed a claim for refund began immediately after the Taxpayers’ deemed filing and payment date of April 15, 1995, and was expired after April 15, 1998. Situation 2. The claim for refund included on the 1997 individual income tax return filed Friday, August 17, 2001, is timely. Rev. Rul. 76–511, 1976–2 C.B. 428. Section 6513(b)(1), however, deems the payment of the tax to which the claim for refund relates to have occurred on April 15, 1998, which is beyond the period of three years plus the four-month extension immediately preceding August 17, 2001, the filing date of the claim for refund. Therefore, although the claim for refund was timely, section 6511(b)(2)(A) specifically bars allowance of the refund.

Pursuant to Treas. Reg. § 1.6081–4(a)(1), the period of the automatic extension of time to file an individual income tax return is limited to four months. If the Taxpayer had filed a 1997 individual income tax return on Monday, August 17, 1998, section 7503 would have treated that individual income tax return as timely, because the extended due date of August 15, 1998, fell on a Saturday. Section 7503, however, does not provide this extension to the Taxpayer in Situation 2. By its terms, section 7503 has the effect of an extension only when a taxpayer performs an act on the next succeeding day that is not a Saturday, Sunday, or legal holiday after a Sat

urday, Sunday, or legal holiday that would otherwise be the last day prescribed for performing the act. Because the Taxpayer did not file an individual income tax return on Monday, August 17, 1998, the Taxpayer does not enjoy the benefit of an extension from Saturday, August 15, 1998, to the following Monday, August 17, 1998.

The holding of Rev. Rul. 66–118 does not apply to Situation 2. Rev. Rul. 66– 118 relies on section 7503 to deem the claim for refund as timely under sections 6511(a) and 6511(b)(2)(A) because the last day prescribed under authority of the internal revenue laws for filing the claim for refund was a Sunday and the taxpayer filed on the next succeeding day that was not a Saturday, Sunday, or legal holiday. In Situation 2, however, section 6511(a) prescribed Wednesday, April 15, 2001, as the last day for filing the claim for refund with respect to amounts deemed paid on April 15, 1998. Consequently, section 7503, by its terms, does not apply to the facts of Situation 2, and Rev. Rul. 66–118, which relies on the application of section 7503 to section 6511(a) as the basis for its rationale regarding section 6511(b)(2)(A), does not apply either.

Situation 3. The Taxpayer’s April 17, 1998, claim for refund falls within the threeyear period of limitations of section 6511(a) because the Taxpayer filed the claim for refund within three years of filing the individual income tax return. Section 6511(b)(2)(A) also allows payment of the claim for refund in full. Section 6511(b)(2)(A) permits a refund of taxes paid within the period immediately preceding the filing of the claim for refund equal to three years plus any extensions of time for filing of the individual income tax return. Because the otherwise applicable due date of the return in Situation 3 fell on a Saturday, April 15, 1995, and the Taxpayer filed on the next succeeding day that was not a Saturday, Sunday, or legal holiday, section 7503 extended the due date to Monday, April 17, 1995. Thus, taxes deemed paid pursuant to section 6513(b)(1) on April 15, 1995, were paid within the period of three years plus extensions immediately preceding the claim for refund.

HOLDING

Section 7503 does not affect the limitation on the amount of a credit or refund available under section 6511(b)(2)(A) if the

April 28, 2003 816 2003–17 I.R.B.