Attorney-at-Law

ABATE? SUSPEND?

In Uncategorized on 01/27/2014 at 23:14

The IRS is getting epistolary, claiming their billets doux aren’t final determinations (and where have we heard that song before? See my blogpost “The Whistleblower Blows It”, 6/20/11), but Judge Cohen isn’t buying. So IRS finds Tax Court has jurisdiction to consider suspension of interest on deficiencies under Section 6404(g) by virtue of Section 6404(h).

And IRS can read the bad news in Charles M. Corbalis and Linda J. Corbalis, 142 T. C. 2, filed 1/27/14.

Charley and Linda claim the deficiencies relate to a loss carryback, and thus the year at issue is within the timeframe of the 1998 IRS Restructuring Act. IRS sent them four different Letter 3477s, saying no appeal and no judicial review. Charley and Linda petition anyway, sending in four lawyers, when IRS sends in one; inference arising therefrom: someone is in trouble.

IRS claims that Tax Court has jurisdiction to determine whether IRS wrongfully failed to abate interest, but not to suspend the accrual of interest.

Judge Cohen: “First, we agree with petitioners that all of section 6404 deals with abatement, of which suspension is a category. A claim that interest should have been suspended for a period is the logical equivalent of a claim for abatement of interest that has been assessed for that period.” 142 T. C. 2, at p. 15.

“The Court has stated, without limitation, that ‘section 6404(h) authorizes the Court to review for an abuse of discretion the Commissioner’s refusal to abate interest under section 6404.’ Urbano v. Commissioner, 122 T.C. 384, 390 (2004) (citing Woodral v. Commissioner, 112 T.C. 19, 22-23 (1999)). We see no persuasive reason why, as suggested by respondent, petitioners should have to seek recourse on their suspension of interest claim in another court. See Hinck v. United States, 550 U.S. 501, 506-508 (2007) (discussing congressional intent to provide exclusive jurisdiction to the Tax Court in interest abatement cases).” 142 T. C. 2, at p. 16.

Moreover, citing a statute whose title should resonate with Tax Court petitioners and practitioners everywhere, “We see no persuasive reason why interest suspension, when enacted in the RRA 1998, was to be treated separately from interest abatement for purposes of judicial review. When the interest suspension provision was adopted in 1998, the judicial review provision was redesignated by the RRA 1998 from section 6404(g) to section 6404(i); it was changed to section 6404(h) in 2002 by the Victims of Terrorism Tax Relief Act of 2001, Pub. L. No. 107-134, sec. 112(d)(1), 115 Stat. at 2434. In each version of the statute, the provision for judicial review follows the types of determinations subject to review.” 142 T. C. 2, at p. 17.

While Section 7806(b) says that no inference, implication or presumption arises from the placement of any provision in the Code, Tax Court can consider the use of similar terms and provisions in aid of construction.

And here the statute uses “shall”, not “may”, so no discretion and thus judicial review. Anyway, there is a strong presumption in favor of judicial review of administrative acts.

How to do it: first check the statute to see if it makes the administrative determination (whether or not labeled as such) nonreviewable; then see if there are ascertainable standards against which to review the determination in issue; then see if any special agency expertise is involved, beyond the competence of the Court; finally, will review prevent the agency from carrying on its Congressional mandate. Here, the answers are no, yes, no and no.

Reviewable.

But there’s a question whether Charley and Linda ducked the $2 million barrier (see my blogpost “Net Worthlessness”, 1/17/14).

Charley and Linda put in affidavits, but IRS challenges these. IRS also claims Charley and Linda are not the “prevailing party”, but that is meaningless in this context. If they prevailed, no deficiency and no interest. Thus, the only Section 7430 test is net worthlessness.

“Respondent also contends that we should disregard the affidavits and net worth statements of petitioners as unreliable. Respondent acknowledges that in the case of a husband and wife, the net worth test is applied to each separately. See Hong v. Commissioner, 100 T.C. 88, 91 (1993). Respondent also ‘acknowledges that the current state of the law is to use acquisition cost, adjusted for depreciation, rather than fair market value to compute net worth.’ See Swanson v. Commissioner, 106 T.C. 76, 94-97 (1996). However, respondent asserts that fair market value is the better standard to use rather than acquisition cost, citing Powers v. Commissioner, 100 T.C. 457, 483-484 (1993) (accepting fair market values which had declined significantly from acquisition costs), aff’d in part, rev’d in part, 43 F.3d 172 (5th Cir. 1995), and section 301.7430-5(g)(1), Proposed Income Tax Regs., 74 Fed. Reg. 61589-01, 61595-61596 (Nov. 25, 2009). We decline to do so in a case in which the relevant facts have not been determined.” 142 T. C. 2, at p. 23.

So there can be an evidentiary hearing on Charley’s net worth and Linda’s net worth, and have a trial if needed. And though Charley and Linda may not have a slam dunk here, at least they stay on the court (pun intended).

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