Rev. Ruling 66-137
Interest on Tax on Diverted Cigars and Cigarettes
Advice has been requested concerning the date that interest should commence on the tax on cigars and cigarettes removed without payment of tax for exportation but which are diverted, by theft, before exportation.
In the case here involved, 400,000 cigarettes were removed from the factory, in bond, without payment of tax, for export. However, 230,000 of the cigarettes were stolen while the cigarettes were on the pier awaiting lading on the exporting vessel. The manufacturer of the cigarettes assumed liability for the tax but questioned the payment of interest on such tax. The specific question is the date interest should commence on the tax due on the diverted cigarettes.
Section 6601(a) of the Internal Revenue Code of 1954 provides, in part, that if any amount of tax imposed by the Code is not paid on or before the last date prescribed for payment, interest on such amount at the rate of 6 percent per annum shall be paid for the period from such last date to the date paid.
Section 6601(c) of the Internal Revenue Code prescribes that the last date for payment of tax shall be determined under chapter 62 of the Code and the rules in this subsection. (The rules stated in this subsection are not pertinent to this material.)
Section 6151(c), a section in chapter 62 of the Code, provides that in any case in which a tax is required to be paid on or before a certain date, or within a certain period, any reference in this title to the date fixed for payment of such tax shall be deemed a reference to the last day fixed for such payment (determined without regard to any extension of time for paying the tax).
Section 6601(f)(4) of the Code provides that if notice and demand is made for payment of any amount, and if such amount is paid within 10 days after the date of such notice and demand, interest under this section on the amount so paid shall not be imposed for the period after the date of such notice and demand.
In the instant case, the cigarettes were removed from the factory in bond, without payment of tax, for exportation under section 5704(b) of the Code. The tax became due and payable by the manufacturer when the cigarettes were removed from bond as a result of theft. This liability should have been included in the tax return covering the period during which the theft occurred.
Accordingly, it is held that when a theft is known to have occurred during a specific return period, the last date for payment of tax, within the meaning of sections 6601(c) and 6151(c) of the Code, commences from such filing date. If the tax is not paid with that return, interest on such tax, under section 6601(a) of the Code, commences from such filing date. The interest continues to accrue until the tax is paid. However, if the tax and the interest on such tax are paid within 10 days from the date of a notice and demand for payment, no interest is imposed for the period after the date of the notice and demand.
Revenue Ruling 64-83, C.B. 1964-1 (Part 1), 595, is hereby superseded.
26 U.S.C. 6601; 26 CFR 301.6601-1