Estate of Algerine Allen Smith v. Commissioner , 115 T.C. No. 27 ( 2000 )

115 T.C. No. 27
UNITED STATES TAX COURT
ESTATE OF ALGERINE ALLEN SMITH, DECEASED, JAMES ALLEN SMITH,
EXECUTOR, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 19200-94, 3976-95. Filed October 18, 2000.
In a prior opinion, we determined that there was a
deficiency in estate tax. P filed a timely notice of
appeal but did not file a bond to stay assessment or
collection during the pendency of the appeal. R
assessed the deficiency in estate tax, and P paid a
portion of the amount assessed. The Court of Appeals
reversed, vacated, and remanded for further
proceedings. The Court of Appeals opinion did not
preclude the possibility that further proceedings in
this Court might result in an estate tax deficiency in
the same amount that was previously decided. P filed a
Motion To Restrain Collection, Abate Assessment, And
Order A Refund Of Amount Collected. P’s motion is
based on sec. 7486, I.R.C.
Held: Sec. 7486, I.R.C., provides that “if the
amount of the deficiency determined by the Tax Court is
disallowed in whole or in part by the court of review,
the amount so disallowed shall be credited or refunded
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to the taxpayer”. Where a Court of Appeals reverses
and remands for further proceedings without indicating
that an ascertainable “amount” of the previously
determined deficiency cannot be properly assessed on
remand, no part of the amount of the previously
determined deficiency has been disallowed for purposes
of sec. 7486, I.R.C. P’s motion is denied.
Harold A. Chamberlain, for petitioner.
Carol Bingham McClure, for respondent.
OPINION
RUWE, Judge: This case is before the Court on the estate’s
motion to restrain collection, abate assessment, and refund
amounts collected by respondent. Section 7486 provides that “if
the amount of the deficiency determined by the Tax Court is
disallowed in whole or in part by the court of review, the
amount so disallowed shall be credited or refunded to the
taxpayer”. The sole issue for decision is whether the amount of
the deficiency previously determined by this Court was disallowed
in whole or in part by the court of review, within the meaning of
section 7486,1 when the Court of Appeals reversed, vacated, and
remanded.
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect as of the date of decedent’s
death, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
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Background
On June 4, 1997, we issued our opinion in the estate’s
consolidated cases.2 See Estate of Smith v. Commissioner, 108
T.C. 412 (1997). Our prior opinion dealt with respondent’s
disallowance of part of a deduction for a claim against the
estate under section 2053(a)(3). See id. at 413. We sustained
respondent’s estate tax deficiency determination because we found
that the proper valuation of the claim against the estate by
Exxon Corporation (Exxon) required consideration of the
settlement of the Exxon claim that occurred after decedent’s
death.3 See id. at 425. Our holding with respect to the estate
tax deficiency disposed of the need to address respondent’s
income tax deficiency determination. See id. at 425 n.13.
Pursuant to our opinion, the parties filed separate computations
under Rule 155. On January 12, 1998, we issued a supplemental
opinion resolving a disagreement between the parties with respect
to their computations. See Estate of Smith v. Commissioner, 110
T.C. 12 (1998). On March 31, 1998, the estate paid $646,325.76,
2
Our original opinion consolidated two cases of the estate,
one dealing with an income tax deficiency determination (docket
No. 3976-95) and the other dealing with an estate tax
deficiency determination (docket No. 19200-94). The asserted
income tax deficiency was an alternate position taken by
respondent in the event we rejected his position in the estate
tax deficiency determination.
3
We found that the validity and the enforceability of the
claim against decedent were uncertain as of the date of death.
See Estate of Smith v. Commissioner, 108 T.C. 412, 425 (1997).
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which was an estimate of the estate tax deficiency and interest.4
On April 10, 1998, the estate filed a timely notice of
appeal. The estate did not file a bond pursuant to section 74855
in order to stay the assessment or collection of the deficiency
during the pendency of the appeal. On May 12, 1998, respondent
assessed an estate tax deficiency in the amount of $564,429.87
plus interest in the amount of $410,848.76. Respondent gave the
estate credit for the March 31, 1998, payment of $646,325.76 and
also gave the estate credit for an overpayment of income tax
determined in docket No. 3976-95 in the amount of $63,052,
resulting in a balance due of $265,900.87. Collection of the
balance due was administratively stayed during the pendency of
the estate’s appeal.6
On December 15, 1999, the Court of Appeals for the Fifth
Circuit reversed, vacated, and remanded for further proceedings
with respect to the estate tax deficiency. See Estate of Smith
4
Respondent’s Appeals Office estimated this amount. As
part of the estimate, respondent allowed a deduction from the
estate for estimated interest which would be due on the
deficiency determined, as of a hypothetical date of payment of
Mar. 31, 1998.
5
Sec. 7485(a) provides that the appeal of a decision of this
Court does not operate as a stay of assessment or collection of
any portion of a deficiency unless a bond is filed by the
taxpayer.
6
Respondent has represented that collection of the unpaid
assessment remains administratively stayed and that no collection
activity is currently taking place.
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v. Commissioner, 198 F.3d 515 (1999). The Court of Appeals held
that we had improperly considered the post-death settlement of
Exxon’s claim against the estate. See id. at 526. The Court of
Appeals provided instructions regarding what evidence should be
considered for purposes of ascertaining the date-of-death value
of the claim against the estate but made no finding as to the
correct amount of the claim for purposes of deduction under
section 2053(a)(3) and did not preclude the possibility that the
correct amount of the deficiency might be the same as that
determined in our original decision. See id.
Discussion
The issue for decision is whether the “amount of the
deficiency” previously determined by this Court was “disallowed
in whole or in part by the court of review” within the meaning of
section 7486. Petitioner argues that the amount of the
deficiency in our prior decision was disallowed when that
decision was reversed, vacated, and remanded. We disagree.
Section 7486 provides:
SEC. 7486. In cases where assessment or collection has
not been stayed by the filing of a bond, then if the amount
of the deficiency determined by the Tax Court is disallowed
in whole or in part by the court of review, the amount so
disallowed shall be credited or refunded to the taxpayer,
without the making of claim therefor, or, if collection has
not been made, shall be abated.
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In the absence of any evidence of legislative purpose
warranting a different approach,7 “we must assume that Congress
meant what it said and that the statutory language should be
taken at face value.” Cal-Maine Foods, Inc. v. Commissioner, 93
T.C. 181, 209 (1989). The language of section 7486 provides for
abatement and refund of the “amount of the deficiency determined”
by this Court that has been “disallowed in whole or in part by
the court of review”, regardless of whether the taxpayer files a
claim for relief. The statute simply acts as a procedural device
ensuring that the Commissioner follows a decision of the court of
review in situations where it can be ascertained that all or a
part of the amount of the deficiency determined by this Court was
disallowed. Where the court of review reverses and remands but
does not indicate that any ascertainable “amount” of the
previously determined deficiency has been precluded, it cannot be
said that the court of review has “disallowed in whole or in
part” the “amount of the deficiency determined by the Tax Court.”
7
The legislative history of sec. 7486 (originally enacted as
sec. 1001(d) by the Internal Revenue Act of 1926, ch. 27, 44
Stat. 110, amended by the Internal Revenue Act of 1928, ch. 852,
45 Stat. 873, designated as sec. 1146 in the Internal Revenue
Code of 1939, and becoming sec. 7486 under the Internal Revenue
Code of 1954) lacks any indication of congressional intent on the
issue involved. See H. Rept. 1, 69th Cong., 1st Sess. (1925),
1939-1 C.B. (Part 2) 315, 327-329; S. Rept. 52, 69th Cong., 1st
Sess. (1926), 1939-1 C.B. (Part 2) 332, 357-360; Conf. Rept. 356,
69th Cong., 1st Sess. (1926), 1939-1 C.B. (Part 2) 361, 378-379;
H. Rept. 1337, 83d Cong., 2d Sess. A434 (1954); S. Rept. 1622,
83d Cong., 2d Sess. 614 (1954).
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In the instant case, the Court of Appeals reversed and
remanded with instructions regarding the proper evidence to
consider for valuing Exxon’s claim against the estate. The Court
of Appeals made no finding regarding the correct value of the
Exxon claim, nor did it preclude an ultimate finding of value
that would result in the same deficiency amount contained in our
prior decision. The Court of Appeals simply held that post-death
events, such as the settlement of the Exxon claim, should not be
considered in making the valuation determination. The Court of
Appeals remanded with instructions to make the valuation based on
facts that existed on the date of decedent’s death. The amount
of the prior deficiency determination was not disallowed in whole
or in part.
Although this Court has not previously addressed the issue,
other courts have held that section 7486 does not apply in the
present situation. In Tyne v. Commissioner, T.C. Memo. 1966-214,
the Tax Court allowed the taxpayer to deduct a portion of his
travel expenses. The taxpayer appealed but did not post a bond,
and the Commissioner assessed the deficiency. The Court of
Appeals for the Seventh Circuit reversed and remanded with
instructions to use a different method of allocation for purposes
of determining the allowable deduction. See Tyne v.
Commissioner, 385 F.2d 40, 42 (7th Cir. 1967). After the Tax
Court entered new decisions, the taxpayer again appealed, and the
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Court of Appeals again reversed and remanded for additional
hearings. See Tyne v. Commissioner, 409 F.2d 485 (7th Cir.
1969). The taxpayer then filed a motion with the Court of
Appeals for relief under section 7486, seeking a refund and an
abatement. The Court of Appeals denied the motion, stating:
Although it is arguable logic that the reversal of
the decisions which were the foundations of the
assessments compelled abatement, we consider it a
better construction of 26 U.S.C. § 7486 that reversal
with remand for further proceedings, as distinguished
from reversal and final disallowance of deficiencies,
did not require abatement until action of the tax court
upon remand. * * * [Tyne v. Commissioner, 69-2 USTC
par. 9508 (7th Cir. 1969).]
The Court of Appeals thus held that any abatement and refund
would depend on further decision by the Tax Court. See id.
The Court of Appeals for the Sixth Circuit reached the same
conclusion in United States v. Bolt, 375 F.2d 725 (6th Cir.
1967). The Tax Court had originally found the taxpayer liable
for income tax deficiencies and fraud penalties. See Grubb v.
Commissioner, T.C. Memo. 1961-153. The taxpayer appealed but did
not post a bond, and the Commissioner assessed the deficiency and
penalties. The Court of Appeals upheld the Tax Court’s finding
of fraud but reversed and remanded with instructions outlining
the appropriate method for determining the deficiency amount.
See Grubb v. Commissioner, 315 F.2d 753, 758-759 (6th Cir. 1963).
Based on stipulations by the parties, the Tax Court then entered
a new decision as to the correct amount of the deficiencies and
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the fraud penalties. See United States v. Bolt, supra at 726.
In a subsequent action to resolve a dispute over the proper
computation of interest on the deficiency and fraud penalties,
the Court of Appeals rejected the taxpayer’s argument that the
original assessment made by the Commissioner had been invalidated
as a result of the reversal and remand.8 See id. The Court of
Appeals held that the reversal and remand did not “vitiate the
assessment” for purposes of section 7486. Id.
In Denison v. Commissioner, T.C. Memo. 1981-738, the Tax
Court sustained the Commissioner’s deficiency determination
because the taxpayer failed to show that the determination was
erroneous. The taxpayer appealed but did not post a bond, and
the Commissioner assessed the deficiency. The Court of Appeals
for the Eighth Circuit reversed and remanded for further
proceedings with instructions to require the Commissioner to
produce evidence establishing the reasonableness of its
determination. See Denison v. Barlow, 689 F.2d 771, 773 (8th
Cir. 1982). The taxpayer then filed an action in District Court
seeking declaratory and injunctive relief against the
Commissioner’s efforts to collect the assessment. The District
8
The taxpayer in United States v. Bolt, 375 F.2d 725 (6th
Cir. 1967), appears to have been arguing that the reversal and
remand of the Tax Court’s first decision invalidated the original
assessment made by the Commissioner and that this, in turn,
affected the amount of interest due on the deficiency and fraud
penalties as finally determined on remand.
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Court, citing sections 7485 and 7486, stated that the assessment
and collection efforts of the Commissioner may be stayed only by
the posting of a bond unless disallowance is made by the court of
review. See Denison v. Barlow, 563 F. Supp. 263, 264 (E.D. Ark.
1983). The District Court held that “no disallowance” was made
when the Court of Appeals reversed and remanded for further
proceedings. Id.
In an analogous situation, we considered whether a reversal
and remand for further proceedings required the Commissioner to
release a surety bond filed by the taxpayer. See Jacobson v.
Commissioner, 97 T.C. 425 (1991). In Jacobson, a bond was filed
pursuant to section 7485 in order to stay the assessment and
collection of deficiencies during the pendency of the appeal.
The Court of Appeals reversed and remanded for further
consideration, and the taxpayer filed a motion for release of the
bond. See id. at 426. The surety bond specified in section 7485
acts as security until “payment of the deficiency as finally
determined”. Sec. 7485(a)(1). We held that the surety bond
could not be released before the proceedings on remand were
concluded because the deficiency had not been “finally
determined”. Jacobson v. Commissioner, supra at 427. This
interpretation of section 7485 is consistent with denying relief
under section 7486 when the court of review reverses and remands
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but does not disallow any ascertainable amount of the Tax Court’s
deficiency determination.
We note the recent case of Wechsler v. United States, 2000
WL 713407 (S.D.N.Y. 2000), which granted the taxpayers relief
under section 7486 where a decision of this Court was reversed
and remanded. In that case, the Tax Court had initially denied
the taxpayers’ motion for summary judgment because the Court
found that valid waivers were executed which extended the
applicable 3-year period of limitations. See Transpac Drilling
Venture 1982-16 v. Commissioner, T.C. Memo. 1994-26. In doing
so, the Tax Court did not address the Commissioner’s alternative
argument that the 6-year period of limitations might apply. See
id. The Court of Appeals for the Second Circuit reversed the Tax
Court’s holding that the waivers were validly executed and
remanded for a determination of whether the 6-year period of
limitations applied. See Transpac Drilling Venture 1982-12 v.
Commissioner, 147 F.3d 221, 229 (2d Cir. 1998). The taxpayers’
subsequent motion for relief under section 7486 was granted in
Wechsler v. United States, 2000 WL 713407 (S.D.N.Y. 2000), and
the Commissioner’s motion to vacate that judgment was denied in
Wechsler v. United States, 2000 WL 1253267 (S.D.N.Y. 2000). The
District Court explained that the Commissioner’s deficiency
determination was unenforceable unless the Commissioner could
show that the 6-year period of limitations applied but emphasized
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that the Court of Appeals opinion “in no way concludes this
litigation”. Wechsler v. United States, 2000 WL 713407 (S.D.N.Y.
2000).
While Wechsler may be distinguishable on its facts, it is
also clear that the Court of Appeals’ reversal in that case left
open the possibility that the Tax Court might determine that the
6-year period of limitations remained open after considering the
matter on remand. To the extent Wechsler is inconsistent with
our holding in the instant case, we respectfully disagree with
Wechsler.
Based on the facts before us, we hold that the “amount” of
our previous deficiency determination was not “disallowed in
whole or in part” within the meaning of section 7486 when the
Court of Appeals reversed and remanded for further proceedings.
An appropriate order will
be issued denying petitioner’s
motion.