DocketNumber: Docket No. 9371-07S
Citation Numbers: 2011 T.C. Summary Opinion 1, 2011 Tax Ct. Summary LEXIS 7
Judges: MORRISON
Filed Date: 1/4/2011
Status: Non-Precedential
Modified Date: 4/17/2021
PURSUANT TO
An appropriate order will be issued.
MORRISON,
The proposed levy seeks to collect interest and penalties that arose from Bang's failure to timely pay $2,636 of income tax for her 1983 tax year. The $2,636 payment, which was due on April 15, 1984, was made on May 12, 2006. The amount of the proposed levy is $32,343.46. The $32,343.46 comprises *8 four components: • underpayment interest under section 6601(a); i.e. $21,553.52 in interest on the $2,636 underpayment from the day the payment was due, April 15, 1984, until the date the $2,636 was assessed by the IRS, March 27, 2006 (the $21,553.52 does not include the additional interest that continued to accrue until the date Bang paid the $2,636 on May 12, 2006); 2 • tax-motivated transaction interest under former • the 50-percent-of-interest negligence penalty under former • a failure-to-pay-tax penalty; i.e. $13.18 assessed on June 12, 2006. 5
Bang was a partner in a partnership called Contra Costa Jojoba Research Partners. This partnership, which we shall refer *11 to as the Contra Costa partnership, filed a partnership tax return for its 1983 tax year on which it deducted $437,500 in research and experimental expenditures under section 174. On her own 1983 tax return, Bang reported a deduction of $12,500 for her share of the $437,500 deduction that the partnership had claimed. The 1983 tax return was due on April 15, 1984. See sec. 6072.
The IRS issued a Notice of Final Partnership Administrative Adjustment (FPAA) regarding the Contra Costa partnership on April 12, 1989. The FPAA determined that the $437,500 deduction for research and experimental expenditure was erroneous and that the appropriate deduction was zero. In explaining the reasons for the adjustment the FPAA stated: We have disallowed the amount above because it has been determined that there is insufficient evidence to demonstrate that the expenses listed above qualify as research and development expenditures. Further, it has been determined that a portion of the research and experimental expenditures listed in the return may be for items not associated with research and experimental costs.
THE FOLLOWING *12 PENALTIES ARE APPLICABLE TO THE PARTNER/SHAREHOLDER Section 6661 7
On July 13, 1989, the Contra Costa partners challenged the FPAA determination in a partnership-level proceeding before the Tax Court, With respect to all adjustments in respondent's Notice of Final Partnership Administrative Adjustment relating to Contra Costa Research Partners, a jojoba partnership, the parties stipulate to the following terms: 1. THE ABOVE ADJUSTMENTS 10 ARE THE ONLY ISSUES IN THE CASE. A. UPON RESOLUTION OF THESE ISSUES, A PROPOSED DECISION WILL BE PREPARED *13 BY RESPONDENT'S COUNSEL. 2. The above adjustments, as specified in the preamble, shall be redetermined by application of the same legal theories as that which resolved the same partnership item adjustments with respect to the following partnership: Name of Case: Utah Jojoba I Research Tax Court Docket No.: 7619-90 (hereinafter the CONTROLLING CASE) 3. All issues involving the above adjustments shall be resolved as if the partnership in this case was the same as the partnership in the CONTROLLING CASE; A. If the Court makes findings of underlying facts with respect to tax motivated transactions, a valuation overstatement, or other elements applicable to a determination of additions to tax and/or * * * * 9. This stipulation applies to all partners in Contra Costa Jojoba Research Partners who were parties to the action within the meaning of
In 1998, the Tax Court issued an opinion in
On April 11, 2005, the Tax Court issued an order and decision in
The *16 IRS issued a deficiency notice to Bang on March 13, 2006. Attached to the deficiency notice was a Form 4549-A, Income Tax Discrepancy Adjustments. We consider Form 4549-A to be part of the deficiency notice issued to Bang. Also attached to the deficiency notice was a Form 4089-B, Notice of Deficiency —Waiver. We refer to the Form 4089-B as the waiver form.
The first page of the deficiency notice itself (not the Form 4549-A or the Form 4089-B) contained the heading "Deficiency (Increase in tax)". Under that heading, the following text appeared: We have determined that you owe additional tax or other amount(s), or both, for the tax years(s) identified above. This letter is your NOTICE OF DEFICIENCY, as required by law. The enclosed statement shows how we figured the deficiency. If you want to contest this determination in court before making any payment, you have 90 days from the date of this letter * * * to file a petition with the United States Tax court for a redetermination of the deficiency * * * . If you decide *17 not to file a petition with the Tax Court, please sign the enclosed waiver form and return it to us at the IRS address on the top of the first page of this letter. This will permit us to assess the deficiency quickly and can help limit the accumulation of interest. If you decide not to sign and return the waiver, and you do not file a petition with the Tax Court within the time limit, the law requires us to assess and bill you for the deficiency after 90 days from the date of this letter * * * . It is determined that all or part of the underpayment of tax for the taxable year(s) is due to negligence or intentional disregard of rules and regulations. This penalty is five (5) percent of the full underpayment of tax (except that portion of the underpayment which is due to fraud) plus fifty (50) percent of the interest due on the part of the underpayment that is due to negligence. The penalty is figured on the earlier of the date of assessment or the date the tax was paid. If the return was not timely filed, the penalty is asserted on the full amount of the corrected *18 tax instead of the underpayment of tax.
We now turn to Form 4549-A. The Form 4549-A contained the following chart showing the calculation of the $2,636 and penalties: Underreporter attributable to negligence: *19 Underreporter attributable to fraud: Underreporter attributable to Tax Motivated Transactions 1. Adjustments to Income a. Ordinary Loss 12,500.00 2. Total Adjustments 12,500.00 3. Taxable Income Per Return or as Previously Adjusted 9,959.00 4. Corrected Taxable Income 22,459.00 Tax Method TAX TABLE Filing Status Single 5. Tax 4,062.00 6. Additional Taxes/Alternative Minimum [blank] 7. Corrected Tax Liability 4,062.00 8. Less Credits a. Investment Credit 187.00 9. Balance 3,875.00 10. Plus Other Taxes a. Alternative Minimum Tax 0.00 11. Total Corrected Tax Liability 3,875.00 12. Total Tax Shown on Return or as Previously Adjusted 1,239.00 13. Adjustments to a, b, c 14. Deficiency- Increase in Tax or 2,636.00 15. Adjustments to Prepayment Credits-Increase 16. Balance Due or (Overpayment) - 2,636.00 17. Penalties/Code Sections a. Negligence - IRC 6653(a) 131.80 18. Total Penalties 131.80
a. Balance due or | 2,636.00 |
b. Penalties | 131.80 |
c. Interest | 0.00 |
d. TMT interest - computed to 3/29/2006 | 0.00 |
e. Amount due or refund - (sum of Lines a, b, c and d) | 2,767.80 |
Beneath the Summary of Taxes, Penalties, and Interest was a box entitled "Other Information". This box contained the following discussion of the increased interest rate due to tax-motivated transactions: The adjustment on this report is based on the changes made to Contra Costa Jojoba Research Partners EIN#94-2855838 per *20 the Tax Court Decision. All or part of the underpayment of tax you were required to show on your return is a substantial understatement attributable to Tax Motivated Transactions, as defined by The Tax Deficiency and the Tax Motivated Transaction (TMT) Interest have been processed against your account, based on the Partnership examination results, and will be reflected on the Statement of Account. The Notice of Deficiency reflects only the penalty portion of this examination report * * *. If you require any further information, please contact your Tax Matters Partner.
Since all or part of the underpayment of tax you were required to show on your return is due to negligence or intentional disregard of rules and regulations, you are being charged a penalty under
On March 27, 2006, after the mailing of the deficiency notice, the IRS assessed the $2,636 (the tax on the increased income attributable to Bang's share of the research and experimental expenditures disallowed at the partnership level), and the accumulated interest of $21,553.52 pursuant to section 6601 (underpayment interest) and former
Bang did not file a petition with this Court in response to the deficiency notice. Instead, on May 8, 2006, she executed the waiver form that had been attached to the deficiency notice. The waiver form listed the following under "Deficiency—Increase in Tax and Penalties":
Tax Year Ended: | December 31, 1983 |
Deficiency: | [blank] |
Increase in tax | [blank] |
Penalties | |
IRC 6653(a)(1)(A) | 131.80 |
IRC 6653(a)(1)(B) 17 | See *a below |
*a 50% of interest on | 2,636.00 |
Above Bang's signature, *23 the waiver form reads: See the attached explanation for the above deficiencies. I consent to the immediate assessment and collection of the deficiencies (increase in tax and penalties) shown above, plus any interest provided by law.
Bang sent a payment of $2,767.80 to the IRS (the sum of $2,636 and $131.80). The payment was received by the IRS on May 12, 2006, and applied to the account that the IRS used to keep track of her 1983 tax year. 18
On June 12, 2006, after Bang's execution of the waiver form, the IRS assessed the 5-percent negligence penalty of $131.80 (5 percent of $2,636), the 50-percent-of-interest negligence penalty of $10,776.76 (50 percent of the $21,553.52 for tax-motivated transaction *24 and underpayment interest), and a failure-to-pay-tax penalty of $13.18 (the latter of which was not mentioned in the notice). 19
The $10,776.76 amount was 50 percent of the $21,553.52 interest charge on the $2,636 underpayment. Calculating the 50-percent-of-interest penalty in this way assumed that the entire $2,636 underpayment was attributable to negligence. See former
The record does not indicate whether the failure-to-pay-tax penalty was the penalty imposed by
June *25 12, 2006, was also the last day for Bang to file a petition with the Court. She did not file a petition.
The IRS then issued to Bang a Final Notice of Intent to Levy and Notice of Your Right to a Hearing on August 23, 2006, notifying Bang that the IRS intended to levy to collect $32,343.46. Although the final notice of intent to levy does not identify the components of the $32,343.46, we can tell from other parts of the record that the $32,343.46 is composed of the following amounts:
Underpayment interest and tax-motivated transaction interest | $21,553.52 |
50-percent-of-interest negligence penalty | 10,776.76 |
Failure-to-pay-tax penalty | 13.18 |
Total | 32,343.46 |
The $32,343.46 assessed therefore does not include the $2,636 and the 5-percent negligence penalty of $131.80, which Bang had already paid, as noted above.
Bang's accountant filed a Form 12153, Request for a Collection Due Process Hearing, on her behalf, together with a letter stating that it seems very unreasonable that [Bang] should be assessed, [sic] negligence, penalties and interest on deficiencies dating back to 1983 and 1985. She promptly paid the tax deficiency *26 in 2006 when notices were brought to her attention. We are requesting all penalties and interest be removed.
The telephone conference occurred on January 25, 2007. According to the Appeals officer's notes of the conference, Bang's accountant confirmed the TP's [taxpayer's] primary issue is the liability. He firmly believes the TP [taxpayer] should not have been assessed the negligence penalty. I explained that *27 under IRS 6330(c)(2)(B) the taxpayer cannot raise liability in a Collection Due Process (CDP) Hearing if they have had a prior opportunity. In this case the taxpayer both received a SND and signed a F.4089-B agreement.
On March 27, 2007, the IRS Appeals Office issued a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 that sustained the proposed levy. The determination recognized that Bang's request for a hearing contested her liability for "assessed negligence, penalties, and interest." But the determination stated: Taxpayer was not able to dispute liability within the hearing. Taxpayer did raise liability as an issue. Taxpayer was not allowed to raise liability because she had a prior opportunity to dispute the liability. * * * * The taxpayer's representative, Randall Kramer, stated the primary issue is the liability. He firmly believes the taxpayer should *28 not have been assessed the negligence penalty. Settlement Officer Bruce Stork explained that under Taxpayer presented no other issues.
The extensive procedural history of the Contra Costa partners' case and this case is summarized in the chart below.
Procedural History of Cases Against Contra Costa Partners and Bang | ||
Apr. 12, 1989 | IRS issues FPAA for Contra Costa partnership | •IRS reduces $437,500 in deductions claimed by partnership to $0 |
July 13, 1989 | Contra Costa partners and IRS agree to be bound by | •Agreement requires that the resolution of the partnership items in Contra Costa partnership case would follow the determinations made by the Tax Court in the partnership case |
Jan. 5, 1998 | Tax Court issues opinion in | •Tax Court disallows the deductions claimed by Utah Jojoba I partnership |
Apr. 11, 2005 | Tax Court decides | •Tax Court upholds all adjustments in the FPAA issued to Contra Costa partnership |
March 16, 2006 | IRS issues deficiency notice to Bang | •Calculations assume that Bang owes $2,636 more tax than she reported in connection with the disallowed partnership loss. |
•Bang owes $131.80, or 5-percent of $2,636, for the 5-percent negligence penalty. | ||
•Bang owes 50 percent of interest on $2,636 as the 50-percent negligence penalty, calculated using the interest accumulated from the date the tax was due to the earlier of the date the tax is assessed or the date the tax is paid. | ||
March 27, 2006 | Assessment against Bang | Assessment includes: |
•$2,636 increase in Bang's tax liability because of disallowance of her share of the disallowed Contra Costa deductions | ||
•$21,553.52 in underpayment interest on $2,636 (calculated at the 120-percent rate because of the tax-motivated transaction) | ||
May 8, 2006 | Bang consents to immediate assessment | Consent to assessment includes: |
•$131.80 (5-percent negligence penalty) | ||
•50 percent of interest on $2,636 | ||
May 12, 2006 | Bang's payment to the IRS is received | Payment includes: |
•$2,636 | ||
•$131.80 (5-percent negligence penalty) | ||
June 12, 2006 | IRS assesses penalties | Assessment includes: |
•$131.80 (5-percent negligence penalty) | ||
•$10,776.76 (50-percent negligence penalty) | ||
•$13.18 failure-to-pay-tax penalty | ||
June 12, 2006 | Last day for Bang to challenge deficiency notice by filing a Tax Court petition | Amounts Bang could challenge by filing a petition: |
•$131.80 (5-percent negligence penalty) | ||
•$10,776.76 (50-percent negligence penalty) | ||
August 23, 2006 | IRS issues final notice of intent to levy | Final notice of intent to levy includes: |
•$10,776.76 (50-percent negligence penalty) | ||
•$21,553.52 in underpayment interest on $2,636 (calculated at the 120-percent rate because of the tax-motivated transaction) | ||
March 27, 2007 | IRS issues notice of determination | •Sustains levy |
The IRS asserts in its motion for summary judgment that Bang's receipt of the deficiency notice precludes her from challenging the 50-percent-of-interest negligence penalty. The IRS also argues that Bang's complaint over the unreasonableness of the accrual of interest was not made with sufficient specificity at the hearing to be considered a claim for interest abatement under section 6404(e). According to the IRS, Bang failed to specify grounds on which an interest abatement claim could be granted, such as a specific error or delay caused by a ministerial act of the IRS. The IRS also argues that even if the Court could consider whether Bang is entitled to abatement of interest under section 6404(e), the Court should sustain the Appeals officer's decision not to abate interest.
With respect to the amount of its assessment of tax-motivated transaction interest, the IRS claims that the stipulation to be bound and the findings of fact in
The IRS did not make any arguments in its submission to this Court regarding the failure-to-pay-tax-penalty assessed.
Bang's response to the IRS's motion for summary judgment was as follows: Petitioner objects to and resists Respondent's Motion for Summary Judgment on the following grounds: 1. The calculation and assessment of Restricted Interest and the Negligence Penalty are both incorrectly determined and exceed the maximum amount allowable by law. 2. The signature of Petitioner on the Notice of Deficiency/Waiver dated May 8, 2006 was improperly obtained because the listing of income tax discrepancy adjustments did not include the Restricted Interest or the Negligence Penalty amounts causing the taxpayer to believe that the amount she was agreeing to was only $2,767.80, rather than the additional amount of $32,000.00 plus dollars. Therefore it should be thrown out and the taxpayer allowed to contest the entire balance assessed. THEREFORE, Petitioner respectfully requests that Respondent's Motion for Summary Judgment be denied and for such other and further relief as the Court deems just.
A motion for summary judgment will be granted if the pleadings, answers to interrogatories, depositions, admissions, and other acceptable materials, together with any affidavits, show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law. Rule 121(b);
At a collection due process hearing, a taxpayer may raise challenges to the existence or amount *32 of the "underlying tax liability" only if the taxpayer "did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability."
Bang did not offer a specific collection alternative to be considered by the Appeals officer, nor did she raise any other appropriate defenses to collection. See
Section 6601(a) provides that if a taxpayer fails to pay the tax imposed by the Code, interest shall accrue from the date that the tax payment is due until the date it is paid. The rate of interest is "the underpayment rate established under
On her 1983 income tax return, Bang claimed a $12,500 deduction. The Tax Court in the partnership-level
On March 27, 2006, the IRS assessed the $2,636 increase in tax resulting from the disallowance of Bang's share of the partnership's deduction. That same day, it assessed $21,553.52 in interest on the $2,636 underpayment, calculated *36 to the day of assessment. The interest was calculated at 120 percent of the normal rate because the IRS had determined that the entire underpayment was attributable to a tax-motivated transaction.
The IRS notified Bang that it intended to levy to collect the underpayment interest (among other amounts). Bang challenged the levy at the administrative level. Bang contested her interest liability in her request for a hearing. Her contention was that the interest was compounded over an excessive amount of time. The Appeals officer did not consider Bang's contention.
The IRS argues in its motion for summary judgment that Bang should be considered to have raised her liability for interest at the hearing only as a request for interest abatement under section 6404(e)(1) (a provision that permits the IRS to abate interest accruals caused by IRS errors and delays), not as a challenge to any other aspect of her interest liability. Thus, the IRS urges us not to reach any other aspect of Bang's liability for underpayment interest. We agree *37 with the IRS that our review should be limited. We note that in her response to the IRS's motion for summary judgment, Bang failed to point to any other error in the IRS's determination that she was liable for underpayment interest.
The IRS also contends that Bang failed to make a claim for interest abatement with sufficient specificity at the administrative level and that consequently the Court in reviewing the determination of the Appeals officer cannot consider her claim for interest abatement. The IRS cites
Bang's accountant argued in his letter attached to the request for a hearing that the underpayment interest should be abated because it had accrued over an unreasonably long time and because she paid the underlying amount of $2,636 when it was finally brought to her attention. These statements sufficiently preserved Bang's argument regarding interest abatement for judicial review. In
Bang's main argument, presented by her accountant at the hearing, is that the interest *39 assessed has accrued over an unreasonably long time because of pending litigation about which she had no knowledge. However, the length of time which partnership-level litigation takes to resolve is not a delay in a "ministerial act" on which an abatement claim may be based.
Under former
To illustrate the calculation of the interest rate for tax-motivated transactions, suppose that a taxpayer fails to pay $1,000 in tax on April 15, when the tax return and the tax are due. Assume further that the failure to timely pay the entire $1,000 is due to a tax-motivated transaction. Assume that the underpayment rate is 6 percent *42 for the second quarter of the year in which the return is due.
Bang did not have an opportunity before the collection hearing to contest all of the elements of the tax-motivated interest penalty. The deficiency notice was not such an opportunity. Even though the deficiency notice contained the assertion that Bang was liable for increased interest on the portion of her underpayment attributable to a tax-motivated transaction and even though Bang could have filed a Tax Court petition in response to the deficiency notice, the Court would not have had jurisdiction in a partner-level deficiency case to determine Bang's liability for the increased interest. The reason is that increased interest is not a deficiency.
Bang is liable for the increased interest for tax-motivated transactions. First, the transactions of the partnership were tax motivated. A tax-motivated transaction includes a transaction for which there is "an accounting method specified in regulations prescribed by the Secretary as a use which may result in a substantial distortion of income for any period." Former
Second, we must determine the amount of Bang's underpayment of tax that was attributable to the partnership's tax-motivated *45 transaction and whether that underpayment was substantial. See former
The IRS argues that Bang was not entitled to dispute her liability for the 50-percent-of-interest penalty with the Appeals officer. It contends that Bang had already received a deficiency notice for the liability. We agree.
Under former
To illustrate how this penalty is calculated, assume that a taxpayer fails to pay $1,000 of tax due on April 15. Suppose further that of this $1,000 underpayment, $200 is both (1) the result of the taxpayer's negligence, and (2) attributable to a tax-motivated transaction. Suppose that over the next 3 years the underpayment interest rate is a constant 6 percent and that the tax is assessed 3 years later on April 15. Interest will be computed at an interest rate of 6 percent, increased by 20 percent for tax-motivated transactions, resulting in a total interest charge of 7.2 percent that is compounded daily under section 6662. The 3-year interest charge would be $48.22 (that is, $200 x (1+(0.072/365))(365 x 3))-$200. The taxpayer would then owe a negligence penalty of $24.11 (that is, 50 percent of the entire interest charge of $48.22).
Bang claimed on her 1983 income tax return that she had a $12,500 loss stemming from a loss claimed *48 by the Contra Costa partnership. She and the other Contra Costa partners then agreed to be bound by the decision in the Utah Jojoba partnership case. The Court in the
Mathematically, *54 the penalty is 50 percent of the interest payable under section 6601(a) on the amount of the underpayment due to negligence. The amount of interest payable under section 6601(a), for purposes of calculating the penalty against Bang, ran until the tax was assessed on March 27, 2006. The deficiency notice did not notify Bang of the absolute amount of the 50-percent-of-interest penalty because the notice was issued on March 13, 2006, 2 weeks before the interest period closed. See
Rule 142(a) provides that the burden of proof falls on the taxpayer with respect to issues raised in the deficiency notice and falls on the IRS with respect to issues raised in the answer. In
The deficiency notices in
The statements in the notice of deficiency explaining the 50-percent-of-interest negligence penalty made the deficiency notice "for" the penalty. Bang "received" the deficiency notice. Therefore, Bang was not entitled to raise a challenge to the amount of the penalty at the collection review hearing. We sustain the Appeals officer's determination with respect to the 50-percent-of-interest penalty.
The proposed levy that was sustained by the Appeals officer included, among other things, the amount of $13.18. All we know about this $13.18 is that the same amount was listed on the IRS record of its transactions with Bang for her 1983 income tax year as a failure-to-pay-tax penalty and that it was assessed on June 12, 2006. Two types of failure-to-pay-tax penalties appear in the
Respondent's motion for summary judgment will be granted in part and denied in part.
1. Unless otherwise indicated, all section references are to the Internal Revenue Code (Code), as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure. Bang resided in Iowa at the time her petition was filed.↩
2. Sec. 6601(a) requires that, if a taxpayer underpays tax, the taxpayer must pay interest on the unpaid tax from the date the tax is due until the date the tax is paid. The interest rate is set for each calendar quarter.↩
3. Former
4. Former
In 1986, former
5. There are two failure-to-pay penalties in the Code.
6. In 1986, former
7. During the tax year at issue, sec. 6661(a) provided: SEC. 6661(a). Addition to Tax.—If there is a substantial understatement of income tax for any taxable year, there shall be added to the tax an amount equal to 10 percent of the amount of any underpayment attributable to such understatement.↩
8. It was the tax matters partner who filed the petition in the partnership-level proceedings, but the law considers all partners to be parties to the proceeding. See
9. Bang did not sign the stipulation to be bound, but the tax matters partner signed it, and he was authorized to sign on behalf of all of the Contra Costa partners. See sec. 6224(c)(1), (3).↩
10. The phrase "Above Adjustments" refers to the adjustments in the IRS's FPAA issued to the Contra Costa partnership.↩
11. Former
12. However, as we note later, the
13. Before the order and decision in the
14. See
15. See
16. As discussed below, assessment of the $2,636 did not violate the restriction on assessments contained in sec. 6213(a) because the $2,636 was a type of computational adjustment that derived entirely from a concluded partnership proceeding and was not subject to deficiency procedures. Interest on the $2,636 could also be assessed at the same time because sec. 6601(e) provides that interest is not subject to deficiency procedures. See
17. The Internal Revenue Code references should have been to
18. Bang would later claim in a letter attached to her Tax Court petition that she consulted with her accountant before making this payment and that "[my accountant] and I were totally unaware that by paying this, I somehow agreed to any additional penalties and interest."↩
19. The deficiency, underpayment interest, and tax-motivated transaction interest were assessed on Mar. 27, 2006, after the mailing of the notice but before the execution of the waiver form, as noted above. These items were thus excluded from the June 12, 2006, assessment.↩
20. The Appeals officer does not clarify whether he was referring to both the 5-percent and 50-percent-of-interest negligence penalties or just one of the two.↩
21. See
22. This statutory language is in effect for interest accruing after December 31, 1986. For interest accruing before then, the statute is worded differently, but is substantively the same for these purposes.
23. The interest, based on the formula in the text, is $4.943279. The IRS issued tables to be used in computing underpayment interest.
24. In 1996, Congress amended sec. 6404(e) to provide that interest abatement is available for an "unreasonable" delay in performing a "ministerial or managerial" act. Taxpayer
25. Former
(1) In general. —In the case of interest payable under section 6601 with respect to any substantial underpayment attributable to tax motivated transactions, the annual rate of interest established under this section shall be 120 percent of the adjusted rate established under subsection (b). (2) Substantial underpayment attributable to tax motivated transactions. —For purposes of this subsection, the term "substantial underpayment attributable to tax motivated transactions" means any underpayment of taxes imposed by subtitle A for any taxable year which is attributable to 1 or more tax motivated transactions if the amount of the underpayment for such year so attributable exceeds $1,000. (3) Tax motivated transactions.— (A) In general. —For purposes of this subsection, the term "tax motivated transaction" means— (i) any valuation overstatement (within the meaning of section 6659(c)), (ii) any loss disallowed by reason of section 465(a) and any credit disallowed under 46(c)(8), (iii) any straddle (as defined in section 1092(c) without regard to subsections (d) and (e) of section 1092), and (iv) any use of an accounting method specified in regulations prescribed by the Secretary as a use which may result in a substantial distortion of income for any period.↩
26. Former (2) Additional amount for portion attributable to negligence, etc. —There shall be added to the tax (in addition to the amount determined under paragraph (1)) an amount equal to 50 percent of the interest payable under section 6601— (A) with respect to the portion of the underpayment described in paragraph (1) which is attributable to the negligence or intentional disregard referred to in paragraph (1), and (B) for the period beginning on the last date prescribed by law for payment of such underpayment (determined without regard to any extension) and ending on the date of the assessment of the tax (or, if earlier, the date of the payment of the tax).
27. See former sec. 6230(a)(2)(A)(i) (as amended by TRA 1986), sec. 1875(d)(2)(A), 100 Stat. 2896 (applying subch. B to any deficiency attributable to affected items which require partner-level determination);
Sec. 6230(a)(2)(A)(i) was amended in 1997 to provide that penalties related to partnership adjustments be determined at the partnership level and therefore not be included in a notice of deficiency. Taxpayer Relief Act of 1997, Pub. L. 105-34, sec. 1238(b)(2), (c), 111 Stat. 1026, 1027;
28. Sec. 6214(a) provides: SEC. 6214(a). Jurisdiction as to Increase of Deficiency, Additional Amounts, or Additions to the Tax. —Except as provided by
The Court's jurisdiction in a partner-level proceeding to redetermine affected items such as penalties does not extend to the partnership-item component of penalties. Partnership items are determined solely at the partnership level. Former sec. 6221.↩
29. In
In
30.
31. * * * * (2) to pay the amount shown as tax on any return * * * on or before the date prescribed for payment of such tax (determined with regard to any extension of time for payment), unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be added to the amount shown as tax on such return 0.5 percent of the amount of such tax if the failure is for not more than 1 month, with an additional 0.5 percent for each additional month or fraction thereof during which such failure continues, not exceeding 25 percent in the aggregate * * *
* * * * (2) subsection (a)(2), the amount of tax shown on the return shall, for purposes of computing the addition for any month, be reduced by the amount of any part of the tax which is paid on or before the beginning of such month and by the amount of any credit against the tax which may be claimed on the return * * *
To illustrate how the penalty is calculated, assume that a taxpayer fails to pay $1,000 of tax shown on her return and due on Apr. 15. The taxpayer does not pay the tax until Apr. 15 of the following year. The taxpayer would owe a failure to timely pay penalty of $60 (that is, $1,000 x 0.005 x 12).↩
32. * * * * (3) to pay the amount in respect of any tax required to be shown on a return * * * which is not so shown * * * within 21 calendar days from the date of notice and demand therefor * * *, unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be added to the amount of tax stated in the such notice and demand 0.5 percent of the amount of such tax if the failure is for not more than 1 month, with an additional 0.5 percent for each additional month or fraction thereof during which such failure continues, not exceeding 25 percent in the aggregate.
* * * * (3) subsection (a)(3), the amount of tax stated in the notice and demand shall, for the purpose of computing the addition for any month, be reduced by the amount of any part of the tax which is paid before the beginning of such month.
To illustrate how the penalty is calculated, assume that a taxpayer fails to pay $1,000 of tax not shown on her return (but required to be shown on the taxpayer's return) within 21 days of the date of notice and demand for payment of the tax. The taxpayer does not pay the tax until 1 year following the 21st day after the date of notice and demand for payment. The taxpayer would owe a failure to timely pay penalty of $60 (that is, $1,000 x 0.005 x 12).
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Katz v. Commissioner , 115 T.C. 329 ( 2000 )
Desmet v. CIR , 581 F.3d 297 ( 2009 )
David A. Field and Ellen J. Field v. United States of ... , 381 F.3d 109 ( 2004 )
american-economy-insurance-company-a-foreign-corporation-v-ralph-b , 41 F.3d 1513 ( 1994 )
Sego v. Commissioner , 114 T.C. 604 ( 2000 )
Lunsford v. Comm'r , 117 T.C. 183 ( 2001 )
Goza v. Commissioner , 114 T.C. 176 ( 2000 )
N.C.F. Energy Partners v. Commissioner , 89 T.C. 741 ( 1987 )
White v. Commissioner , 95 T.C. 209 ( 1990 )
Odend'Hal v. Commissioner , 95 T.C. 617 ( 1990 )