James G. & Katherine Bourekis v. Commissioner

110 T.C. No. 3UNITED STATES TAX COURT
JAMES G. & KATHERINE BOUREKIS, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5894-97. Filed January 13, 1998.
R determined a deficiency for the taxable year
1981. The notice of deficiency did not include any
additions to tax or penalties; however, the notice did
include a statement that interest would accrue on the
deficiency. In a timely petition, Ps attempt to place
in dispute penalties and interest. Ps did not make a
written request with the IRS to abate interest;
however, they assert that they made an informal request
and that the notice of deficiency should be considered
a "final determination" not to abate interest under
sec. 6404(g). R filed a motion to dismiss for lack of
jurisdiction and to strike with respect to penalties
and interest.
Held: We lack jurisdiction to consider additions
to tax or penalties which were not determined in the
notice of deficiency.
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Held further: We lack jurisdiction under sec.
6404(g) since, under these circumstances, the notice of
deficiency issued to Ps does not constitute a notice of
the Secretary's final determination not to abate
interest.
Robert E. Kovacevich, for petitioners.
Michelle K. Loesch and Pamela Wilson Fuller, for respondent.
OPINION
COHEN, Chief Judge: This case was assigned to Chief Special
Trial Judge Peter J. Panuthos, pursuant to the provisions of
section 7443A(b)(4).1 The Court agrees with and adopts the
opinion of the Special Trial Judge, which is set forth below.
OPINION OF THE SPECIAL TRIAL JUDGE
PANUTHOS, Chief Special Trial Judge: This matter is before
the Court on respondent's Motion to Dismiss for Lack of
Jurisdiction and to Strike With Respect to Penalties and
Interest. As explained in greater detail below, we shall grant
respondent's motion.
1
Unless otherwise indicated, section references are to the
Internal Revenue Code as amended. Rule references are to the Tax
Court Rules of Practice and Procedure.
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Background
James G. and Katherine Bourekis (petitioners) claimed a loss
on their 1981 Federal income tax return related to their
investment in PCS Ltd. Partnership (PCS or the partnership).
Following an examination of the partnership, respondent proposed
to disallow a substantial portion of petitioners' claimed loss.
As a consequence of these developments, petitioners (1) agreed to
extend the period of limitations for their 1981 tax year and (2)
agreed to be bound by the Court's redetermination of the PCS loss
issue in Kantor v. Commissioner, T.C. Memo. 1990-380, affd. in
part and revd. in part 998 F.2d 1514 (9th Cir. 1993).
In June 1996, petitioners received a letter from Revenue
Agent Janet Kenley, along with a copy of the opinion issued by
the Court of Appeals for the Ninth Circuit in Kantor, a Form 4549
(an examination report), and a Form 870 (a closing agreement).
In the letter, Revenue Agent Kenley advised petitioners that a
final decision had been entered in the Kantor case sustaining
respondent's determination disallowing the PCS loss. The Form
4549, which contained a computation of petitioners' 1981 tax
liability including the disallowance of petitioners' distributive
share of the PCS loss, indicated that petitioners are liable for
a deficiency in tax in the amount of $4,472, as well as statutory
interest on the deficiency computed through June 30, 1996, in the
amount of $15,174. Revenue Agent Kenley's letter, which also
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stated that no penalties were being asserted, requested that
petitioners execute the Form 870 and pay the resulting tax and
interest due for 1981. It appears that petitioners declined to
execute the Form 870.
On October 7, 1996, petitioners submitted a check to
respondent in the amount of $4,472 to be treated as an advance
payment of any tax deficiency thereafter found to be due for
1981. Petitioners intended to terminate the running of statutory
interest on any deficiency for 1981.
On October 24, 1996, respondent issued a notice of
deficiency to petitioners determining a deficiency in their
Federal income tax for 1981 in the amount of $4,472. The notice
of deficiency included a statement that interest will accrue on
the deficiency from the due date of the return until the date the
deficiency is paid. The notice of deficiency did not include a
determination that petitioners were liable for any additions to
tax or penalties.
Petitioners invoked the Court's jurisdiction by filing a
timely petition for redetermination. At the time the petition
was filed, petitioners resided in Spokane, Washington.
Paragraph 3 of the petition states that petitioners are
contesting the deficiency in the amount of $4,472, as well as
"penalties" under sections 6601 and 6653(a)(1) and (2) and
interest. Paragraph 4.2 includes an allegation that "The
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Commissioner erred in asserting that the Petitioners were liable
for any interest accruing since date of filing of return as the
interest abatement principles of 26 USC 6404(e) apply." In
connection with the foregoing, paragraph 5.6 of the petition
includes allegations that there was an unreasonable delay between
the filing of petitioners' 1981 tax return and the issuance of
the notice of deficiency. The petition also includes an
allegation that the notice of deficiency was issued beyond the
applicable period of limitations.
After filing an answer to the petition, respondent filed a
Motion to Dismiss for Lack of Jurisdiction and to Strike With
Respect to Penalties and Interest. Respondent contends that the
Court lacks jurisdiction to consider petitioners' liability for
any additions to tax or penalties in this case because respondent
did not determine that petitioners are liable for any such items.
Respondent further contends that the Court lacks jurisdiction to
consider petitioners' liability for statutory interest because
respondent did not issue a final determination not to abate
interest.
Petitioners filed an objection to respondent's motion to
dismiss. Petitioners do not dispute respondent's assertion that
respondent did not determine additions to tax or penalties in
this case. On the other hand, petitioners maintain that the
Court has jurisdiction to consider the question of whether
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interest should be abated for 1981. Petitioners assert that they
requested that respondent abate interest during settlement
conferences with respondent and that the Court should treat the
notice of deficiency as respondent's "final determination" not to
abate interest.
This matter was called for hearing at the Court's motions
session in Washington, D.C. Counsel for respondent appeared at
the hearing and presented argument in support of the pending
motion. Further, respondent stated that, at the time of the
hearing, petitioners were not precluded from filing a request for
abatement of interest. Although petitioners did not appear at
the hearing, they did file a written statement with the Court
pursuant to Rule 50(c). Petitioners' Rule 50(c) statement
includes allegations that the Court should treat the notice of
deficiency in this case as respondent's final determination to
deny petitioners' request to abate interest in light of
respondent's final determination denying a request for abatement
of interest filed by T. John Tsalaky, petitioner James Bourekis'
brother-in-law and partner in PCS. (T. John and Magdaline B.
Tsalaky filed a petition for review of respondent's denial of
their request to abate interest. That matter is currently
pending before the Court at docket No. 7012-97.) Petitioners
contend that, under the circumstances, it would be "futile,
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costly, and administratively inconvenient" for them to file a
request for abatement of interest.
Discussion
The Tax Court is a court of limited jurisdiction, and we may
exercise our jurisdiction only to the extent authorized by
Congress. Naftel v. Commissioner, 85 T.C. 527, 529 (1985).
Respondent's motion to dismiss and to strike concerns the Court's
jurisdiction over additions to tax and penalties on the one hand
and statutory interest on the other. For clarity, we address the
two matters separately.
1. Jurisdiction--Additions to Tax and Penalties
The Court's jurisdiction to redetermine a deficiency in tax
depends upon the issuance of a valid notice of deficiency and a
timely filed petition. Rule 13(a) and (c); Monge v.
Commissioner, 93 T.C. 22, 27 (1989); Normac, Inc. v.
Commissioner, 90 T.C. 142, 147 (1988). Further, the Court's
jurisdiction generally is limited to a redetermination of the
deficiency determined in the notice of deficiency or an increased
deficiency, additional amounts, or additions to tax asserted by
the Commissioner at or before a hearing or rehearing. See secs.
6213(a), 6214(a).
Petitioners filed a timely petition contesting respondent's
deficiency determination, as well as additions to tax and
penalties for 1981. However, there is no dispute in this case
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that respondent did not determine, and does not assert, that
petitioners are liable for additions to tax or penalties for
1981. Consequently, we shall grant respondent's motion to
dismiss for lack of jurisdiction and to strike insofar as
respondent moves to dismiss and strike allegations in the
petition contesting additions to tax and penalties.
2. Jurisdiction--Statutory Interest
Respondent also moves to dismiss for lack of jurisdiction
and to strike allegations in the petition contesting statutory
interest. The Court's jurisdiction to redetermine a tax
deficiency generally does not extend to statutory interest
imposed under section 6601. See 508 Clinton St. Corp. v.
Commissioner, 89 T.C. 352, 354-355 (1987); LTV Corp. v.
Commissioner, 64 T.C. 589, 597 (1975); see also Asciutto v.
Commissioner, T.C. Memo. 1992-564, affd. 26 F.3d 108 (9th Cir.
1994). Outside of the Court's normal deficiency jurisdiction,
however, section 6404(g) authorizes the Court to review the
Commissioner's denial of a taxpayer's request to abate an
assessment of statutory interest. See White v. Commissioner, 109
T.C. 96 (1997); Banat v. Commissioner, 109 T.C. 92 (1997).
Petitioners rely upon section 6404(g) as the basis for the
Court's jurisdiction in this case.
Before proceeding with our analysis, we briefly review the
Commissioner's authority to abate assessments of interest as set
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forth in section 6404(d) and (e). Section 6404(d) authorizes the
Commissioner to abate an assessment of interest where the
underlying underpayment is attributable in whole or in part to a
mathematical error if the return was prepared by an officer or
employee of the Internal Revenue Service acting in his official
capacity to provide assistance to taxpayers in the preparation of
income tax returns. Further, section 6404(e) authorizes the
Commissioner to abate an assessment of interest that is computed
based upon any deficiency or payment of tax that is attributable
in whole or in part to any unreasonable error or delay by an
officer or employee of the Internal Revenue Service in performing
a ministerial or managerial act.
Section 6404(g), recently codified under section 302(a) of
the Taxpayer Bill of Rights 2, Pub. L. 104-168, 110 Stat. 1452,
1457 (1996), provides in pertinent part as follows:
(g) 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.
Petitioners oppose the portion of respondent's motion
seeking to dismiss and to strike the allegations in the petition
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contesting statutory interest, on the ground that the Court
should treat the notice of deficiency as respondent's notice of
final determination not to abate interest under section 6404(g).
We disagree.
A notice of deficiency under section 6213(a) and a notice of
final determination not to abate interest under section 6404(g)
share similarities in function and purpose. Specifically, like a
notice of deficiency, a notice of final determination not to
abate interest is a prerequisite to the Court's jurisdiction and
serves as a taxpayer's "ticket" to the Tax Court. In addition,
the mailing of both notices starts the running of separate
statutorily defined periods for filing a petition for review with
the Court.
It is well established that the Court lacks jurisdiction
over a petition that is filed with respect to a letter from the
Commissioner to the taxpayer that was not intended to constitute
a notice of deficiency. See Abrams v. Commissioner, 84 T.C.
1308, 1310 (1985), affd. 814 F.2d 1356 (9th Cir. 1987); Lerer v.
Commissioner, 52 T.C. 358, 362-366 (1969); Schoenfeld v.
Commissioner, T.C. Memo. 1993-303 n.2. In applying this
principle in the present case, it is evident that respondent did
not intend for the notice of deficiency to serve as a final
determination not to abate interest under section 6404(g).
Petitioners admit that they did not file a formal request for
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abatement of interest with respondent. See Rev. Proc. 87-42,
1987-2 C.B. 589 (requests for abatement of an assessment of
interest should be made on Form 843 (Claim for Refund and Request
for Abatement)). In this regard, neither Revenue Agent Kenley's
June 1996 letter, the examination report that accompanied that
letter, nor the notice of deficiency that petitioners received in
this case indicates that respondent has given any consideration
to whether it would be appropriate to abate an assessment of
interest in this case. Under the circumstances, we decline to
treat the notice of deficiency as a notice of final determination
not to abate interest under section 6404(g).
Petitioners' argument that the notice of final determination
not to abate interest that respondent issued to T. John and
Magdaline B. Tsalaky provides a basis for the Court to exercise
jurisdiction in this case is likewise misplaced. At best,
petitioners' argument is a request that we assume jurisdiction
under section 6404(g) based upon equitable considerations.
However, as a court of limited jurisdiction, we may not apply
equitable principles to assume jurisdiction over a matter not
authorized by statute. See Odend'hal v. Commissioner, 95 T.C.
617, 624 (1990), and cases cited therein. Absent a notice of
final determination not to abate interest on the deficiency in
their own tax, petitioners' attempt to invoke the Court's
jurisdiction under section 6404(g) must fail, and we so hold.
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Accordingly, we shall grant respondent's motion to dismiss for
lack of jurisdiction and to strike insofar as the motion concerns
allegations in the petition respecting statutory interest.
To reflect the foregoing,
An order will be issued
granting respondent's Motion
to Dismiss for Lack of
Jurisdiction and to Strike With
Respect to Penalties and Interest.