In Uncategorized on 10/25/2021 at 19:35

No, not basketball; Albert G. Hill, III, 2021 T. C. Memo. 121, filed 10/25/21*, wants to mate Section 7481(c) with Rule 261 and have Tax Court give him an extra three-point “bump” (as Judge Albert G. (“Scholar Al”) Lauber calls it) on the interest he’s getting for his $3 million gift tax deposit.

Al III was involved in the Hunt Family split-up, which required Al III to fund some trust funds for his kids. This triggered a ginormous gift tax, so Al III had his lawyers deposit $10 million with IRS against the ultimate gift tax liability when, as and if it got sorted out in USDCNDTX. Al III hadn’t filed a return at that point, but the case stiped out at $6 million gift tax due, and Al III got interest of $218K on the excess of deposit above tax due, at AFR short (Applicable Federal Rate, Short-Term).

Al III wants the rate at AFR Short plus 3 points, claiming Section 6603(d)(4).

He doesn’t get it. Judge Scholar Al says the $10 million was a deposit to stop interest, not a payment of tax. Going back through more than fifty (count’ em, fifty) years of Rev. Proc.s and statutory amendments, Judge Scholar Al concludes that Al III’s trusty attorney can’t convert a deposit into a payment, and that Tax Court never determined Al III made an overpayment.

Al III and IRS stiped to the numbers for tax and amount to be credited from the deposit against the tax thus agreed upon. This was a “below the line” agreement, below the Judge’s signature on the decision, and therefore not a determination by the Court.

“First, a below-the-line stipulation evidences only an agreement between the parties. It is called a ‘below-the-line’ stipulation because it appears ‘below the Judge’s signature.’ See Smith v. Commissioner, T.C. Memo. 2009-33, 97 T.C.M. (CCH) 1134, 1136 (distinguishing a below-the-line stipulation from the decision line, which ‘determin[es] deficiencies, additions to tax, and penalties’). Such a stipulation does not constitute a finding by the Court. See sec. 7481(c)(2)(B) (permitting reopening if ‘the Tax Court finds * * * that the taxpayer has made an overpayment’ (emphasis added)). Second, the parties themselves, in their below-the-line stipulations, do not refer to any ‘overpayment.’ Rather, they ‘stipulate[] that the deficiency for [year at issue] is computed without considering the prepayment credit of $10,263,750.’ (Emphasis added.).” 2021 T. C. Memo. 121, at p. 18.

OK, so the Court never found a deficiency, because the parties negotiated and stiped out the numbers. So no jurisdiction to recompute interest.

Note that the difference here is the difference between $218K, which IRS concedes, and the $1.267 million Al III claims. Stipulate, don’t capitulate? Quite a give-up, $900K.

Taishoff asks, but is that a give-up? If Al III doesn’t stip, he goes to trial in USDCNDTX on an arcane point of Federal tax law. How likely a USDCJ is able to deal with a complex set of time value of money issues, date when gift actually made, and discounted present values, with numbers and assumptions flying around, is a not insubstantial risk. Al III might be materially the worse at close of play if he rolls the dice, risking at least $4 million to pick up $900K if his trusty attorneys hit a home run. I say “at least” $4 million, because the USDCJ might find IRS bore BoP for a greater deficiency than IRS first alleged. And Al III has legal fees for the trial and possible appeal.

Al III loses, but his trusty attorneys get a Taishoff “Good try, second class.”

*Albert G. Hill III 2021 T. C Memo 121 10 25 21


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