Rev. Rul. 59-399

Advice has been requested whether a consent, Form 977, executed by a transferee, extending the statutory period for assessment of income and excess profits tax, is valid where such consent is filed by a transferee corporation covering a liability of the transferor corporation incurred prior to such transfer. Similar advice has also been requested with respect to the filing of a consent, Form 872, executed by a corporation pursuant to a merger.

A corporation filed its return in February 1950 for the taxable year ended June 30, 1949, under an extension of time duly granted to February 28, 1950. In October 1951, such corporation transferred all of its property, subject to its liabilities, to another corporation. The two corporations hereinafter will be referred to as the transferor and the transferee, respectively. The transfer was made by the transferor in return for authorized but unissued voting common stock of the transferee. The instrument of transfer also assigned to the transferee all rights to collect for its own benefit any amount receivable by the transferor.

In December 1952, the transferee filed Form 977, Consent Fixing Period of Limitation Upon Assessment of Liability at Law or in Equity for Income and Profits Tax Against a Transferee, extending the statutory period for assessment until April 30, 1954. In February 1953, a claim for refund was filed in the name of the transferor corporation by the transferee corporation, as successor. In April 1954, a second Form 977 was executed, extending the period of limitation for the assessment of transferee liability to April 30, 1955.

Section 275(a) of the Internal Revenue Code of 1939 provides that an assessment against the taxpayer must be made within three years after the return was filed. Section 276(b) of the 1939 Code provides that the taxpayer and the Commissioner of Internal Revenue may, before the expiration of the time prescribed by section 275 for the assessment of the tax, execute a consent to extend such statutory assessment period. Section 311(b)(4) of the Code provides that a transferee or fiduciary and the Commissioner may, before the expiration of the time prescribed in paragraphs (1), (2), or (3), execute a consent to extend such period of time and that the period agreed upon may be extended by subsequent agreements.

Section 322(b)(3) of the 1939 Code provides that where the period of time prescribed in section 275(a) has been extended, under the provisions of section 276(b) (in effect by the execution of a Form 872, Consent Fixing Period of Limitation Upon Assessment of Income and Profits Tax), the period within which a claim for refund may be filed shall be the period within which an assessment may be made pursuant to such extension and six months thereafter.

Whereas section 322(b)(3) of the 1939 Code provides that a waiver executed under section 276(b) extends the statutory period for the allowance of overassessments to taxpayers, there is no comparable provision in the 1939 Code extending the period for allowance of overassessments to a transferee because of a waiver executed under section 311(b) of the Code.

Section 311(b)(4) of the 1939 Code was amended by Public Law 397, 84th Congress, C.B. 1956-1, 852, and now provides that an agreement to extend the period of limitation on assessments of transferee liability shall be deemed to be an agreement referred to in section 322(b)(3) for purposes of determining the period of limitation on refunds to the transferee of overpayments made by the transferor of which the transferee is legally entitled to a refund. Public Law 397, is effective in all circumstances in which it would have been effective if it had been enacted on August 17, 1954.

The effective date provision is construed to mean that the effect of Public Law 397, is to make the amendment of section 311(b)(4) applicable in all situations to which the 1939 Code applies. On this basis, the Form 977 filed by the transferee in December 1952, had the effect of extending the period for filing a claim for refund of overpayments made by the transferor, provided the transferee was legally entitled to file a refund claim.

Revenue Ruling 54-17, C.B. 1954-1, 160, holds that, where a corporation, since liquidated by merger with a successor corporation, over-paid its Federal income taxes, a claim for refund should be executed by the successor corporation in the name of and on behalf of the corporation which paid the taxes, followed by the name of the successor corporation.

Where two or more corporations are merged pursuant to state law, with fusion of assets and liabilities by operation of law, so that the resultant corporation becomes in effect the same taxable entity as its absorbed constituents, a Form 872, executed by the resultant corporation on behalf of an absorbed constituent extending the period of limitation on assessment of Federal income tax and excess profits tax due from the absorbed corporation for a particular taxable year, if otherwise proper as to form and timely agreed upon, constitutes a valid agreement to extend the time for assessment under section 276(b) of the 1939 Code and is also valid for the purpose of the limitations on a credit or refund, under section 322(b)(3) of the Code, of any overpayment made by the absorbed constituent corporation. See G.C.M. 7310, C.B. IX-1, 237 (1930), which holds that a successor corporation under a consolidation agreement executed in accordance with the laws of Pennsylvania may execute a valid waiver on behalf of one of the constituent corporations for a taxable year prior to the consolidation.

Public Law 397, supra , does not define the term `legally entitled' as it is used in the amendment to section 311. The Committee Reports relating to the amendment explain that it is intended to provide the same treatment prescribed under section 6901(d)(1) of the 1954 Code. See House Report No. 5428, 84th Congress, C.B. 1956-1, 925. Concerning the enactment of the provision into the Internal Revenue Code of 1954, it did not change any substantive rights but extended the statute of limitations in those cases where the transferee has a legal right under existing law to the refund of an overpayment of the transferor.

The effect of a transaction whereby a transferor transfers all of its assets and liabilities to a transferee for voting stock of the transferee is the same as in a statutory merger of two corporations. See Niagara Mohawk Power Corporation v. United States , Memorandum Decision of the U.S. District Court for the Northern District of New York, dated December 2, 1955, 51 A.F.T.R. 1614, 56-2 U.S.T.C. 9801.

Accordingly, it is concluded that where two or more corporations are merged pursuant to state law, with fusion of assets and liabilities, so that the resultant corporation becomes in effect the same taxable entity as its absorbed constituents, a consent on Form 977, extending the period of limitations for the assessment of transferee liability, operates to extend the period of limitations prescribed in section 322(b) for the allowance of refunds of overpayment made by the transferor of which the transferee is legally entitled to a refund. Similarly, a consent, Form 872, executed by the resultant corporation on behalf of an absorbed constituent to extend the period of limitation on assessment of Federal income and excess profits tax, constitutes a valid agreement to extend the time for assessment under section 276(b) of the Internal Revenue Code of 1939 and is also valid for the purpose of the limitations on a credit or refund, under section 322(b)(3) of the 1939 Code, of any overpayment made by the absorbed constituent corporation.