Steven Yari v. Commissioner

143 T.C. No. 7
UNITED STATES TAX COURT
STEVEN YARI, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 13925-12L. Filed September 15, 2014.
R assessed a penalty under I.R.C. sec. 6707A. R issued a
notice of intent to levy to collect this penalty. P requested a
collection due process hearing, challenging the collection action.
While the hearing was pending Congress retroactively changed the
manner in which I.R.C. sec. 6707A penalties are calculated. P
requested that R recalculate the penalty using the amount of tax
shown on subsequent amended returns. R decided the penalty should
not be changed, and P appealed this decision. The IRS Appeals
Office agreed that the penalty amount should not be changed, and R
issued a notice of determination sustaining the collection action. P
believes that the appropriate penalty calculation should use the actual
tax due, not the tax shown on the return on which he was obliged but
failed to disclose the reportable transaction. P seeks to change the
penalty from the current amount assessed, $100,000, to the minimum
under the statute, $5,000.
Held: We have jurisdiction to consider the penalty.
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Held, further, the penalty is calculated by reference to the
amount of tax shown on the return with respect to which the taxpayer
had a disclosure obligation.
Steven R. Mather, for petitioner.
Michael W. Tan, for respondent.
OPINION
WHERRY, Judge: This case is before us on a petition for review of a
Notice of Determination Concerning Collection Action(s) Under Section 6320
and/or 6330 (notice of determination) sustaining a notice of intent to levy with
respect to a penalty assessed for the 2004 tax year.1 The case presents an issue of
first impression as to whether section 6707A requires respondent to use the tax
shown on the return giving rise to the disclosure obligation or whether respondent
must use the tax as shown on subsequent, amended returns. We hold that
respondent may calculate the amount of the penalty using the tax shown on the
return giving rise to the violation of the disclosure obligation.
1
All section references are to the Internal Revenue Code (Code) of 1986, as
amended and in effect during the relevant period, and all Rule references are to the
Tax Court Rules of Practice and Procedure, unless otherwise indicated.
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Background
This case was submitted fully stipulated pursuant to Rule 122. The parties’
stipulation of settled issues and stipulation of facts, with accompanying exhibits,
are incorporated herein by this reference. At the time he filed his petition,
petitioner resided in California.
Petitioner formed Topaz Global Holdings, LLC (Topaz Global), on
December 22, 2000. Under the regulations, Topaz Global was a disregarded entity
for Federal income tax purposes. See sec. 301.7701-3, Proced. & Admin. Regs.
On December 23, 2002, petitioner formed Faryar, Inc., a Nevada corporation,
which elected to be treated as an S corporation for Federal income tax purposes.
Faryar entered into agreements with Topaz Global and other companies to provide
management services. We refer to Faryar’s relationship with these companies as
the management fee transaction.
In 2002 petitioner opened a Roth individual retirement account (Roth IRA)
with an initial contribution of $3,000. The Roth IRA acquired all of the Faryar
stock for $3,000, making the Roth IRA the sole shareholder of the S corporation.2
2
Such a structure does not work for Federal income tax purposes because a
Roth IRA generally cannot be an eligible shareholder of an S corporation. Taproot
Admin. Servs., Inc. v. Commissioner, 133 T.C. 202, 215 (2009), aff’d, 679 F.3d
1109 (9th Cir. 2012).
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For the 2002 through 2007 tax years Faryar reported a total net income of
$1,221,778 in management fees and interest income less deductions. Because
Faryar was an S corporation, this income was not taxed at the corporate level, and
because the shareholder was a nontaxable entity, the income was not taxed at the
shareholder level. The practical effect of this transaction was twofold: it allowed
petitioner to effectively exceed the Roth IRA contribution limits and decreased the
amount of income petitioner otherwise would have reported from Topaz Global
because Topaz Global deducted the amounts paid to Faryar as management fees.
The Internal Revenue Service (IRS) has identified transactions such as the
one petitioner engaged in as abusive Roth IRA transactions. Notice 2004-8, 2004-
1 C.B. 333. The IRS has also identified these transactions as listed transactions,
potentially subjecting taxpayers who did not disclose participation in these
transactions on their Federal income tax returns to penalties.
Petitioner and his wife signed and apparently filed a joint 2004 Federal
income tax return on October 17, 2005. This return did not disclose petitioner’s
participation in the Roth IRA transaction. Respondent audited petitioner’s returns
for 2002 and 2003 and, following his marriage in 2004, petitioner and his wife’s
returns for 2004 through 2007 and issued notices of deficiency to petitioner for his
2002 and 2003 tax years and to petitioner and his wife for the 2004 through 2007
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tax years. In these notices respondent determined that the management fee
transactions were not valid business transactions and should result in an excise tax
under section 4973. With respect to the 2004 tax year respondent determined that
petitioner and his wife should have included in income $482,912 from the
management fee transaction. According to respondent’s calculations, this
inclusion, along with corresponding computational adjustments, increased
petitioner and his wife’s tax liability by $135,215.
Petitioner, his wife, and respondent settled these deficiency cases and
entered into a closing agreement in 2011. The closing agreement required
petitioner to include in his income certain amounts for each of the tax years and
provided that petitioner and his wife were not liable for the section 4973 excise
tax. The Court entered stipulated decisions in the deficiency cases that reflected
the parties’ closing agreement.
During the course of the audit petitioner determined that he had made a
substantial error on his 2004 tax return because he incorrectly transferred
information from a Schedule K-1, Partner’s Share of Income, Deductions, Credits,
etc., to that return. Petitioner and his wife prepared an amended return (first
amended return) including $51 of taxable interest, $482,912 of income as
determined by respondent, deductions of $1,270,448 claimed on Schedule E,
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Supplemental Income and Loss, and $23,625 in itemized deductions. The first
amended return resulted in a negative taxable income.
Petitioner and his wife filed a second amended return for the 2004 tax year
during the pendency of the deficiency cases. This second amended return claimed
a net operating loss carryback from the 2008 tax year of $2,856,026. On both
amended returns petitioner and his wife reported the $482,912 from the
management fee transaction as income. The stipulated decision entered by the
Court for the 2004 tax year reflected the adjustments made in the first and second
amended 2004 tax returns.
Respondent also assessed a section 6707A penalty of $100,000 for the 2004
tax year based on his belief that petitioner had failed to disclose his participation
in a transaction identified in Notice 2004-8, supra, as a listed transaction.
Respondent assessed this penalty on September 11, 2008.
Respondent sent petitioner a final notice of intent to levy on February 9,
2009. Petitioner timely requested a collection due process (CDP) hearing. During
the pendency of the hearing on September 27, 2010, Congress amended section
6707A to change the method of calculating the penalty. Small Business Jobs Act
of 2010 (SBJA), Pub. L. No. 111-240, sec. 2041(a), 124 Stat. at 2560. This
change was effective retroactively for penalties assessed after December 31, 2006,
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id. sec. 2041(b), and therefore the CDP hearing was suspended in October 2010 so
respondent could reconsider the calculation of the penalty.3 Respondent’s revenue
agent declined to change the penalty, and petitioner requested review by the IRS
Appeals Office (Appeals), which also declined to modify the penalty. Petitioner
did not request any collection alternatives during the CDP hearing, and counsel for
petitioner requested that the settlement officer issue a notice of determination.
Consequently, the settlement officer complied and issued the notice of
determination sustaining the collection action.
Petitioner concedes that the Roth IRA transactions he engaged in were listed
transactions under Notice 2004-8, supra, for the purposes of the section 6707A
penalty. He admits that he is liable for a penalty but challenges the calculation of
the penalty.
Discussion
I. Jurisdiction
The parties assume we have jurisdiction over the penalty issue in this case.
But the Court has an independent obligation to determine whether it has
jurisdiction over a case, and the parties cannot simply stipulate jurisdiction or
3
The parties scarcely mention, much less substantively discuss, this
midhearing “time-out” and apparent referral to the IRS examination function. We
therefore will not further comment on these events.
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waive jurisdictional defects. Arbaugh v. Y & H Corp., 546 U.S. 500, 514 (2006);
Charlotte’s Office Boutique, Inc. v. Commissioner, 121 T.C. 89, 102 (2003), aff’d,
425 F.3d 1203 (9th Cir. 2005). Therefore, we begin our analysis with the
jurisdictional question.
The Tax Court is a court of limited jurisdiction and may exercise
jurisdiction only to the extent authorized by Congress. Adkison v. Commissioner,
592 F.3d 1050, 1052 (9th Cir. 2010), aff’g on other grounds 129 T.C. 97 (2007).
But, we “have jurisdiction to determine whether we have jurisdiction.” Smith v.
Commissioner, 133 T.C. 424, 426 (2009). In Smith we also held that we did not
have jurisdiction to redetermine section 6707A penalties in a petition for
redetermination of a deficiency notice. Id. at 428-430. Because the section 6707A
penalty did not fit the statutory definition of a deficiency and because the
Commissioner could assess and collect the penalty without issuing a statutory
notice of deficiency, we lacked deficiency jurisdiction to redetermine the penalty.
Id. at 429. We noted, however, that “we would presumably have jurisdiction to
redetermine a liability challenge asserted by * * * [the taxpayers] in a collection
due process hearing.” Id. at 430 n.6. We now turn presumption into conviction
and aver our jurisdiction.
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We begin by noting that section 6707A allows a taxpayer to request the
Commissioner to rescind all or part of the penalty that is imposed because of a
violation with respect to a reportable transaction other than a listed transaction if
rescission would promote compliance with the Code and effective tax
administration. Sec. 6707A(d)(1). Congress explicitly denied taxpayers the
ability to seek judicial review of the Commissioner’s rescission decision. Sec.
6707A(d)(2). The provision prohibiting judicial review applies only to
subsection (d) of section 6707A and does not otherwise preclude our jurisdiction
to review this penalty under section 6330. See H.R. Rept. No. 108-548 (Part 1), at
262 n.233 (2004) (stating that this provision contained in the American Jobs
Creation Act of 2004 (AJCA), Pub. L. No. 108-357, 118 Stat. 1418, “does not
limit the ability of a taxpayer to challenge whether a penalty is appropriate (e.g., a
taxpayer may litigate the issue of whether a transaction is a reportable transaction
(and thus subject to the penalty if not disclosed) or not a reportable transaction
(and thus not subject to the penalty))”).
Section 6330(d)(1) as amended by the Pension Protection Act of 2006, Pub.
L. No. 109-280, sec. 855(a), 120 Stat. at 1019, expanded the Court’s review of
collection actions to include collection actions where the underlying tax liability
consists of penalties not reviewable in a deficiency action. See Williams v.
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Commissioner, 131 T.C. 54, 58 n.4 (2008); Callahan v. Commissioner, 130 T.C.
44, 48 (2008). In a CDP hearing a taxpayer may challenge “the existence or
amount of the underlying tax liability for any tax period if the person did not
receive any statutory notice of deficiency for such tax liability or did not otherwise
have an opportunity to dispute such tax liability.” Sec. 6330(c)(2)(B). In his
hearing petitioner challenged the amount of the underlying tax liability that
resulted from the section 6707A penalty. See Callahan v. Commissioner, 130 T.C.
at 49 (“We have interpreted the phrase ‘underlying tax liability’ as including any
amounts a taxpayer owes pursuant to the tax laws that are the subject of the
Commissioner’s collection activities.”). Petitioner has not had an opportunity to
dispute the amount of the penalty, and consequently, we have jurisdiction to
redetermine the amount of the penalty.
II. Standard of Review
Ordinarily, our review of the determinations in a CDP hearing is for abuse
of discretion. Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza v.
Commissioner, 114 T.C. 176, 181-182 (2000). But when the underlying tax
liability is properly at issue, we review the determination de novo. Sego v.
Commissioner, 114 T.C. 610; Goza v. Commissioner, 114 T.C. 181-182.
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Petitioner challenges respondent’s determination as to the amount of the penalty,
and thus, we review that determination de novo.
III. 6707A Penalty
Section 6707A(a) imposes a penalty on “[a]ny person who fails to include
on any return or statement any information with respect to a reportable transaction
which is required under section 6011 to be included with such return or
statement”. The amount of the penalty before the SBJA depended on whether the
transaction was a reportable transaction or a listed transaction. Sec. 6707A(b)
(2006), amended by SBJA sec. 2041(a). For reportable transactions other than
listed transactions, it was $10,000 for natural persons and $50,000 for others, and
for listed transactions, it was $100,000 for natural persons and $200,000 for
others. Id. The penalty applied regardless of whether the listed or reportable
transaction is respected for Federal income tax purposes. Petitioner concedes he
engaged in a listed transaction and that he failed to properly disclose his
participation.
The penalty for failing to disclose a listed transaction on a return after
enactment of the SBJA is “75 percent of the decrease in tax shown on the return as
a result of such transaction (or which would have resulted from such transaction if
such transaction were respected for Federal [income] tax purposes).” Sec.
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6707A(b)(1). In the case of individuals, the statute prescribes minimum and
maximum penalties for failing to disclose a listed transaction of $5,000 and
$100,000, respectively. Sec. 6707A(b)(2) and (3). The parties disagree as to what
return and what amount of tax we should use in calculating the tax. Petitioner
urges us to use the amended returns to determine the decrease in tax, and
respondent says we must look to the original return. These disparate positions
stem from a fundamental disagreement as to what the phrase “decrease in tax
shown on the return as a result of the transaction” means. To resolve this dispute,
we must examine and interpret the statute.4
The starting point for interpreting a statute is its plain and ordinary meaning
unless such an interpretation “would produce absurd or unreasonable results”.
Union Carbide Corp. v. Commissioner, 110 T.C. 375, 384 (1998). Undefined
words take their “ordinary, contemporary, common meaning.” Hewlett-Packard
Co. & Consol. Subs. v. Commissioner, 139 T.C. 255, 264 (2012). We interpret
statutes “‘in their context and with a view to their place in the overall statutory
4
The regulations are of no help here, as they merely parrot the statutory
language. Sec. 301.6707A-1(a), Proced. & Admin. Regs. The IRS released these
final regulations in 2011 with the explicit proviso that the regulations “do not give
further guidance on how the amount of the penalty is computed” and stated that it
intended to “provide guidance” at a “later time.” T.D. 9550, 2011-47 I.R.B. 785,
786.
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scheme.’” FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133
(2000) (quoting Davis v. Mich. Dep’t of Treasury, 489 U.S. 803, 809 (1989)).
Where the statute is clear and unambiguous, we need not resort to other tools of
statutory interpretation. BedRoc Ltd., LLC v. United States, 541 U.S. 176, 183
(2004). If the statute is silent or ambiguous, we may employ “‘traditional tools of
statutory construction’”, United States v. Home Concrete & Supply, LLC, 566
U.S. ___, ___, 132 S. Ct. 1836, 1844 (2012) (quoting Chevron, U.S.A., Inc. v.
Natural Res. Def. Council, Inc., 467 U.S. 837, 843 n.9 (1984)), including
legislative history, to ascertain congressional intent, Burlington N. R.R. Co. v.
Okla. Tax Comm’n, 481 U.S. 454, 461 (1987); Intermountain Ins. Serv. of Vail,
LLC v. Commissioner, 134 T.C. 211, 222-223 (2010), rev’d, 650 F.3d 691 (D.C.
Cir. 2011), vacated and remanded, 566 U.S. ___, 132 S. Ct. 2120 (2012).
Petitioner urges us to interpret the statute as calculating the penalty using
the tax savings produced by the listed transactions. He says we should ignore the
tax reported on the return with respect to which he was required to report the listed
transaction. Instead, petitioner asks us to focus on the returns prepared years after
the reporting obligation arose. He urges us to look at the plain language of the
statute, its place in the statutory scheme, and to the legislative history.
Respondent, on the other hand, says that the plain meaning of the statute does not
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support petitioner’s position and urges us to compute the tax with reference only
to the tax shown on the original tax return. In his view, we disregard the returns
prepared during the audit, the mistakes on the prior return, and the correct tax
owed by petitioner when calculating the penalty. To be clear about the stakes, if
we adopt petitioner’s reading of the statute, the penalty would be the statutory
minimum, or $5,000; if we hold for respondent, the penalty will stand as
$100,000.
We think the statute is clear and unambiguous: The penalty is calculated
with reference to the “tax shown on the return”. Sec. 6707A(b). When we look to
the penalty provision as a whole, it is clear that Congress has penalized the failure
to disclose participation in a listed or otherwise reportable transaction on the
return or other information statement giving rise to the disclosure obligation. If
the taxpayer fails to report the transaction on that return or information statement,
then the penalty is based on the tax shown on that return or information statement,
not some other, later filed return or some hypothetical tax. Congress did not say
that the penalty should be calculated by reference to tax shown on a return; it did
not say to calculate the penalty using the tax required to be shown; and it did not
say to calculate the penalty using the decrease in tax resulting from participation in
the transaction. Congress very clearly linked the penalty to the tax shown on a
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particular return--the return giving rise to the reporting obligation. Absent a
“‘clearly expressed legislative intent to the contrary’”, we will regard the clear and
unambiguous language of the statute as conclusive.5 Reves v. Ernst & Young, 507
U.S. 170, 177 (1993) (quoting United States v. Turkette, 452 U.S. 576, 580
(1981)). The plain meaning of the statute does not support petitioner’s position.
Petitioner also contends that the legislative history supports his position, but
he fails to point to any actual legislative history. In any event, the documentary
evidence referencing the penalty provision does not support petitioner’s position.
Congress initially enacted section 6707A with a flat penalty of $100,000 for
individuals with respect to listed transactions. AJCA sec. 811(a), 118 Stat. at
1575. There was no variable minimum and no variable maximum and no 75% of
5
We observe that the process of divining the legislative intent underlying a
statute’s language and structure, while subject to canons of construction and well-
established methodologies, is hardly an exact science. Compare, e.g., Halbig v.
Burwell, No. 14-5018, __ F.3d __, 2014 WL 3579745, at *13-*17 (D.C. Cir. July
22, 2014) (having found sec. 36B unambiguous, concluding that weight of
legislative history, including overall congressional policy goals, did not override
statute’s plain meaning, which was that tax credits were unavailable to participants
in health insurance exchanges established by the Federal Government), vacated
and rehearing en banc granted, __ F.3d __, 2014 WL __ (D.C. Cir. Sept. 4, 2014),
with King v. Burwell, No. 14-1158, __ F.3d __, 2014 WL 3582800, at *9-*10 (4th
Cir. July 22, 2014) (having found sec. 36B ambiguous, concluding that legislative
history did not support either plausible interpretation, and deferring to agency’s
determination that statute permitted tax credits for participants in Federal health
insurance exchanges, as consistent with overall congressional policy goals).
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tax savings calculation. Congress added the current calculation as part of the
SBJA, likely because of concern that an inflexible penalty would create harsh
results. See H.R. Rept. No. 111-447, at 15 (2010).
Unfortunately, no direct legislative history exists to explain the change.
What we do have is the rationale behind an almost identical amendment included
in a bill that never became law.6 H.R. 4849, 111th Cong., sec. 111 (2010). The
House passed H.R. 4849 partly out of concern for the potential inequities an
inflexible penalty may create. H.R. Rept. No. 111-447, supra at 15. Congress had
heard from the National Taxpayer Advocate that the potential magnitude of the
penalties had an overly harsh impact on individuals and small businesses. Id. at
15-16. The tax advisers may not have told these taxpayers of the reporting
obligation, and the penalties, for an individual conducting business through an S
corporation, could reach $300,000 per year for a listed transaction that yielded
little or no tax benefit. See National Taxpayer Advocate, 2008 Annual Report to
Congress (Vol. One), at 342-343, 419-421 (2008); see also sec. 6707A(b)(2)
6
The only difference between the enacted and proposed amendments was
the inclusion in the proposed amendment to sec. 6707A(b)(2) of the additional
words “for any taxable year” between the words “transaction” and “shall not
exceed”.
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(2004) (imposing a $200,000 penalty on nonindividual taxpayers for failing to
disclose a listed transaction).
Transactions that span multiple tax years magnify the effect as the reporting
obligation exists for each return. National Taxpayer Advocate, 2008 Annual
Report to Congress (Vol. One), at 420 (2008). The House Ways and Means
Committee explained that the new penalty calculation would “provide a
mechanism for establishing a penalty amount that will be proportionate to the
misconduct to be penalized, without discouraging compliance with the
requirement to disclose reportable transactions.” H.R. Rept. No. 111-447, supra
at 16.
Petitioner believes other legislative history inextricably links the penalty
calculation to the tax savings. He points to the Joint Committee on Taxation’s
general explanation, also known as the Blue Book, to bolster his position. See
Staff of J. Comm. on Taxation, General Explanation of Tax Legislation Enacted in
the 111th Congress, at 476-480 (J. Comm. Print 2011). The Joint Committee
explained that Congress desired to spare small businesses and individuals
“unconscionable hardship * * * as a result of the magnitude of the penalty” where
the penalty “exceed[ed] the tax savings claimed on these returns”. Id. at 478.
Contrary to petitioner’s position, the Blue Books are not legislative history,
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though they can sometimes be relevant if persuasive. United States v. Woods, 571
U.S. ___, ___, 134 S. Ct. 557, 568 (2013). In any event, we remain unconvinced
that the combined import of the Blue Book and the earlier bill override our prior
conclusions as to the statute’s plain meaning.
It is clear that in the earlier bill Congress intended to blunt the effect of
section 6707A for taxpayers who failed to disclose a transaction but nonetheless
did not benefit much from that transaction. But it is equally clear that Congress
was concerned with the “tax reported on the participant’s income tax return as a
result of participation in the transaction”, not the tax required to be shown. H.R.
Rept. No. 111-447, supra at 16. It is also clear that what Congress intended to
penalize is the failure to disclose participation, not the tax savings produced by the
transaction. Id. at 15.7 That Congress linked the penalty to the tax savings does
not change the fact that the culpable act here is the failure to disclose.
Furthermore, the 2010 change linked the penalty not to the tax savings calculated
with the benefit of hindsight but rather to the tax savings as claimed on the tax
return. In this vein, even the Blue Book fails to persuade as the Joint Committee
7
See also Staff of J. Comm. on Taxation, General Explanation of Tax
Legislation Enacted in the 108th Congress, at 361 (J. Comm. Print 2005)
(discussing the American Jobs Creation Act of 2004, Pub. L. No. 108-357, sec.
811, 118 Stat. at 1575, including “[r]easons for [c]hange”).
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explained the change as aimed at “achiev[ing] proportionality between the penalty
and the tax savings that were the object of the transaction,” and not to the actual
tax saved. Staff of J. Comm. on Taxation, General Explanation of Tax Legislation
Enacted in the 111th Congress, supra at 479.
We note also section 6651(a)(2), which imposes an addition to tax for
failure “to pay the amount shown as tax on any return specified [by parts of the
Code]”. At first glance, this addition to tax would ignore the correct tax liability,
and a taxpayer who reported a tax greater than the actual tax due would suffer.
But section 6651(c)(2) ameliorates this potentially harsh result by providing: “If
the amount required to be shown as tax on a return is less than the amount shown
as tax on such return, subsections (a)(2) and (b)(2) shall be applied by substituting
such lower amount.”
Congress obviously knows how to link a penalty or an addition to tax to the
tax required to be shown on the return and has done so. Consequently, the fact
that it did not do so in section 6707A tends to bolster our holding that the penalty
applies to the amount shown on petitioner’s first filed return.8 See Marx v. Gen.
8
We note that, here, petitioner amended his first filed return after the date
prescribed for filing a return for the 2004 tax year. We do not express an opinion
as to the result had he filed his first amended return before that date. See
Goldstone v. Commissioner, 65 T.C. 113, 116 (1975) (where taxpayers sought to
(continued...)
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Revenue Corp., 568 U.S. ___, ___, 133 S. Ct. 1166, 1177 (2013) (declining to
read into 15 U.S.C. sec. 1692k(a)(3) a limitation on the ability of courts to award
costs under rule 54 of the Federal Rules of Civil Procedure in part because other
“[s]tatutes confirm that Congress knows how to limit a court’s discretion * * *
when it so desires”).9 Congress did not do so in section 6707A, instead opting to
impose the penalty as a percentage “of the decrease in tax shown on the return as a
result of such transaction (or which would have resulted from such transaction if
such transaction were respected for Federal tax purposes).” Sec. 6707A(b)(1).
Without a subsection analogous to section 6651(c)(2), we calculate the penalty by
reference to the tax shown on the return and do not consider the amount required
to be shown.
Section 6707A imposes a strict liability penalty. See H.R. Rept. No. 111-
447, at 13. While it may be harsh in situations where a taxpayer mistakenly
8
(...continued)
avoid a credit’s recapture in a later year by amending the return on which the
credit was claimed, holding that the Commissioner was entitled to reject the
amended return and recapture the credit in the later year but observing that courts
had upheld the validity of amended returns in other circumstances, such as where
the amended returns were filed before the filing deadline for the subject tax year).
9
We note also that a net operating loss carryback from a subsequent tax year
does not reduce the tax required to be shown on the return for purposes of
calculating the sec. 6651(a)(2) addition to tax. See Vines v. Commissioner, T.C.
Memo. 2009-267, slip op. at 15, aff’d, 418 Fed. Appx. 900 (11th Cir. 2011).
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overstates his tax, such is the result of the plain meaning of the statutory
language.10 Legislative history does not indicate a clear congressional intent to the
contrary, and we therefore find that the settlement officer did not err in the
calculation of the penalty.
The Court has considered all of petitioner’s contentions, argument, requests,
and statements. To the extent not discussed herein, we conclude that they are
moot, irrelevant, or without merit. To reflect the foregoing,
Decision will be entered
for respondent.
10
A court’s “obligation to avoid adopting statutory constructions with absurd
results is well-established” and can, in rare cases, override the literal meaning of
unambiguous statutory language. Halbig v. Burwell, __ F.3d at __, 2014 WL
3579745, at *10 (citing Public Citizen v. DOJ, 491 U.S. 440, 454-455 (1990)).
See generally John F. Manning, “The Absurdity Doctrine”, 116 Harv. L. Rev.
2387 (2003). The statutory construction we adopt here does not, in petitioner’s
case, yield “‘an outcome so contrary to perceived social values that Congress
could not have intended it.’” See Halbig v. Burwell, __ F.3d at __, 2014 WL
3579745, at *10 (quoting United States v. Cook, 594 F.3d 883, 891 (D.C. Cir.
2010)). Different facts--such as, for example, a mere scrivener’s error in a decimal
place, resulting in tax shown on the return of ten or even one hundred times the
facially correct amount--might entail a different analysis.