[Code of Federal Regulations]
[Title 26, Volume 11]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.1314(b)-1]

[Page 643-644]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1314(b)-1  Method of adjustment.

    (a) If the amount of the adjustment ascertained pursuant to Sec. 
1.1314(a)-1 or Sec. 1.1314(a)-2 represents an increase in tax, it is to 
be treated as if it were a deficiency determined by the Commissioner 
with respect to the taxpayer as to whom the error was made and for the 
taxable year or years with respect to which such adjustment was made. 
The amount of such adjustment is thus to be assessed and collected under 
the law and regulations applicable to the assessment and collection of 
deficiencies, subject, however, to the limitations imposed by Sec. 
1.1314(c)-1. Notice of deficiency, unless waived, must be issued with 
respect to such amount or amounts, and the taxpayer may contest the 
deficiency before the Tax Court of the United States or, if he chooses, 
may pay the deficiency and later file claim for refund. If the amount of 
the adjustment ascertained pursuant to Sec. 1.1314(a)-1 or Sec. 
1.1314(a)-2 represents a decrease in tax, it is to be treated as if it 
were an overpayment claimed by the taxpayer with respect to whom the 
error was made for the taxable year or years with respect to which such 
adjustment was made. Such amount may be recovered under the law and 
regulations applicable to overpayments of tax, subject, however, to the 
limitations imposed by Sec. 1.1314(c)-1. The taxpayer must file a claim 
for refund thereof, unless the overpayment is refunded without such 
claim, and if the claim is denied or not acted upon by the Commissioner 
within the prescribed time, the taxpayer may then file suit for refund.
    (b) For the purpose of the adjustments authorized by section 1311, 
the period of limitations upon the making of an assessment or upon 
refund or credit, as the case may be, for the taxable year of an 
adjustment shall be considered as if, on the date of the determination, 
one year remained before the expiration of such period. The Commissioner 
thus has one year from the date of the determination within which to 
mail a notice of deficiency in respect of the amount of the adjustment 
where such adjustment is treated as if it were a deficiency. The 
issuance of such notice of deficiency, in accordance with the law and 
regulations applicable to the assessment of deficiencies will suspend 
the running of the 1-year period of limitations provided in section 
1314(b). In accordance with the applicable law and regulations governing 
the collection of deficiencies, the period of limitation for collection 
of the amount of the adjustment will commence to run from the date of 
assessment of such amount. (See section 6502 and corresponding 
provisions of prior revenue laws.) Similarly, the taxpayer has a period 
of one year from the date of the determination within which to file a 
claim for refund in respect of the amount of the adjustment where such 
adjustment is treated as if it were an overpayment. Where the amount of 
the adjustment is treated as if it were a deficiency and the taxpayer 
chooses to pay such deficiency and contest it by way of a claim for 
refund, the period of limitation upon filing a claim for refund will 
commence to run from the date of such payment. See section 6511 and 
corresponding provisions of prior revenue laws.
    (c) The amount of an adjustment treated as if it were a deficiency 
or an overpayment, as the case may be, will bear interest and be subject 
to additions to the tax to the extent provided by the internal revenue 
laws applicable to deficiencies and overpayments for the taxable year 
with respect to which the adjustment is made. In the case of an 
adjustment resulting from an increase or decrease in a net operating 
loss or net capital loss which is carried back to the year of 
adjustment, interest shall not be collected or paid for any period prior 
to the close of the taxable year in which the net operating loss or net 
capital loss arises.
    (d) If, as a result of a determination provided for in Sec. 
1.1313(a)-4, an adjustment has been made by the assessment

[[Page 644]]

and collection of a deficiency or the refund or credit of an 
overpayment, and subsequently such determination is altered or revoked, 
the amount of the adjustment ascertained under Sec. 1.1314(a)-1 and 
Sec. 1.1314(a)-2 shall be redetermined on the basis of such alteration 
or revocation, and any overpayment or deficiency resulting from such 
redetermination shall be refunded or credited, or assessed and 
collected, as the case may be, as an adjustment under section 1311. For 
the circumstances under which such an agreement can be altered or 
revoked, see paragraph (d) of Sec. 1.1313(a)-4.

[T.D. 6500, 25 FR 12039, Nov. 26, 1960, as amended by T.D. 7301, 39 FR 
972, Jan. 4, 1974]