Charles M. Corbalis & Linda J. Corbalis v. Commissioner

142 T.C. No. 2
UNITED STATES TAX COURT
CHARLES M. CORBALIS AND LINDA J. CORBALIS, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8220-13. Filed January 27, 2014.
Petitioners seek judicial review of Letters 3477 denying their
claim for interest suspension under I.R.C. sec. 6404(g) and stating
that the determinations are not subject to judicial review under I.R.C.
sec. 6404(h). Respondent has moved to dismiss for lack of
jurisdiction.
Held: The Court has jurisdiction under I.R.C. sec. 6404(h) to
review denials of interest suspension under I.R.C. sec. 6404(g).
Held, further, the Letters 3477 were final determinations for
purposes of I.R.C. sec. 6404(h) even though petitioners’ concurrent
claims for abatement under I.R.C. sec. 6404(e) were still pending.
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Cory Stigile, Sharyn M. Fisk, Della J. Bauserman, and Charles Paul Rettig,
for petitioners.
Najah J. Shariff, for respondent.
OPINION
COHEN, Judge: This case is before the Court on respondent’s motion to
dismiss for lack of jurisdiction. The primary issue for decision is whether section
6404(h) applies to denials of interest suspension under section 6404(g). If so, we
must decide whether the notice from which petitioners seek review is a final
determination for purposes of section 6404(h)(1). All section references are to the
Internal Revenue Code in effect at all relevant times, and all Rule references are to
the Tax Court Rules of Practice and Procedure.
Background
The operative facts are set forth in respondent’s motion to dismiss and have
not been disputed. Petitioners resided in California at the time they filed the
petition. Petitioners seek review of four separate Letters 3477 issued by the
Internal Revenue Service (IRS) on October 11, 2012, in which the IRS concluded
that interest suspension under section 6404(g) does not apply with respect to
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taxable years 1996, 1997, 1998, and 1999 because of the effective date and
because it does not apply with respect to a liability reported on a return. The
explanation attached to each of the letters states that examination of petitioners’
returns followed petitioners’ having filed two Forms 1045, Application for
Tentative Refund. The consequent examination of the returns encompassed 1996,
1997, 1998, 1999, 2001, 2002, 2003, and 2004.
Petitioners assert that the amounts in issue for 1996, 1997, 1998, and 1999
resulted from disallowance of a loss carried back from 2001 and that, therefore,
2001 is also a year in issue and is the year of the relevant tax return for
determining whether section 6404(g) applies. Petitioners allege jurisdiction under
section 6404(h) and Rule 280. In addition, petitioners allege that they meet the
requirements of section 7430(c)(4)(A)(ii) and that a final determination has been
made not to abate interest under section 6404.
Each of the Letters 3477 sent to petitioners states: “The judicial review
provisions of IRC section 6404(h) do not apply to IRC section 6404(g).
Therefore, you do not have appeal rights, nor may you petition the Tax Court for
judicial review regarding this letter.”
Also on October 11, 2012, the IRS sent to petitioners two separate Letters
2289 disallowing in full petitioners’ claim for abatement of interest for taxable
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years 1996, 1997, 1998, and 1999 under section 6404(e). Each of these Letters
2289 states: “This is not the IRS’s final determination”. On November 9, 2012,
petitioners filed a protest to the determinations set forth in the Letters 3477 and
2289 dated October 11, 2012.
Deferred Disputes
Respondent asserts that petitioners have not shown that they meet the net
worth requirements of section 7430(c)(4)(A)(ii) that are incorporated into section
6404(h). Exhibits concerning petitioners’ net worth were identified in the
response to respondent’s motion but were inadvertently omitted from the filed
response. The exhibits were made part of the record by a supplemental filing by
petitioners. The exhibits consist of separate affidavits and net worth statements
for each petitioner compiled by their accountant and based upon acquisition costs
of assets that petitioners provided to the accountant. Although we comment on
that dispute below, we do not resolve it at this time.
Respondent’s motion to dismiss presents those documents and arguments on
which we decide whether the Court has jurisdiction in this case. For further
understanding of the context, however, and to indicate which arguments will
necessarily be addressed if we conclude that the Court has jurisdiction, we
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mention here additional contentions of the parties that appear from the Letters
3477 that the IRS sent to petitioners.
The amounts in dispute for 1996, 1997, 1998, and 1999 apparently arise
from settlement of disallowed carrybacks to those years of losses claimed for
2001. The IRS letters state, among other things, that section 6404(g) does not
apply to years before 1998 and that interest suspension does not apply with respect
to any tax liability reported on a return. The record here is inadequate to decide
how section 6404(g) applies to petitioners’ loss carrybacks, and the parties have
not addressed that issue in their filings. We therefore do not opine on that dispute
in this Opinion.
Petitioners have asserted before the IRS various grounds for abatement of
interest under section 6404(e) and continue to pursue those claims
administratively. They do not dispute that the denial of their section 6404(e)
claims was not a final determination. Their petition, however, deals only with
interest suspension under section 6404(g).
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Discussion
Statutory Terms
Section 6404(a), (b), (e), and (f) provides:
SEC. 6404. ABATEMENTS.
(a) General Rule.--The Secretary is authorized to abate the
unpaid portion of the assessment of any tax or any liability in respect
thereof, which--
(1) is excessive in amount, or
(2) is assessed after the expiration of the period of
limitations properly applicable thereto, or
(3) is erroneously or illegally assessed.
(b) No Claim for Abatement of Income, Estate, and Gift
Taxes.--No claim for abatement shall be filed by a taxpayer in respect
of an assessment of any tax imposed under subtitle A or B.
* * * * * * *
(e) Abatement of Interest Attributable to Unreasonable Errors
and Delays by Internal Revenue Service.--
(1) In general.--In the case of any assessment of interest
on--
(A) any deficiency attributable in whole or in part
to any unreasonable error or delay by an officer or
employee of the Internal Revenue Service (acting in his
official capacity) in performing a ministerial or
managerial act, or
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(B) any payment of any tax described in section
6212(a) to the extent that any unreasonable error or delay
in such payment is attributable to such officer or
employee being erroneous or dilatory in performing a
ministerial or managerial act,
the Secretary may abate the assessment of all or any part of
such interest for any period. For purposes of the preceding
sentence, an error or delay shall be taken into account only if
no significant aspect of such error or delay can be attributed to
the taxpayer involved, and after the Internal Revenue Service
has contacted the taxpayer in writing with respect to such
deficiency or payment.
(2) Interest abated with respect to erroneous refund
check.--The Secretary shall abate the assessment of all interest
on any erroneous refund under section 6602 until the date
demand for repayment is made, unless--
(A) the taxpayer (or a related party) has in any way
caused such erroneous refund, or
(B) such erroneous refund exceeds $50,000.
(f) Abatement of Any Penalty or Addition to Tax Attributable
to Erroneous Written Advice by the Internal Revenue Service.--
(1) In general.--The Secretary shall abate any portion of
any penalty or addition to tax attributable to erroneous advice
furnished to the taxpayer in writing by an officer or employee
of the Internal Revenue Service, acting in such officer’s or
employee’s official capacity.
(2) Limitations.--Paragraph (1) shall apply only if--
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(A) the written advice was reasonably relied upon
by the taxpayer and was in response to a specific written
request of the taxpayer, and
(B) the portion of the penalty or addition to tax did
not result from a failure by the taxpayer to provide
adequate or accurate information.
(3) Initial regulations.--Within 180 days after the date of
the enactment of this subsection, the Secretary shall prescribe
such initial regulations as may be necessary to carry out this
subsection.
Section 6404(g) was added by the Internal Revenue Service Restructuring
and Reform Act of 1998 (RRA 1998), Pub. L. No. 105-206, sec. 3305(a), 112 Stat.
at 743, effective for tax years ending after July 22, 1998. Section 6404(g)
provides:
SEC. 6404(g). Suspension of Interest and Certain Penalties
Where Secretary Fails to Contact Taxpayer.--
(1) Suspension.--
(A) In general.--In the case of an individual who
files a return of tax imposed by subtitle A for a taxable
year on or before the due date for the return (including
extensions), if the Secretary does not provide a notice to
the taxpayer specifically stating the taxpayer’s liability
and the basis for the liability before the close of the 36-
month period beginning on the later of--
(i) the date on which the return is filed; or
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(ii) the due date of the return without regard
to extensions,
the Secretary shall suspend the imposition of any
interest, penalty, addition to tax, or additional amount
with respect to any failure relating to the return which is
computed by reference to the period of time the failure
continues to exist and which is properly allocable to the
suspension period.
(B) Separate application.--This paragraph shall be
applied separately with respect to each item or
adjustment.
If, after the return for a taxable year is filed, the taxpayer provides to
the Secretary 1 or more signed written documents showing that the
taxpayer owes an additional amount of tax for the taxable year, clause
(i) shall be applied by substituting the date the last of the documents
was provided for the date on which the return is filed.
(2) Exceptions.--Paragraph (1) shall not apply to--
(A) any penalty imposed by section 6651;
(B) any interest, penalty, addition to tax, or
additional amount in a case involving fraud;
(C) any interest, penalty, addition to tax, or
additional amount with respect to any tax liability shown
on the return;
(D) any interest, penalty, addition to tax, or
additional amount with respect to any gross
misstatement;
(E) any interest, penalty, addition to tax, or
additional amount with respect to any reportable
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transaction with respect to which the requirement of
section 6664(d)(2)(A) is not met and any listed
transaction (as defined in 6707A(c)); or
(F) any criminal penalty.
(3) Suspension period.--For purposes of this subsection,
the term “suspension period” means the period--
(A) beginning on the day after the close of the 36-
month period under paragraph (1); and
(B) ending on the date which is 21 days after the
date on which notice described in paragraph (1)(A) is
provided by the Secretary.
The provision for Tax Court review of interest abatement requests was first
adopted as part of the RRA 1998. The relevant subsection now provides:
SEC. 6404(h). Review of Denial of Request for Abatement of
Interest.--
(1) In general.--The Tax Court shall have jurisdiction
over any action brought by a taxpayer who meets the
requirements referred to in section 7430(c)(4)(A)(ii) to
determine whether the Secretary’s failure to abate interest
under this section was an abuse of discretion, and may order an
abatement, if such action is brought within 180 days after the
date of the mailing of the Secretary’s final determination not to
abate such interest.
(2) Special rules.--
(A) Date of mailing.--Rules similar to the
rules of section 6213 shall apply for purposes of
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determining the date of the mailing referred to in
paragraph (1).
(B) Relief.--Rules similar to the rules of
section 6512(b) shall apply for purposes of this
subsection.
(C) Review.--An order of the Tax Court
under this subsection shall be reviewable in the
same manner as a decision of the Tax Court, but
only with respect to the matters determined in such
order.
When enacted in 1996 as part of the Taxpayer Bill of Rights 2 (TBOR 2),
Pub. L. No. 104-168, sec. 302(a), 110 Stat. at 1457-1458 (1996) (as amended by
TBOR 2 sec. 701(a) and (c)(3), 110 Stat. at 1463, 1464), then section 6404(g),
now section 6404(h), for the first time gave this Court jurisdiction to review
requests for abatement of interest in the case of proceedings commenced after July
30, 1996. Before the enactment of that provision, the Court generally lacked
jurisdiction over issues involving interest. See Yuen v. Commissioner, 112 T.C.
123, 126-127 (1999); 508 Clinton St. Corp. v. Commissioner, 89 T.C. 352, 354-
355 (1987).
Respondent relies on the historic limitations on our jurisdiction over interest
and the use of the terms “suspension” and “shall” in section 6404(g) rather than
“abatement” and “may” in sections such as 6404(e) in arguing that section 6404(h)
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does not apply to petitioners’ claims under section 6404(g). Petitioners respond
that “abatement” in the title and context of section 6404 includes “suspension” and
that “decisions under Section 6404(g) are not in the absolute discretion of
Respondent and are more susceptible to Tax Court review than decisions under
Section 6404(e)(1).” The parties agree only that the legislative history of section
6404(g) is silent on the subject of this dispute.
Respondent also cites Rev. Proc. 2005-38, sec. 205, 2005-28 I.R.B. 81, 81,
without quoting the applicable text. That text, and the related section 3.03, are as
follows:
SECTION 2. BACKGROUND
* * * * * * *
.05 Section 6404(h) provides the United States Tax
Court with jurisdiction over any action brought by a taxpayer
who meets the requirements of section 7430(c)(4)(A)(ii) to
determine whether the Secretary’s failure to abate interest was
an abuse of discretion, and to order an abatement. The action
must be brought within 180 days after the date of mailing of the
Secretary’s final determination not to abate interest.
The judicial review provisions of section 6404(h) apply
where the Service has abused its discretion by failing to abate
interest as provided by section 6404. These provisions do not
apply where the Service has failed to suspend interest under
section 6404(g), except as provided in paragraph 3.03 below.
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SECTION 3. ADMINISTRATIVE REVIEW PROCEDURE
* * * * * * *
.03 If a taxpayer asserts that the Service failed to
suspend interest under section 6404(g) as a result of an
unreasonable error or delay in performing a ministerial or
managerial act within the meaning of section 6404(e), the
taxpayer may submit a claim for abatement on Form 843. The
Service will consider the claim and issue a notice of final
determination. If the Service denies the taxpayer’s claim in
whole or in part, taxpayers who meet the requirements referred
to in section 7430(c)(4)(A)(ii) may petition the Tax Court
under section 6404(h) to determine whether the denial was an
abuse of discretion. Pursuant to section 6404(b), a claim may
not be submitted under this section 3.03 asserting only that
interest was assessed for periods during which interest should
have been suspended under section 6404(g).
Petitioners argue that Rev. Proc. 2005-38, sec. 2.05, states an exception to a
general rule in section 3.03. Respondent replies that petitioners have ignored the
last sentence of the revenue procedure and that
A more intuitive interpretation of the revenue procedure, which is
presented in the Motion at paragraphs 31-32, is that paragraph 3.03
provides guidance for circumstances where the elements of both
I.R.C. § 6404 (e) and I.R.C. § 6404 (g) are met. In that special case,
taxpayers may file a claim for abatement under I.R.C. § 6404 (e) of
interest that rightfully should have been suspended under I.R.C. §
6404 (g), but for unreasonable error or delay on behalf of an officer or
employee of respondent in the performance of a managerial or
ministerial function.
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Respondent does not argue that the revenue procedure is entitled to deference or
provide an explanation of the reasoning behind it. There is no explanation of why
section 6404(b) precludes section 6404(h) judicial review of section 6404(g)
determinations while not conflicting with judicial review of section 6404(e)
determinations. The apparent purpose of the subsections of section 6404 is to lay
out specific exceptions to and extensions of the general rule in section 6404(a).
Otherwise section 6404(b) would seem to contradict section 6404(e) and (f) to the
same extent that respondent suggests that it restricts section 6404(g).
In many cases, we have discussed the deference due to pronouncements of
the IRS. See, e.g., Taproot Admin. Servs., Inc. v. Commissioner, 133 T.C. 202,
208-210 (2009) (dealing with a disputed revenue ruling), aff’d, 679 F.3d 1109 (9th
Cir. 2012). Revenue rulings are “an official interpretation by the Service”. Sec.
601.601(d)(2)(i)(a), Statement of Procedural Rules. By contrast, section
601.601(d)(2)(i)(b), Statement of Procedural Rules, states that “[a] ‘Revenue
Procedure’ is a statement of procedure that affects the rights or duties of taxpayers
or other members of the public under the Code and related statutes or information
that, although not necessarily affecting the rights and duties of the public, should
be a matter of public knowledge.” A statement of procedure does not purport to
be an official interpretation, and respondent does not argue here that the procedure
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is entitled to deference as an interpretation of section 6404. The revenue
procedure, in respondent’s terms, “provides guidance for circumstances” in which
taxpayers may file a claim for abatement of interest that should have been
suspended. Respondent argues only “an intuitive interpretation” of the procedural
guidance.
There is no reasoning in support of the conclusion stated in the revenue
procedure, and we discern none for distinguishing between section 6404(e)
requests and section 6404(g) requests. Thus, the revenue procedure is not entitled
to deference. See Exxon Mobil Corp. v. Commissioner, 689 F.3d 191, 200 (2d
Cir. 2012), aff’g 136 T.C. 99, 117 (2011). A procedural pronouncement cannot
restrict or revise section 6404(h). See Commissioner v. Schleier, 515 U.S. 323,
336 n.8 (1995); Estate of Kunze v. Commissioner, 233 F.3d 948, 952 (7th Cir.
2000), aff’g T.C. Memo. 1999-344. The wording and context of the statute,
supplemented by more general legal principles, control.
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. As petitioners explain,
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Under Section 6404(g), interest begins to accrue on a liability from
the due date of the return until Respondent issues a notice stating a
liability and the basis for that liability within 18-months [currently
36-months] of the later of due date of the return or the date the return
was filed. See IRC §6404(g). If Respondent fails to issue the notice
by the time prescribed, the interest accrued on the liability during the
suspension period is abated. If Respondent issues the notice within
the time period prescribed, the accrued interest remains assessed.
That the Code provides for the specific term “suspension period” does
not mean that the later elimination of interest for that period is not in
fact an abatement.
We agree with petitioners’ explanation. Although the factual record is incomplete,
it appears from the Letters 3477 that the interest in dispute has been assessed. If
the assessment is erroneous because part of the interest should have been
suspended, abatement would be the remedy.
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).
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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. We are cognizant of section
7806(b), which provides in part that “[n]o inference, implication, or presumption
of legislative construction shall be drawn or made by reason of the location or
grouping of any particular section or provision or portion of this title”. However,
we can consider the similarity of terms and provisions within the Code as an aid to
interpretation. See Pen Coal Corp. v. Commissioner, 107 T.C. 249, 256, 258
(1996). What subsections (e), (f), and (g) of section 6404 have in common is that
they are relief provisions for taxpayers affected by errors or omissions of the IRS.
We see no reason to characterize differently the effect of the grant of jurisdiction
to review denials of abatement under these subsections.
Second, we agree with petitioners that nondiscretionary acts, suggested by
the use of “shall” in a statute, are more susceptible of judicial review than
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discretionary acts. Historically, clear indications of congressional intent to subject
discretionary administrative action to judicial review have been required. See
Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 410 (1971)
(interpreting 5 U.S.C. sec. 701(a)(2), which exempts discretionary administrative
action from judicial review), abrogated on other grounds by Califano v. Sanders,
430 U.S. 99 (1977); Argabright v. United States, 35 F.3d 472, 475 (9th Cir. 1994);
Selman v. United States, 941 F.2d 1060, 1064 (10th Cir. 1991); Horton Homes,
Inc. v. United States, 936 F.2d 548, 551-552 (11th Cir. 1991). The enactment of
section 6404(h), initially as section 6404(g), rendered obsolete cases such as
Argabright, Selman, and Horton Homes, which denied judicial review of IRS
discretionary denials of abatement of interest. See Miller v. Commissioner, 310
F.3d 640, 643 (9th Cir. 2002), aff’g T.C. Memo. 2000-196. Cases mentioning but
not applying the interest suspension provisions of section 6404(g) were deficiency
cases that did not involve a final determination not to suspend interest that had
been assessed or involved years before the effective date of section 6404(h). None
held that we lack jurisdiction under section 6404(g). See, e.g., Fields v.
Commissioner, T.C. Memo. 2008-207, slip op. at 10 n.4; Matthews v.
Commissioner, T.C. Memo. 2008-126; Goode v. Commissioner, T.C. Memo.
2006-48. Comments in factually distinguishable situations are not controlling and,
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in any event, could be interpreted as implying that section 6404(h) applied to
claims for suspension of interest in other circumstances, i.e., where the interest had
been assessed and for years after the effective date. To the extent that respondent
relies on history, we conclude that the history relied on has been undermined by
the enactment of judicial review provisions now found in section 6404(h). See
Miller v. Commissioner, 310 F.3d at 643.
We see no merit in respondent’s reliance on the use of “shall” in section
6404(g) to argue against reviewability of the IRS decision with respect to
suspension of interest. The use of “shall” in section 6404(e)(2), for example, does
not preclude review in this Court of administrative decisions under that section.
See Allcorn v. Commissioner, 139 T.C. 53, 66 (2012); Pettyjohn v. Commissioner,
T.C. Memo. 2001-227.
Third, respondent’s position ignores a strong presumption that the actions of
an administrative agency are subject to judicial review. See United States v.
Winthrop Towers, 628 F.2d 1028, 1032, 1035 (7th Cir. 1980); Roski v.
Commissioner, 128 T.C. 113, 122 (2007); Estate of Gardner v. Commissioner, 82
T.C. 989, 994 (1984).
In Estate of Gardner, we held that the Court has jurisdiction to review denial
of an extension of time for filing an estate tax return under section 6081(a). We
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first looked to the overall statutory scheme to see whether it disclosed any basis
for inferring “nonreviewability”. Estate of Gardner v. Commissioner, 82 T.C.
996. We see no such basis in section 6404. Second, we concluded that there were
ascertainable standards upon which to base our review. Id. at 997. Section
6404(g) sets out specific guidelines for suspension of interest. The Court is well
equipped to make the factual determinations required under that provision. Next,
in Estate of Gardner, we concluded that the action of the IRS with respect to
requests for extensions of time for filing were a suitable subject for judicial review
because “[t]here is nothing to suggest that respondent’s exercise of discretion * * *
involves any agency expertise beyond the competence of courts.” Id. at 997-998.
We see no special factors with respect to suspension of interest distinguishing it
from other issues over which this Court has jurisdiction. Finally, we commented
that our review of an IRS action denying the request of the taxpayer would not
impair the Commissioner’s ability to carry out congressionally assigned duties. Id.
at 998. The same comment applies in this case.
For the foregoing reasons, we hold that denials of interest suspension under
section 6404(g) are not excluded from judicial review in this Court under section
6404(h).
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Final Determination
Respondent’s moving papers refer to the statements in Letters 2289 that the
letters were not the IRS’ final determination and that the administrative
proceedings involving petitioners’ claim for abatement under section 6404(e) are
ongoing. Thus, respondent argues petitioners’ petition is premature.
Petitioners cite Gray v. Commissioner, 138 T.C. 295 (2012), aff’d, 723 F.3d
790 (7th Cir. 2013), for the holding that a final determination need not be made by
a formal letter stating that it is a final determination. The Court dismissed as
meritless respondent’s suggestion that there was no final determination “because it
did not occur in connection with a stand-alone request for interest abatement under
section 6404 or because it was not made on a Letter 3180, Final Determination
Letter for Fully Disallowing an Interest Abatement Claim”. Id. at 304; see also
Cooper v. Commissioner, 135 T.C. 70, 75 (2010) (holding that jurisdiction is
established when the Commissioner issues a written notice embodying a
determination without regard to the name or label of the document).
The Letters 3477 sent to petitioners denied their claim to interest suspension
and took the position that petitioners could not petition this Court for judicial
review. Thus, if upheld by the Court, the IRS denial of interest suspension and
disavowal of the right to judicial review under section 6404(h) would leave
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petitioners with no further recourse, which is a final determination. Although the
contemporaneous Letters 2289 anticipated further proceedings with respect to the
claim for abatement under section 6404(e) for unreasonable errors and delays by
the IRS, the claim based on section 6404(g) is severable to the extent that it relies
only on the periods established for the IRS to contact the taxpayer with regard to a
tax liability. See Gray v. Commissioner, 138 T.C. 305. If petitioners had
delayed filing a petition under section 6404(g), respondent might argue that the
petition was untimely under section 6404(h)(1) because it was not brought within
180 days of the letters rejecting their claim for interest suspension. See sec.
6404(h)(l). We conclude that the Letters 3477 were final determinations for
jurisdictional purposes under section 6404(h).
Section 7430(c)(4)(A)(ii)
Respondent’s motion argues that there is “no evidence” to support
petitioners’ allegations that they meet the net worth requirements of section
7430(c)(4)(A)(ii) or that they are a “prevailing party” entitled to bring an action
under section 6404(h). Respondent thus asserts that the petition is premature.
Respondent’s reference to “prevailing party” is anomalous in this context,
because there would be no interest accruing on a tax liability to the extent that
taxpayers prevail on an underlying issue. We infer, therefore, that the
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incorporation into section 6404(h) of section 7430(c) requirements refers only to
net worth requirements set forth in 28 U.S.C. sec. 2412(d). See Estate of Kunze v.
Commissioner, T.C. Memo. 1999-344.
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). Neither Powers, a case decided before Swanson, nor a proposed regulation
changes the existing law on this subject. We decline to do so in a case in which
the relevant facts have not been determined.
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The petition alleges that petitioners meet the requirements of section
7430(c)(4)(A)(ii). Such an allegation is required in the petition and is inherently
subject to proof, but “evidence” is not appropriately included in a petition. See
Rule 281(b)(5). Petitioners’ net worth and other qualifications to maintain an
action under section 6404 are better decided in subsequent proceedings in which
evidence may be taken. See Gray v. Commissioner, 138 T.C. 306. We decline
to disregard the pleading and affidavits on the present record.
Although petitioners’ entitlement to bring this action and to suspension of
interest may be subject to further obstacles, we conclude that the Court has
jurisdiction under section 6404(h) to review denials of interest suspension under
section 6404(g) and that the IRS Letters 3477 contained final determinations
sufficient to give the Court jurisdiction in this case.
An order denying respondent’s
motion to dismiss will be issued.