Attorney-at-Law

SUMMARY VS. DEFICIENCY

In Uncategorized on 01/14/2020 at 18:11

Here Be Dragons

There are two kinds of assessments of tax, summary and deficiency. Deficiency assessments are triggered by notices, the SNODs that are keys to the Glasshouse door. Summary assessments are just that: no notice. Deficiency assessments include the subtitle A filed returns and SFRs. Summary assessments include additions to tax, arithmetic errors, electronically computeds, and self-reporteds.

MEI Productions, 2020 T. C. Memo. 11, filed 1/14/20, discovers that its amended return, showing the wrong tax due, garners a Section 6651(a)(3) underreporting addition, despite settling for less in the deficiency proceeding that precedes this challenge to the NOD sustaining the NITL for the addition.

MEI is fighting the addition computed on the mistakenly reported tax on the amended return. And IRS settled with MEI on a lower amount, and paid it.

Confused? So am I, so I’ll let Judge Ashford explain.

First, this is a summary assessment, not a deficiency. The amended return, though later settled out at a lower amount, still had the number the IRS assessed.

“All this having been said, petitioner’s contention would have merit only if the IRS’ [higher number] assessment…was a deficiency assessment. But it clearly was not. It was a summary assessment and it was a valid summary assessment because the preconditions for making such an assessment were satisfied: (1)… petitioner filed a valid amended return for the year at issue and (2) this return manifested an unconditional admission of liability for an additional [higher number]. Indeed, petitioner does not dispute that these preconditions were met. Petitioner’s filing of that amended return does not, however, convert the IRS’ summary assessment into a deficiency assessment that would be prohibited under section 6213(a) because of the then-pending deficiency case. We also note that the IRS’ … assessment was for [the amended return amount] and not…the amount the IRS determined as a deficiency in petitioner’s Federal income tax in the notice of deficiency it sent to petitioner.” 2020 T. C. Memo. 11, at p. 19.

But IRS’ deft counsel played deftly with MEI’s attorney. The stip on the deficiency case said no tax due and no refund due, but there was “an unpaid assessment of tax” for the year at issue. Both MEI’s attorney and IRS’ attorney signed off.

“Thus, if petitioner truly believed that the [higher number] assessment was an unlawful deficiency assessment, we find it curious that Mr. M [MEI’s attorney] would even have signed this document on its behalf. Furthermore, even before that and once the levy notice was issued, petitioner could (and should) have sought to enjoin the [higher number] assessment if it truly believed that assessment was unlawful by filing a motion pursuant to Rule 55 in the deficiency case. No such action was taken; instead, petitioner sought relief by submitting a CDP hearing request. Consequently, the [higher number] assessment was lawful and it follows that the section 6651(a)(3) addition to tax is also lawful.” 2020 T. C. Memo. 11, at p. 20 (Name and footnote omitted, but read the footnote; Mr M never called the IRS’ counsel as a witness).

Takeaway- When you settle out a deficiency, make sure all additions to tax based on the original amount of the deficiency are dropped.

 

 

 

 

 

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