To Play It

If you want to fight in Tax Court about interest on your deficiency, you have to pay the deficiency and the interest, and then petition.

That’s Judge Foley’s directive to James B. & Jane Z. Paternostro, Docket No. 15753-10, filed 5/8/13.

JB & JZ agreed that their Sub S, Skidmarks, Inc., was not entitled to some $200K of Schedule E losses over a two-year period, plus Section 6662(a) accuracy (or better-styled, inaccuracy) penalties.

But when IRS moved to enter decision, JB & JZ objected, complaining about IRS’ computation of interest.

Judge Foley: “The Court’s jurisdiction to redetermine a deficiency generally does not extend to statutory interest imposed pursuant to section 6601. The Court may redetermine a section 6601 interest computation if the taxpayer petitions the Court within one year after the date the decision of the Court becomes final, an assessment has been made by the Commissioner which includes interest, the taxpayer has paid the entire amount of the deficiency plus interest, and the Court determines that the taxpayer has made an overpayment. The Court has not entered a final decision and petitioners have not paid the deficiency plus interest relating to the years in issue. Accordingly, petitioners may not challenge respondent’s interest computations.” Order, p. 2. (Citations omitted).

Pay to play, guys. And don’t jump the gun.