Rev. Rul. 84-133

ISSUE

From what date should interest be paid on an overpayment of U.S. income tax arising because retroactively effective provisions of the United States-United Kingdom Income Tax Convention signed on December 31, 1975, as amended (1975 Convention), 1980-1 C.B. 394, are more favorable to taxpayers than the United States-United Kingdom Income Tax Convention, signed on April 16, 1945 (1945 Convention), as amended, 1947-2 C.B. 100?

FACTS

X is a United Kingdom corporation that files returns on a calendar year basis. During 1978, X received dividends from its United States subsidiaries of 100x dollars. Article VI of the 1945 Convention imposed a U.S. income tax rate not to exceed 15 percent on such dividends. As a result, X's subsidiaries withheld 15x dollars in U.S. income tax from the 100x dollars gross amount of dividends payable to X. The 1975 Convention, which entered into force on April 25, 1980, reduced the U.S. income tax rate on such dividends to 5 percent, effective for dividends paid on or after January 1, 1975. Accordingly, X timely filed a claim for a U.S. income tax refund of 10x dollars, the difference between the amount withheld and the maximum U.S. income tax due under the 1975 Convention. The Internal Revenue Service refunded the 10x dollars and, in accordance with section 4.04 of Rev. Proc. 80-18, 1980-1 C.B. 623, paid interest from April 25, 1980, on the refund.

LAW AND ANALYSIS

Section 6611(a) of the Internal Revenue Code provides that interest will be paid on any overpayment of an internal revenue tax at the annual rate established under section 6621.

Under section 6611(b)(2) of the Code, interest is paid on refunds from the date of overpayment to a date preceding the date of the refund check by not more than 30 days.

Section 301.6611-1(b) of the Regulations on Procedure and Administration defines the date or dates of overpayment as the date of payment of the first amount that (when added to previous payments) is in excess of the tax liability, and the dates of payment of all amounts subsequently paid on that liability.

Under section 301.6611-1(d) of the regulations, provisions of section 6513 of the Code apply in determining the date of overpayment in the case of income tax withholding. Thus, the normal date of overpayment for income tax withheld in 1978 would be June 15, 1979, in the case of a foreign corporation that does not have a place of business in the United States and files returns on a calendar year basis. See sections 6012 and 6072(c) of the Code.

Section 4.04 of Rev. Proc. 80-18, 1980-1 C.B. 623, provides that, for purposes of section 6611 of the Code, the date of overpayment for computing interest on any refund of U.S. income tax made solely because the provisions of the 1975 Convention are more favorable to the taxpayer than the provisions of the 1945 Convention, is April 25, 1980.

In Brown & Williamson, Ltd. v. United States, 688 F.2d 747 (Ct.Cl.1982), the court held that refunds of U.S. income tax made because of retroactive application of the 1975 Convention bear interest from the original date of payment, as determined under the regulations under section 6611 of the Code, and not from the April 25, 1980, effective date of the 1975 Convention.

HOLDING

The Service will follow the decision in Brown & Williamson. Thus, interest should be paid to X on the 10x dollar U.S. income tax refund from the due date of X's 1978 federal income tax return.

Rev. Proc. 84-60, page 28, this Bulletin, modifies section 4.04 of Rev. Proc. 80-18 to provide that the date of overpayment for computing interest on refunds of U.S. income tax made solely because the provisions of the 1975 Convention are more favorable than 1945 Convention will be the date or dates determined under section 301.6611-1(b) and (d) of the regulations.