On Appeal From the United States District Court For the Western District of Pennsylvania (Pittsburgh) (D.C. Civil Action No. 85-2828).
STAPLETON, Circuit Judge:
This appeal presents the narrow issue of when interest begins to accrue on amounts due under § 4975(a) of the Internal Revenue Code. Section 6601(a) of the 1954 Code provides that interest begins to accrue on unpaid "tax" on the "last date prescribed for payment." Section 6601(e)(2) provides that when an amount owed is an "assessable penalty, additional amount, or addition to the tax," interest does not begin to accrue until ten days after the Internal Revenue Service issues notice and demand for the unpaid amount. In this appeal from a summary judgment granted in favor of the government against taxpayer Earl Latterman, we must decide whether the assessment against Latterman under § 4975(a)--denominated a "tax" by that section--should be considered a "tax" or a "penalty" for the purposes of § 6601.
The facts are not in dispute. On December 13, 1983, Earl Latterman received notice from the IRS that he owed excise taxes for the years 1975 through 1978 in the amount of $22,669.00. The IRS also charged Latterman with interest on the unpaid amounts, totalling $16,894.44.
The excise taxes were imposed pursuant to § 4975(a) of the Internal Revenue Code of 1954.*fn1 Section 4975(a) taxes "prohibited transactions" (defined in § 4975(c)) between "disqualified persons" (defined in § 4975(e) (2)) and certain pension plans. Pursuant to § 4975(a), Latterman was "taxed" at a rate of five percent of the amount of the prohibited transactions he had engaged in between 1975 and 1978.
Latterman paid the excise taxes on December 20, 1983. He initially refused, however, to pay interest on the taxes. Latterman argued to the IRS that the excise tax was a "penalty" rather than a "tax" within the meaning of § 6601. He contended, therefore, that no interest accrued on the amount assessed against him until ten days after he received notice and demand for payment from the IRS. The IRS rejected Latterman's position.
Under protest, Latterman paid the amount of interest demanded, and filed a claim for a refund of the interest payment. The IRS did not act within six months of Latterman's refund claim, see § 6532(a)(1), and Latterman accordingly filed suit in the United States District Court for the Western District of Pennsylvania to recover the interest he had paid on the excise taxes.
Both parties filed motions for summary judgment. The district court ruled in favor of the IRS, finding that § 4975(a)'s use of the word "tax" means that the assessment should also be considered a "tax" and not a "penalty" for the purposes of § 6601. Mem. Op., No. 85-2828 (May 11, 1988 W.D. Pa.) (Diamond, J.). We exercise plenary review of this legal issue.
Section 6601 creates a "general rule" that interest accrues without any individualized notice and demand from the IRS that a tax is due:
(a) General rule.--If any amount of tax imposed by this title (whether required to be shown on a return, or to be paid by stamp or by some other method) is not paid on or before the last date prescribed for payment, interest on such amount at an annual rate established under section 6621 shall be paid for the period from such last date to the date paid.
(emphasis added). For the purposes of § 6601, the "last date prescribed for payment" is to be determined in accordance with chapter 62. § 6601(b). Section 6151, a part of chapter 62, is entitled "Time and place for ...