Or, The Expanding Tax Universe

The numbers are rolling, and Judge Cohen decides that one year of Cherie L. Hickman’s multi-year tax troubles gave rise to a deficiency, and therefore Tax Court can consider the Section 6651(a) additions to tax for that year.

Read all about it in Docket 27695-12, filed 5/7/14.

Orders, even designated ones, aren’t precedent, so you can’t cite them, but you can use the reasoning and the citations; even lift language verbatim.

The additions are the Section 6651 (a) failure-to-file-timely and failure-to-pay-timely, and Cherie admits she didn’t and she didn’t, respectively.

And for four out of the five didn’t-and-didn’t years, IRS assessed tax and additions based on Cherie’s late-filed returns, and those are off the table. Self-reporteds are no ticket to Tax Court.

But for one year, IRS sent a SNOD (which Judge Cohen calls NOD I; I eschew confusing a Statutory Notice of Deficiency, the so-called “90-day letter”, which I call a SNOD, with the Notice of Determination from Appeals after a CDP, which I call a NOD). The number alleged in NOD I was wrong for the one year at issue, as it was higher than what Cherie reported on her delinquent return.

Eventually, IRS and Cherie agreed that the right number was less than NOD I claimed, but more than Cherie put on her delinquent return.

But is there a deficiency, and therefore can Cherie challenge the Section 6651 additions for that year?

Yes, says Judge Cohen. IRS claims that the NOD I additions are attributable to the unabated portion of the tax due, and those were spelled out in NOD I, so there is no new deficiency.

And IRS’ motion to dismiss all years just says Cherie had a chance to petition from NOD I, and concededly didn’t.

Cherie replies that nothing in NOD I shows that it was based on what Cherie filed in her delinquent return for the year at issue, and in fact IRS and she agreed on a totally different number afterwards.

Judge Cohen: “Section 6211(a) of the Code defines ‘deficiency’ as the amount by which the tax imposed exceeds the excess of the sum of the amount shown as the tax on the taxpayer’s return, plus the amounts previously assessed (or collected without assessment) as a deficiency, over the amount of any rebates. In following this deficiency definition, respondent asserted that the tax imposed (as agreed upon by the parties) is $172,309; the amount shown as the tax on the taxpayer’s return is $0 (because the Internal Revenue Service (IRS) did not process petitioner’s delinquent … return); the amount previously assessed as a deficiency is $255,807; and the amount of the previous abatement (which constitutes a ‘rebate’) is $83,768. Respondent’s position is that a calculation of these numbers pursuant to section 6211(a) results in no deficiency. ” Order, at p. 3.

But that assumes a steady-state tax universe. And that isn’t so.

Judge Cohen: “…the concept of a deficiency–for purposes of section 6665(b)(1) in tandem with section 6211–is dynamic. A deficiency over time is expected to change as various assessments, abatements, and other actions take place. Yet such change does not erode the deficiency’s underpinnings–that at some time a deficiency, subject to the deficiency procedures, occurred; and that is enough for section 6665(b)(1) to apply. Here, respondent [IRS] originally determined a deficiency of $255,807 for … and assessed that amount. By agreement of the parties, that deficiency was reduced to $172,309, causing respondent to abate $83,768. Because the IRS did not process petitioner’s return, zero tax was reported from the return. Thus all of the $172,309 tax liability that remains from the original $255,807 deficiency stemmed from that deficiency. Consequently, the additions to tax at issue were wholly derived from a deficiency.” Order, at p. 4.

Section 6665(b)(1)? That’s the “additions based on deficiencies are deficiencies” section, and must IRS follow the deficiency procedure, not assessment.

So Cherie gets to fight about the additions.