In Uncategorized on 11/18/2013 at 18:03

Those of my readers (those few, those happy few, that band of brothers and sisters, to paraphrase the Bard of Avon) who slogged their way through my blogpost “The Rebate Debate”,  9/19/13, and even the more turgid prose of Judge Ruwe in Glenn Lee Snow, 141 T. C. 6, filed 9/19/13, and still have an appetite for decoding what is an “underpayment” for the 20% Section 6662(a) chop, are invited to join Judge Buch in the uncoupling of “deficiency” from “underpayment”, as wrought by the 1989 Omnibus Budget Reconciliation Act. The uncoupling and recoupling takes place in Yitzchok D. Rand and Shulamis Klugman, 141 T. C. 12, filed 11/18/13.

Here goes: “Although they are linked by history, the fact remains that in 1989 Congress uncoupled these terms. And although identical words are presumed to have the same meaning, the presumption ‘is not rigid’. United States v. Cleveland Indians Baseball Co., 532 U.S. 200, 213 (2001) (quoting Atl. Cleaners & Dyers, 286 U.S. at 433). But here, Congress expressly indicated that uncoupling these terms was not intended to remove their definitional nexus. Despite detaching the definition of an underpayment from the definition of a deficiency, Congress informed us that ‘the bill provides a standard definition of underpayment for all of the accuracy-related penalties. This standard definition is intended to simplify and coordinate the definitions in present law; it is not intended to be substantively different from present law.’ HR. Rept. No. 101-247, at 1394 (1989), 1989 U.S.C.C.A.N. 1906, 2864. But see H.R. Conf. Rept. No. 101-386, at 654 (1989), 1989 U.S.C.C.A.N. 3018, 3257. Given that sections 6211(a)(1)(A) and 6664(a)(1)(A) use the same phrase and that the two provisions are contextually and historically related, we turn to section 6211(a)(1)(A) to assist us in interpreting the provision before us.” 141 T. C.12,  at p. 18.

Yitz and Shul claimed three refundables they admit they weren’t entitled to, leaving a $7K deficiency. IRS claims the underpayment was the refund Yitz and Shul got they weren’t entitled to; Yitz and Shul claim that the underpayment was the $144 of tax they would have owed if they hadn’t claimed the recovery rebate, the additional child, and the earned income credits. But the Cardozo Tax Clinic, amicus curiae, says the number is zero, because an underpayment can’t be less than zero.

Time for statutory interpretation. The Section 6664 regulations don’t speak to the credits Yitz and Shul took, they speak about withholding.

So Judge Buch engages in some fancy footwork: “Because the Secretary has not promulgated a regulation addressing how the refundable credits at issue here should be taken into account, we need not address whether the statute leaves room for agency interpretation. It follows that we are also not resolving the question of whether the Secretary may promulgate a regulation that is inconsistent with this Opinion. And the mere fact that we devote these pages to interpreting the statute does not, by implication, mean that the statute is ambiguous. Whether a statute is ambiguous is determined not only from the language of the statute being considered, but also from the ‘language and design of the statute as a whole.’ See, e.g., K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 291 (1988). Thus, in looking beyond the language of section 6664(a)(1)(A) as part of our analysis, we are not answering the question of whether the statute is ambiguous. We are simply interpreting the statute. And to do so, we turn to principles of statutory construction.” 141 T. C. 12, at p. 15 (Footnote omitted).

And while the refundables contribute to the deficiency, they don’t contribute to the underpayment, at least to take the underpayment below zero. And as for IRS’s argument that Judge Buch is letting Yitz and Shul off the hook, the rule of lenity, an ancient canon, says that penalties are strictly construed in favor of the penalized. And if IRS wanted to nail Yitz and Shul, they should have used Section 6676 excessive refund claim 20% chop to whack Yitz and Shul.

The Cardozo boys win one.

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