rr-07-52.pdf

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Part I

Section 6402.- Authority to Make Credits or Refunds
(Also: 6411)

26 CFR 301.6402-1: Authority to Make Credits or Refunds
(Also: 1.6411-3)

Rev. Rul. 2007 -52

ISSUES
(1) Pursuant to section 6402(a) of the Internal Revenue Code (Code), may the
Service credit an overpayment against outstanding internal revenue tax liabilities for
which no assessment has been made or notice of deficiency sent when the liabilities are
identified in a proof of claim filed in a bankruptcy case?

(2) Pursuant to section 6411(b) of the Code, may the Service credit a decrease in
tax resulting from a tentative carryback adjustment against internal revenue tax liabilities
for which no assessment has been made or notice of deficiency sent when the liabilities
are identified in a proof of claim filed in a bankruptcy case?
SCOPE
This revenue ruling addresses the making of credits for periods ending before the
commencement of a bankruptcy case against liabilities for periods also arising before
the commencement of the case. This ruling does not address bankruptcy issues that
could affect the timing or allowance of the Service’s right to credit overpayments and
decreases in tax against other liabilities, such as the bankruptcy automatic stay. See
11
U.S.C. § 362. See Rev. Rul. 2007-51 for the making of credits when a taxpayer is not in
bankruptcy.
FACTS
Situation 1.
On February 1, 2005, a corporate taxpayer filed a petition for relief
under Chapter 11 of the Bankruptcy Code (11 U.S.C. § 101 et seq.). The taxpayer filed
a corporate income tax return for the year ending December 31, 2004 on March 15,
2005, reporting an overpayment and claiming a refund of $500,000. On April 15, 2005,
the Service filed a proof of claim in the bankruptcy case identifying liabilities for the
taxpayer’s 2003 tax year in the amount of $1,000,000. As of April 15, 2005, the Service
had not refunded the $500,000 overpayment, assessed the $1,000,000 liability, or sent
a notice of deficiency with respect to that liability.
Situation 2.
On February 1, 2005, a corporate taxpayer filed a petition for relief
under Chapter 11 of the Bankruptcy Code. The taxpayer filed a corporate income tax

return for the year ending December 31, 2004 on March 15, 2005, reporting a $750,000
net operating loss. Also on March 15, 2005, the taxpayer filed an application for a
tentative carryback adjustment, carrying the $750,000 net operating loss from 2004
back to 2003, generating a decrease in tax for the 2003 tax year in the amount of
$250,000, and requesting a refund. On April 15, 2005, the Service filed a proof of claim
in the bankruptcy case identifying liabilities for the taxpayer’s 2002 tax year in the
amount of $1,000,000. As of April 15, 2005, the Service had not assessed the
$1,000,000 liability, sent a notice of deficiency with respect to that liability, or tentatively
refunded the $250,000 decrease in tax for the 2002 year.
LAW
Authority to Make Credits or Refunds
Section 6402(a) of the Code provides that within the applicable period of
limitations the Secretary may credit the amount of any overpayment, including interest
allowed thereon, against any liability in respect of an internal revenue tax on the part of
the person who made the overpayment. The Secretary shall refund any balance to the
person who made the overpayment, subject to further credit against amounts specified
in sections 6402(c), (d), and (e). Regulations under section 6402(a) similarly provide
that credit may be made against “any outstanding liability.” See
section 301.6402-1 of
the Regulations on Procedure and Administration.
Tentative Carryback and Refund Adjustments
Section 6411(a) of the Code provides that a taxpayer may file an application for a
tentative carryback adjustment of the tax for the prior taxable year affected by a net
operating loss carryback, a business credit carryback, or a capital loss carryback from

any taxable year. The application shall be made on Form 1139 or, in the case of
taxpayers other than corporations, on Form 1045, and shall set forth in detail the
information required by sections 6411(a)(1) through (a)(6) and by section 1.6411-1 of
the Income Tax Regulations.
Section 6411(b) of the Code provides, in general, that within a period of 90 days
from the date of filing the application for tentative carryback adjustment, the Secretary
shall make a limited examination of the application to discover omissions and errors of
computation, and shall determine the amount of the decrease in the tax attributable to
the carryback. See
also section 1.6411-3(b) of the Income Tax Regulations.
Pursuant to section 6411(b) and section 1.6411-3(d) of the Income Tax
Regulations, the decrease in tax attributable to the carryback shall, in the following
order:
1. be applied under section 1.6411-3(d)(1) against any unpaid amount of
the tax with respect to which such decrease was determined (i.e.
,
unpaid tax for the carryback year);
2. be credited under section 1.6411-3(d)(2) against any unsatisfied
amount of any tax for the taxable year immediately preceding the
taxable year of the net operating loss carryback, business credit
carryback, or capital loss carryback, the time for payment of which was
extended under section 6164; and
3. be credited against any tax or installment thereof “then due” from the
taxpayer and, if not so credited, be refunded to the taxpayer.
Tax Claims in Bankruptcy

In a bankruptcy case, a properly filed proof of claim identifying a tax liability
constitutes prima facie evidence of the existence and amount of that liability.
Bankruptcy Rule 3001(f); Bronson v. United States, 46 F.3d 1573, 1581 (Fed. Cir.
1995). The filing of a proof of claim by the Service, like all routine government actions,
is entitled to a presumption of regularity. See
United States v. Chemical Foundation,
Inc., 272 U.S. 1, 14-15 (1926). See also United States v. Mangan, 575 F.2d 32, 41 (2nd
Cir. 1978); United States v. Ahrens
, 530 F.2d 781, 785-86 (8th Cir. 1976). Bankruptcy
courts have jurisdiction to determine the amount or legality of tax identified on a proof of
claim. See
11 U.S.C. §§ 502, 505.
ANALYSIS
Section 6402 of the Code permits the Service to credit a tax overpayment against
“any liability in respect of an internal revenue tax on the part of the person who made
the overpayment.” Neither section 6402 nor the associated regulations specify when
“any liability” arises for purposes of determining when the Service may credit an
overpayment. It is, however, well-established that the Internal Revenue Code imposes
income tax liability based on an annual accounting period. Burnet v. Sanford & Brooks
Co., 282 U.S. 359, 363 (1931) (tax liability is based on the net result of all transactions
occurring during a fixed accounting period); Edelson v. Commissioner
, 829 F.2d 828,
834 (9th Cir.1987) (“[T]ax liabilities, though unassessed, are deemed obligations due
and owing at the close of the taxable year.”). Moreover, the accrual of an income tax
liability is not dependent on the Service sending a notice of deficiency. Nor is the
accrual of a tax liability dependent on the Service making an assessment. Goldston v.
United States, 104 F.3d 1198, 1199-1200 (10
th
Cir. 1997) (tax liability arises from

statutory duty to pay tax, not assessment of liability); United States v. Latham, 754 F.2d
747, 750 (7
th
Cir. 1985) (assessment is an administrative determination that is not a
prerequisite to tax liability.)
Section 6411(b) of the Code provides an ordering rule for allowance of carryback
adjustments that authorizes the crediting of a decrease in tax resulting from a tentative
carryback adjustment against “any tax or installment thereof then due from the
taxpayer.” Section 6411(b) does not, by its terms, limit the Service to crediting only
against tax liabilities for which an assessment has been made or notice of deficiency
sent. Rather, the right to credit arises when the liability is “then due.” Section 6151(a)
of the Code prescribes the time when a payment of tax is generally due. The statute
provides that a person required to file a return shall, without assessment or notice or
demand from the Secretary, pay the tax at the time fixed for filing the return (determined
without regard to extensions).
Although sections 6402(a) and 6411(b) do not require a deficiency determination
or assessment as a prerequisite to the Service crediting an overpayment or a carryback
adjustment to a tax liability, the Service generally does not make such credits until the
tax liability is determined with specificity. Outside the bankruptcy context, the Service
will generally make a credit only after issuance of a notice of deficiency. See
Rev. Rul.
2007-51. When the Service issues a notice of deficiency, it has determined tax liability
with specificity. Liabilities set forth in a notice of deficiency are generally presumed to
be correct at the time the notice of deficiency is sent. See Helvering v. Taylor, 293 U.S.
507, 515 (1935); Merkel v. Commissioner
, 192 F.3d 844, 852 (9th Cir.1999).

When the taxpayer is a debtor in bankruptcy, the same considerations do not
compel the Service to limit crediting against liabilities to situations where a notice of
deficiency has been sent. A proof of claim filed by the Service in the bankruptcy case
represents a specific administrative determination of the nature and amount of the tax
debt. A proof of claim is prima
facie evidence of the validity and amount of the claim
and is entitled to a presumption of regularity. See Bankruptcy Rule 3001(f); Chemical
Foundation, 272 U.S. at 14-15. Further, a debtor in a bankruptcy case has a ready
forum for the judicial determination of the tax debt since bankruptcy courts have
authority to determine tax liabilities identified on a proof of claim. See
11 U.S.C. §§ 502,
505. Therefore, in the bankruptcy context, the Service has the authority to make
credits under section 6402(a) and section 6411(b) against income tax liabilities where
such liabilities are identified on a proof of claim filed in a bankruptcy case.
CREDITING RULES APPLIED TO SITUATIONS 1 AND 2
Situation
1. The $1,000,000 liability identified on the proof of claim is an
outstanding liability for purposes of section 6402(a). Under section 6402(a), the Service
may credit the $500,000 overpayment for tax year 2004 against the $1,000,000 tax
liability identified on the proof of claim for tax year 2003.
Situation
2. The $1,000,000 liability identified on the proof of claim is an amount
“then due” for purposes of section 6411(b). Under section 6411(b), the Service may
credit the $250,000 decrease in tax generated from the net operating loss carryback
against the tax liability for 2002.
HOLDINGS

(1) Pursuant to section 6402(a) the Service may credit an overpayment against
unassessed internal revenue tax liabilities that have not been identified in a notice of
deficiency sent to the taxpayer when the liabilities are identified in a proof of claim filed
in a bankruptcy case.
(2) Pursuant to section 6411(b), the Service may credit a decrease in tax
resulting from a tentative carryback adjustment against unassessed internal revenue tax
liabilities that have not been identified in a notice of deficiency sent to the taxpayer
when the liabilities are identified in a proof of claim filed in a bankruptcy case.
DRAFTING INFORMATION
The principal author of this revenue ruling is G. William Beard of the Office of
Associate Chief Counsel (Procedure and Administration). For further information
regarding this revenue ruling contact Mr. Beard at 202-622-3620 (not a toll-free call).