Sunoco, Inc. and Subsidiaries v. Commissioner

122 T.C. No. 4
UNITED STATES TAX COURT
SUNOCO, INC. AND SUBSIDIARIES, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 19631-97. Filed February 4, 2004.
Respondent asks the Court to dismiss for
lack of subject matter jurisdiction petitioner’s
overpayment claims under sec. 6512(b), I.R.C.,
for the years in issue to the extent that they
involve interest computed under sec. 6611(a),
I.R.C., so-called overpayment interest.
Held: On the basis of Estate of Baumgardner
v. Commissioner, 85 T.C. 445 (1985), the Court
has jurisdiction.
Robert L. Moore II, Thomas D. Johnston, and
Majorie A. Burnett, for petitioner.
John A. Guarnieri, Craig Connell, and Keith L. Gorman,
for respondent.
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OPINION
WHALEN, Judge: This case is before the Court to
decide respondent’s motion to dismiss for lack of
subject matter jurisdiction filed with regard to certain
claims petitioner made in an amendment to its petition.
The issue raised by respondent’s motion is whether this
Court lacks jurisdiction under section 6512(b) to consider
petitioner’s claims for overpayment to the extent that they
involve so-called overpayment interest, as described below.
All section references are to the Internal Revenue Code for
the years at issue. We believe that the issues in this
case are controlled by our Opinion in Estate of Baumgardner
v. Commissioner, 85 T.C. 445 (1985). On that basis, we
hold that we have jurisdiction to determine an overpayment
composed of overpayment interest. Therefore, we will deny
respondent’s motion.
Background
Petitioner filed the instant petition for
redetermination of deficiencies respondent determined for
1979, 1981, and 1983. Petitioner later filed an amendment
to its petition that makes reference to the fact that
petitioner and respondent had settled various issues with
regard to the years in issue. The amendment to petition
claims additional overpayments for each of those years due
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to errors allegedly made by respondent “in calculating the
interest on underpayments and overpayments arising out of
the settled issues”. The amended petition alleges that in
calculating interest respondent used “numerous incorrect
starting and ending dates for the running of interest”
and “numerous incorrect dates in applying payments and
credits and making transfers to other accounts” and that
“respondent failed to credit or refund the correct amount
of interest on petitioner’s overpayments.” In addition,
the amended petition alleges that “respondent did not use
netting principles when calculating the interest balances”
and “in addition to the overpayments referenced above,
petitioner seeks overpayments attributable to the
calculation of interest utilizing netting principles.”
In general, according to the amended petition, for each
of the years in issue, the interest respondent charged
on “underpayments” under section 6601 was too high,
and the interest respondent allowed with respect to
“overpayments” under section 6611 was too low.
The amended petition asserts that the overpayment
for each of the years in issue is as follows:
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Respondent’s Petitioner’s
Year Totals Computation Overpayment
1
1979 Underpayment $1,948,026 $1,353,083 -$594,943
interest
1
Overpayment -4,304,396 -6,346,670 -2,042,274
interest
Total -2,356,370 -4,993,587 -2,637,217
1981 Underpayment 231,936 -0- -231,936
interest
2
Overpayment -11,626,105 -48,785,132 -37,159,027
interest
Total -11,394,169 -48,785,132 -37,390,963
1983 Underpayment 24,970 -0- -24,970
interest
3
Overpayment -3,317,982 -5,759,613 -2,441,631
interest
Total -3,293,012 -5,759,613 -2,466,601
1
As of Dec. 14, 1993.
2
As of Mar. 3, 1997.
3
As of June 14, 1993.
Attached to respondent’s motion to dismiss is the
affidavit of an employee of the Internal Revenue Service,
a former technical analyst, who is knowledgeable about
the preparation of interest computations on Federal tax
liabilities and who has had extensive experience with
the computerized records of the Internal Revenue Service,
referred to as transcripts of account, which reflect
account activity, such as assessments, payments, credits,
and the like, for particular taxpayers. The Government’s
affidavit includes, as an exhibit, a document that was
prepared on behalf of petitioner entitled “Listing of
Differences-–Sun’s Interest Computations v. IRS’ Interest
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Computations.” This exhibit is referred to herein as
petitioner’s list of differences. It is petitioner’s list
of each of the errors that respondent allegedly made in
computing interest.
There is also attached to the Government’s affidavit
petitioner’s computation of the amount of interest that
would have accrued with respect to petitioner’s account for
each of the years in issue if the differences described in
petitioner’s list were taken into account. Finally, there
are attached to the Government’s affidavit three schedules
that were prepared on behalf of respondent to verify the
accuracy of petitioner’s computations. We note that,
while we have been provided with petitioner’s interest
computations and respondent’s verification of petitioner’s
computations, we have not been supplied with respondent’s
computations of interest.
On the basis of the information in the record, we
have prepared three appendixes in which we have reproduced
petitioner’s computation of interest for each of the tax
years in issue, 1979, 1981, and 1983. These appendixes are
attached hereto as appendixes 1, 2, and 3, respectively.
Each appendix is in the nature of a transcript of
petitioner’s account with the Internal Revenue Service for
one of the years in issue; i.e., 1979, 1981, or 1983. It
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shows all of the transactions that affect the balance of
petitioner’s account for the year. These transactions are
shown in the appendix in the column designated “Other
Events” (col. G). Some “events” increase petitioner’s
liability, such as income tax assessments, refunds, and the
application of interim overpayments from the current year
to the tax liability for other years. These are shown as
positive numbers. Other “events” reduce petitioner’s
liability, such as tax payments, the carryback of a net
operating loss from a later year, or the carryback of a
foreign tax credit from a later year. These are shown as
negative numbers.
Each appendix shows the balance of petitioner’s
account as of various dates. The account balance on a
particular date may be a positive number, indicating an
interim underpayment, or a negative number, indicating an
interim overpayment.
The account balance on a particular date comprises
the prior transactions that were booked to the account,
such as tax payments by petitioner, refunds to petitioner,
and the like. The account balance also includes the
interest computed on prior balances as noted in the columns
designated overpayment interest (col. H) and underpayment
interest (col. I).
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Interest is computed on the balance of petitioner’s
account as follows. If the account balance is positive at
the time interest is computed, i.e., indicating an interim
underpayment, then the interest on that balance is so-
called underpayment interest and is computed under section
6601(a) (see col. I). If the account balance is negative
at the time interest is computed, i.e., indicating an
interim overpayment, then the interest on that balance is
so-called overpayment interest and is computed under
section 6611(a) (see col. H). The number of days and the
interest factors used in the interest computation are shown
in each appendix. The amounts of underpayment interest and
overpayment interest computed in these appendixes correlate
with the amounts computed by petitioner and verified by
respondent, except that there is a difference of less than
$1 in 1981.
The parties agree that for each of the years in issue,
the balance of petitioner’s account with the Internal
Revenue Service comprises the transactions recorded in the
column entitled “Other Events” in the appropriate appendix.
They also agree that the correct dollar amount of each of
those transactions is the dollar amount shown in the
appendix. Neither party has raised an issue about the
method of computing interest, as reflected in petitioner’s
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computation and respondent’s verification, or the
percentage interest factors used therein.
The parties disagree about the dates on which many
of the transactions should be recorded in petitioner’s
account. The substantive issues raised by petitioner’s
amendment to petition and list of differences all involve
the date on which each of certain of the agreed trans-
actions is recorded in petitioner’s account for purposes of
computing interest. In general, petitioner contends that
the items noted in its list of differences are transactions
that were recorded in petitioner’s account on dates that
caused either too much underpayment interest under section
6601 to be charged or too little overpayment interest under
section 6611 to be allowed on the account.
For example, with respect to 1979, petitioner contends
that the amount of underpayment interest respondent charged
in 1979, $1,948,026, is $594,943 too high when compared to
petitioner’s computation of the amount of underpayment
interest, $1,353,083, shown in appendix 1. Similarly,
petitioner contends that the amount of overpayment interest
respondent allowed for 1979, $4,304,396, is $2,042,274 too
low when compared to petitioner’s computation of the amount
of overpayment interest, $6,346,670, shown in appendix 1.
The following schedule compares the overpayment interest
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and underpayment interest computed by both parties for each
of the years in issue:
Overpayment Underpayment Total
1979 Appendix 1 -$6,346,670 $1,353,083
Respondent -4,304,396 1,948,026
Difference -2,042,274 -594,943 -$2,637,217
1981 Appendix 2 -48,785,132 -0-
Respondent -11,626,105 231,936
Difference -37,159,027 -231,936 -37,390,963
1983 Appendix 3 -5,759,613 -0-
Respondent -3,317,982 24,970
Difference -2,441,631 -24,970 -2,466,601
In considering the issues raised by respondent’s
motion, it is important to note that the interest computed
at any particular time is based upon the outstanding
balance in petitioner’s account. An interest factor is
applied to that balance for the number of days that elapsed
before the date of the next event that changed the account
balance, or before the date of a change in the rate of
interest. If the effective date of a transaction were
changed, then that would not only cause the account balance
to change; it would also cause the amount of interest, and
possibly the kind of interest (i.e., underpayment or
overpayment interest), computed on that balance to change.
Furthermore, the aggregate amounts of underpayment and
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overpayment interest computed for the year would also
change.
For example, if petitioner’s computation for 1979 were
changed to reflect respondent’s position with respect to
one of the issues raised by petitioner for that year, the
effective date of the carryback of a foreign tax credit of
$3,876,645 from 1981, then the resulting recomputation of
the account is shown in appendix 4. As shown in appendix
4, making that one change causes the aggregate amount of
underpayment interest to be increased to $2,021,767 (see
appendix 4) from $1,353,083 (see appendix 1), and it causes
the aggregate amount of overpayment interest to be reduced
to $5,272,357 (see appendix 4) from $6,346,670 (see
appendix 1). This illustrates the fact that the
computations are interrelated, and underpayment interest
and overpayment interest cannot be computed separately.
Discussion
This Court exercises only such jurisdiction as is
conferred on it by statute. See sec. 7442. By statute,
we are authorized to redetermine the amount of a
deficiency for a particular taxable period as to which the
Commissioner issued a notice of deficiency and the taxpayer
petitioned the Court for review. See secs. 6212, 6213, and
6214; Monge v. Commissioner, 93 T.C. 22, 27 (1989). As to
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any such taxable period for which a petition was filed in
this Court, if we find there is no deficiency, then we are
authorized to determine the amount of an overpayment. See
sec. 6512. Our jurisdiction to determine an overpayment is
set forth in section 6512(b)(1) and (3), which provides in
pertinent part:
SEC. 6512(b). Overpayment Determined by Tax Court.--
(1) Jurisdiction to determine.--Except
as provided by paragraph (3) * * * if the
Tax Court finds that there is no deficiency
and further finds that the taxpayer has made
an overpayment of income tax for the same
taxable year, * * * in respect of which the
Secretary determined the deficiency, or
finds that there is a deficiency but that
the taxpayer has made an overpayment of such
tax, the Tax Court shall have jurisdiction
to determine the amount of such overpayment
* * *.
* * * * * * *
(3) Limit on amount of credit or
refund.--No such credit or refund shall be
allowed or made of any portion of the tax
unless the Tax Court determines as part of
its decision that such portion was paid * *
*.
During the pendency of a case in this Court, our
jurisdiction is exclusive, and, with a few exceptions,
another proceeding may not be commenced or, if already
commenced, is stayed. See secs. 6213(a), 6512(a), 7422(e);
Hallmark Cards, Inc. v. Commissioner, 111 T.C. 266, 271
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(1998). The filing of a timely petition in this Court
in response to a notice of deficiency gives the Court
exclusive jurisdiction and precludes the taxpayer from
later bringing a refund suit for the same type of tax for
the same taxable period. Sec. 6512(a); see Estate of
Ming v. Commissioner, 62 T.C. 519, 521 (1974); Dorl v.
Commissioner, 57 T.C. 720 (1972), affd. 507 F.2d 406 (2d
Cir. 1974).
Respondent issued a notice of deficiency to
petitioner for the years in issue, and petitioner invoked
our deficiency jurisdiction by filing a timely petition.
In the pleadings, petitioner asserts that there is no
deficiency in any of the years in issue, and it claims an
overpayment for each of those years. As mentioned above,
petitioner’s overpayment claims include overpayments
consisting in part of interest respondent computed on the
interim underpayment balances reflected in petitioner’s
account, so-called underpayment interest. Petitioner
contends that the amounts of underpayment interest
respondent computed are too high. Petitioner’s overpayment
claims also include overpayments consisting in part of
interest computed on the interim overpayment balances
reflected in petitioner’s account, so-called overpayment
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interest. Petitioner contends that the amounts of
overpayment interest respondent computed are too low.
Respondent concedes that this Court has jurisdiction
under section 6512(b) to determine an overpayment based
upon petitioner’s claim that it overpaid underpayment
interest. Respondent acknowledges that excess underpayment
interest which has been assessed and paid by petitioner
“becomes part of the overpayment, i.e., a payment in excess
of that which is properly due.” This concession is based
upon Estate of Baumgardner v. Commissioner, 85 T.C. 445
(1985). Respondent asserts that “the Court, however, does
not have jurisdiction to adjudicate petitioner’s claimed
overpayments to the extent they encompass claims for the
payment of overpayment interest on amounts previously
credited or refunded by respondent.”
Respondent draws a sharp distinction between
underpayment interest and overpayment interest on the
ground that the former has actually been paid by the
taxpayer and can be part of an overpayment, whereas the
latter has not been paid. According to respondent, a claim
for overpayment interest imposed by section 6611 is merely
a claim for an additional amount of interest for which the
Government is allegedly liable. It is not a claim for an
amount that has been overpaid and is legally due.
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Respondent argues that a claim for additional
overpayment interest under section 6611 falls under the
general claims jurisdiction of the Federal District Courts
and the Court of Federal Claims. Respondent asserts that
a suit for the payment of overpayment interest with respect
to overpayments that have previously been refunded or
credited can be prosecuted in a U.S. District Court or the
Court of Federal Claims, even while the Tax Court case
involving the determination of further deficiencies or
overpayments for the same tax period is pending.
Respondent argues that section 6512(a), which provides the
Tax Court with exclusive jurisdiction over the issues
properly before it, does not preclude such a suit.
According to respondent, a suit for recovery of overpayment
interest with respect to overpayments that were not
determined by the Tax Court is not a suit for an amount
that can be refunded, and, thus, it is not, by definition,
within the Court’s jurisdiction.
Furthermore, respondent argues that section
6512(b)(4), which provides that the Court has no
jurisdiction “to restrain or review any credit or reduction
made by the Secretary under section 6402", deprives the
Court of jurisdiction to consider claims for overpayment
interest with respect to overpayments that were credited
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to a taxpayer’s liabilities before the taxpayer filed a
petition in this Court. Respondent argues:
To the extent petitioner claims that it was not
credited with sufficient overpayment interest on
the transferred credits because the liability to
which the credit was transferred was not
correctly computed, section 6512(b)(4) precludes
the courts from considering petitioner’s claim.
Finally, respondent argues that the overpayments
petitioner seeks on the basis of overpayment interest do
not fall within the Court’s “supplemental jurisdiction”
under section 6512(b)(2) or the Court’s “auxiliary
jurisdiction” in section 7481(c). Respondent argues that
section 6512(b)(2) will not apply to petitioner’s claims
for overpayment interest because the underlying overpayment
was not determined by the Court. Similarly, respondent
argues that section 7481(c) will not apply because the
overpayment interest petitioner seeks will not have been
“involved” in an overpayment determined by the Court.
Our first difficulty with respondent’s argument is the
fact that it is mathematically impossible to compute the
amount of underpayment interest, as to which respondent
concedes that we have jurisdiction, separately and apart
from the amount of overpayment interest, as to which
respondent argues that we lack jurisdiction. As described
above, underpayment interest is the interest computed under
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section 6601 on an interim underpayment in petitioner’s
account. Overpayment interest is the interest computed
under section 6611 on an interim overpayment in
petitioner’s account. Thus, the underpayment interest
charged to, and the overpayment interest allowed on,
petitioner’s account are both computed on the basis of the
balance of petitioner’s account as of a particular date.
Petitioner’s account balance, on any given date,
is composed not only of the positive and negative
transactions booked to petitioner’s account for the year,
such as assessments (positive) and payments (negative), but
also of the underpayment and overpayment interest that was
previously computed and combined with the account balance.
See section 6622(a), which provides that, for purposes of
the Internal Revenue Code, interest is “compounded daily.”
If the account balance on a particular date were to
change, by reason of a change in the amount or the date of
a transaction booked to the account, for example, then the
amount, and possibly the kind, of interest computed as of
that date would also change. Any such change would ripple
through the account causing later interim balances, and the
interest computed thereon, to change, and further causing a
change in the aggregate amount of each type of interest;
viz underpayment or overpayment. Compare app. 1 with app.
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4. In effect, the aggregate amount of each type of
interest cannot be computed without considering all of the
transactions that were booked to the account and without
also considering all of the interest, whether overpayment
or underpayment, that was previously computed and combined
with earlier account balances.
As can be seen from the above, in order to compute the
aggregate amount of underpayment interest, it is necessary
for the Tax Court to review the same transactions, and
interest thereon, as involved in the computation of
overpayment interest. Thus, it would be impossible for
the Court to exercise overpayment jurisdiction with respect
to underpayment interest, unless the Court also had
jurisdiction over overpayment interest. For the same
reason, it would be impossible for a U.S. District Court
or the Court of Federal Claims to exercise general claims
jurisdiction over overpayment interest without considering
all of the transactions booked to petitioner’s account,
including transactions that are at issue in the Tax Court
case and the amount of underpayment interest charged to the
account.
As noted above, respondent concedes, on the basis of
Estate of Baumgardner v. Commissioner, 85 T.C. 445 (1985),
that our jurisdiction to determine an overpayment under
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section 6512(b) includes an overpayment composed of
interest on underpayments computed under section 6601.
Respondent also concedes that the underpayment interest at
issue in this case is indistinguishable from the interest
that was at issue in Estate of Baumgardner. Respondent’s
motion papers do not address the fact that it is impossible
to exercise jurisdiction over petitioner’s overpayment
claims composed of underpayment interest, in accordance
with our Opinion in Estate of Baumgardner, unless we also
have jurisdiction to determine an overpayment composed of
overpayment interest.
The issue in this case is whether petitioner’s
overpayment claims based upon the amount of overpayment
interest allowed by respondent involve an “overpayment”
within the meaning of section 6512(b). There is no
definition of the term “overpayment” in the Code, but in
Jones v. Liberty Glass Co., 332 U.S. 524, 531 (1947),
the Supreme Court defined the term for purposes of the
statutory predecessor of section 6512(b) as “any payment
in excess of that which is properly due.” The Supreme
Court said:
we read the word “overpayment” in its usual
sense, as meaning any payment in excess of that
which is properly due. Such an excess payment
may be traced to an error in mathematics or in
judgment or in interpretation of facts or law.
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And the error may be committed by the taxpayer or
by the revenue agents. Whatever the reason, the
payment of more than is rightfully due is what
characterizes an overpayment.
Id. See also United States v. Dalm, 494 U.S. 596, 610
n.6 (1990), in which the Supreme Court stated that “The
commonsense interpretation is that a tax is overpaid when
a taxpayer pays more than is owed, for whatever reason or
no reason at all.”
We considered the definition of the term “overpayment”
in Estate of Baumgardner v. Commissioner, supra. In that
case, the parties settled the issues raised in a notice of
deficiency after the personal representative had petitioned
the Tax Court to redetermine the deficiency. They agreed
that there was no deficiency and that the estate tax was
less than the amount that had been paid.
The issue in that case was whether the term
“overpayment” in section 6512(b) could include amounts that
were paid as interest, pursuant to an installment payment
plan under section 6166A. The Commissioner argued that the
Court was without jurisdiction to decide issues concerning
interest, and that the personal representative had to bring
a separate action in a U.S. District Court or in the
predecessor of the Court of Federal Claims to obtain a
refund of the overpaid interest. Unlike the present case
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in which respondent argues that a suit in a U.S. District
Court or the Court of Federal Claims can proceed during the
Tax Court case, in Estate of Baumgardner the Commissioner
acknowledged that such an action could be barred by
expiration of the period of limitations on filing a claim
for refund. See Estate of Baumgardner v. Commissioner,
supra at 448, 452-453.
We held that the term “overpayment”, as used in
section 6512(b), includes interest and, accordingly, we
held that “we have jurisdiction to consider interest as
part of an ‘overpayment’”. Id. at 458-459. In coming to
that conclusion, we noted that section 301.6611-1(c),
Proced. & Admin. Regs., expressly states that “the amount
of any interest paid with respect to the deficiency * * *
is also an overpayment.” Id. at 452.
The principal justification for our holding in Estate
of Baumgardner, however, was based on the symmetry of our
overpayment jurisdiction under section 6512(b) and the
jurisdiction of the U.S. District Courts and the Court of
Federal Claims. We pointed out that jurisdiction over
overpayments generally rests with the U.S. District Courts
and the Court of Federal Claims, but in the limited
circumstances that the Tax Court is given overpayment
jurisdiction, i.e., in situations where a notice of
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deficiency has been issued and the taxpayer has petitioned
for review, section 6512(a) provides that the Tax Court
should be able to determine an overpayment to the exclusion
of the other tax forums. Id. at 451-452. We noted that
this intent would be frustrated by reading section 6512(b)
to provide that the overpayments which are the subject of
the Tax Court’s jurisdiction are substantially different
from the overpayments which are subject to the jurisdiction
of the other tax forums. Id. at 451. Stated differently,
we noted that the “overpayment” determined by the Tax Court
should be synonymous with that determined by a U.S.
District Court or the Court of Federal Claims. We further
noted that:
With respect to interest which is part of an
overpayment, * * * we must be able to determine
all components of that overpayment or a taxpayer
unwittingly may not be able to recover interest
in those situations where the Commissioner
initially determined a deficiency and the
taxpayer petitioned to the Tax Court. * * *
Id. at 453.
In Estate of Baumgardner v. Commissioner, 85 T.C. 445
(1985), we overruled two Opinions of the Court which had
held that the words “an overpayment of tax”, in the
predecessor of section 6512(b), excluded interest. Id. at
456. In discussing those Opinions, we said the following:
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There was no compulsion to so restrictively read
this language. This Court could have read the
phrase “overpayment of tax” as part of the
threshold necessary to be able to further enable
the Tax Court “to determine the amount of such
overpayment.” There was no compelling reason to
interpret the word “tax” to exclude additions to
the tax or interest. There was, instead, reason
to consider interest as part of an overpayment.
* * * But these opinions have failed to recognize
that Congress has legislatively provided for the
exceptional situation where, after a deficiency
has been determined and the taxpayer has
petitioned the Tax Court, an overpayment results.
Although there is no legislative history to
assist us, it is hard to imagine that Congress
could have intended to bifurcate an “overpayment”
by limiting the taxpayer’s refund to “tax” only.
It is equally hard to imagine that an “overpay-
ment” has a different meaning depending upon
the forum. Either of those approaches would
force some taxpayers to resolve a single tax
controversy in two different forums. Strangely,
those forced to unreasonably duplicate their
costs and efforts would be the lucky ones
because, as in this case, others would be barred
from recovery of the interest portion of the
overpayment due to their failure and/or inability
to make a timely claim.
Id. at 456-457.
In passing, we note that Estate of Baumgardner was a
reviewed Opinion of the Court that has been consistently
followed for more than 18 years since it was issued.
See Winn-Dixie Stores, Inc. v. Commissioner, 110 T.C. 291
(1998) (underpayment interest under section 6601 is part
of an overpayment); Bachner v. Commissioner, 109 T.C. 125,
128 (1997) (the term “overpayment” is not defined in terms
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of the items treated as overpayments by section 6401(a)),
affd. without published opinion 172 F.3d 859 (3d Cir.
1998); Barton v. Commissioner, 97 T.C. 548, 555 (1991)
(increased interest (at 120 percent of the normal rate)
governed by section 6621(c) is part of an overpayment);
Estate of Bell v. Commissioner, 92 T.C. 714, 728 (1989),
(an estate which elected to defer estate tax under section
6166 is entitled to a determination of the overpayment of
interest, as well as a determination of the overpayment
of tax), affd. 928 F.2d 901 (9th Cir. 1991); Judge v.
Commissioner, 88 T.C. 1175, 1187 (1987) (the additions
to tax under section 6651(a)(1) and (2) are part of an
overpayment); Gabelman v. Commissioner, T.C. Memo. 1993-592
(section 6512(b) confers jurisdiction on this Court to
review the amount of an overpayment of tax, including
amounts withheld from the taxpayer’s wages), affd. 86 F.3d
609 (6th Cir. 1996); Johnson v. Commissioner, T.C. Memo.
1993-562 (a deposit is not a payment, and thus this Court
lacks jurisdiction under section 6512(b) to order a refund
of any part of such an amount); see also Bankamerica Corp.
v. Commissioner, 109 T.C. 1 (1997); Centel Communications
Co. v. Commissioner, 92 T.C. 612, 628 (1989), affd. 920
F.2d 1335 (7th Cir. 1990); 508 Clinton Street Corp. v.
Commissioner, 89 T.C. 352, 354 (1987); Pace v. Commis-
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sioner, T.C. Memo. 2000-300; Estate of Wilson v.
Commissioner, T.C. Memo. 1999-221.
We believe that respondent’s view of what constitutes
an overpayment for purposes of section 6512(b) is too
narrow and does not square with our opinion in Estate
of Baumgardner v. Commissioner, supra. Contrary to
respondent’s position, we believe that, under certain
circumstances, additional overpayment interest that is
allowable under section 6611(a) with respect to an interim
overpayment is similar to the underpayment interest
involved in Estate of Baumgardner and can constitute an
overpayment for purposes of section 6512(b).
Most of the overpayments underlying petitioner’s
claims for additional overpayment interest are interim
overpayments that respondent credited against a tax
liability of petitioner for a different year and/or a
different tax, pursuant to section 6402(a). Subsection (a)
provides as follows:
SEC. 6402. AUTHORITY TO MAKE CREDITS OR REFUNDS.
(a) General Rule.--In the case of any
overpayment, the Secretary, within the applicable
period of limitations, may credit the amount of
such overpayment, including any interest allowed
thereon, against any liability in respect of an
internal revenue tax on the part of the person
who made the overpayment and shall, subject to
subsections (c), (d), and (e), refund any balance
to such person. [Emphasis added.]
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The Commissioner cannot be compelled to credit an
overpayment against a liability of the taxpayer. See,
e.g., N. States Power Co. v. United States, 73 F.3d 764,
768 (8th Cir. 1996). If the Commissioner chooses to do
so, however, then section 6402(a) provides that the
Commissioner may credit the amount of the overpayment
“including any interest allowed thereon” against a
liability of the taxpayer, and with certain exceptions,
shall “refund any balance” to the taxpayer. If the
Commissioner fails to include all or a part of the interest
that is allowable on the overpayment, then the aggregate
amount of the overpayment, plus the allowable interest,
will exceed the amount of the tax liability satisfied by
the credit. In effect, the taxpayer will have overpaid the
liability by the amount of allowable interest that is not
credited.
For example, assume that, pursuant to section 6402(a),
the Commissioner credits an overpayment of $1,000 against a
liability of the same taxpayer for a different taxable year
in the amount of $1,000 but fails to include interest of
$20 computed under section 6611 that is allowable on the
overpayment. Under these facts, the taxpayer would have
used $1,020 to satisfy a liability of $1,000. In effect,
the taxpayer would have overpaid the liability against
which the overpayment is credited by $20. That amount
would be “legally due”, to use respondent’s words,
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pursuant to section 6402(a). Under that provision, the
overpayment, including any interest allowed thereon, may
be credited, but it directs the Commissioner to “refund
any balance” to the taxpayer. Sec. 6402(a). To the
extent that overpayment interest under section 6611 is not
credited, we believe that it can be considered to have been
overpaid by the taxpayer for purposes of section 6512(b).
Otherwise, our overpayment jurisdiction would not mirror
the jurisdiction of the U.S. District Courts and the Court
of Federal Claims. See, e.g., Triangle Corp. v. United
States, 592 F. Supp. 1316 (D. Conn. 1984).
In exercising overpayment jurisdiction under section
6512(b) with regard to overpayment interest in the case of
overpayments credited or refunded by the Commissioner, we
are not acting in derogation of section 6512(b)(4), as
suggested by respondent. Section 6512(b)(4) provides that
the Tax Court shall have no jurisdiction “to restrain or
review any credit or reduction made by the Secretary under
section 6402.” In Savage v. Commissioner, 112 T.C. 46
(1999), for example, the taxpayer’s 1993 return claimed
an overpayment of approximately $10,000, which the
Commissioner credited to the taxpayer’s assessed tax
liabilities for 1990 and 1991. Thereafter, the
Commissioner issued a notice of deficiency with respect
to 1993, and the taxpayer filed a timely petition. The
taxpayer argued that the Commissioner had improperly
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determined the taxpayer’s tax liabilities for 1990 and
1991. We held that we lacked jurisdiction to consider
the matter, pursuant to section 6512(b)(4).
Unlike Savage, in exercising our overpayment
jurisdiction with respect to overpayment interest on
overpayments that have been credited or refunded by the
Commissioner, we are not called upon “to restrain or
review” the tax liability against which the overpayment
is credited, within the meaning of section 6512(b)(4).
To the contrary, the only issue in this case is whether
the amount of credit should have been higher by reason of
respondent’s failure to allow all or a portion of the
interest on the overpayment.
To reflect the foregoing,
An appropriate order will
be issued denying respondent’s
motion to dismiss.
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