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NewsNotes Lesli S. Laffie, J.D., LL.M. Credit for Withholding * Securities Pricing * Fiscal-Year 2001 Federal Budget Dollar (Chart) Court Decisions Credit for Withholding In Baral, S.Ct., 2/22/00, the Supreme Court held that withholding and estimated tax remittances were paid on the regular due date to which they related. Thus, the IRS properly denied a Sec. 6511(b)(2)(A) credit to a taxpayer who had overpaid his taxes, but did not file his return until almost four years after the original extended due date. Two remittances were made to the IRS toward the taxpayer's income tax liability for 1988: (1) $4,104 withholding on wages paid to him by his employer in 1988 and (2) $1,100 estimated income tax remitted by the taxpayer to the IRS in January 1989. The taxpayer's 1988 income tax return was originally due on April 15, 1989. He received an extension until Aug. 15, 1989, but filed the return on June 1, 1993. The IRS assessed the 1988 tax on July 19, 1993. On the return filed in June 1993, the taxpayer claimed a $1,175 overpayment and asked the IRS to apply it as a credit toward his outstanding 1989 tax obligations. The IRS denied the credit, concluding that the claim exceeded the ceiling imposed by Sec. 6511(b)(2)(A), which provides that a credit or refund cannot exceed the portion of the tax paid within the period, immediately preceding the filing of the claim, equal to three years plus the period of any extension of time for filing the return. Because the taxpayer filed his return on June 1, 1993, and received a four-month extension from the initial due date, the relevant Sec. 6511(b)(2)(A) lookback period extended from June 1, 1993 to Feb. 1, 1990 (i.e., three years plus four months). The IRS said that the withholding and estimated tax payments were considered paid on Apr. 15, 1989 (the regular due date for 1988) and that none of the tax that the taxpayer overpaid was paid in the lookback period. Accordingly, the IRS determined that the taxpayer was entitled to no credit under the ceiling rule. The district court granted the IRS summary judgment, and the District of Columbia Court of Appeals agreed. The Supreme Court agreed with the IRS that its result was compelled by (1) Sec. 6513(b)(1), which makes clear that withholding is treated as paid on the 15th day of the fourth month following the close of the tax year to which it relates, and (2) Sec. 6513(b)(2), which treats amounts paid as estimated tax for a tax year as paid on the last day for filing (determined without regard to extensions). Both provisions apply for Secs. 6511 and 6512 purposes. The taxpayer argued that Sec. 6513(b)(1) and (2) establish a "deemed paid" date for payment of estimated and withholding taxes, but do not prescribe when the income tax is "paid." He said that withholding and estimated taxes are taxes in their own right (separate from the income tax), and converted into income tax only on the return. Under this view, payment of the income tax occurred no earlier than June 1, 1993, when he filed the return. The Supreme Court disagreed, stressing that withholding and estimated tax remittances are not taxes in their own right, but methods for collecting the income tax. The Court also said that the taxpayer's reading failed to give meaning to Sec. 6513(b), whose caption describes withholding and estimated taxes as prepaid income taxes. The taxpayer also argued that tax is paid under Sec. 6511(b)(2)(A) only when it is assessed. The Supreme Court said that the Code directly contradicts this notion, citing Sec. 6151(a), which provides that the person required to make a return of tax shall, without assessment by the IRS, pay the tax at the time and place fixed for filing the return. Miscellaneous Securities and Exchange Commission (SEC) Release No. 34-42360 directs the securities markets to begin quoting securities prices in decimals by July 3, 2000. The order required (1) the markets to submit a decimals pricing implementation plan by March 13, 2000 and (2) the options and equities markets to phase in decimal pricing by year-end. During the phase-in period, the markets can quote equity securities in price increments of up to five cents. The markets must also create and conduct a pilot program during the phase-in period, in which a sample of securities will be quoted in one-cent increments. At the end of the six-month phase-in period, the markets must submit a study to the SEC on the effect of decimal pricing on trading and capacity. The study should also address whether a uniform pricing increment is needed and, if so, what the increment should be. Absent further SEC action, after submission of the study, each market is required to submit for SEC consideration any rule changes necessary to implement their choice of pricing increment. The markets affected include the following:
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