T.C. Mem o. 2 01 6- 42

UNITED STAT ES TAX COURT

ESTATE O F ANTHONY LA SALA, DECEASED, KENNETH L A SALA,

EXECUTOR, Peti ti on er v . COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 20 77 3- 13 L. Fi le d M arch 8, 2 01 6.

Ri ch ardJo se ph Sap in sk i, fo r pe ti ti on er. Ro be rt W. Mop si ck , forres po nd en t.

MEMORANDUM FINDINGS OF FACT AND OPINION LAUBER, Ju dg e: In t hi s co ll ect io n due pro ces s (C DP) cas e we are ask edto rev ie w, pu rs ua ntto sec ti on s 6 32 0( c) an d 6 33 0( d) (1 ), th e d et erm in at io n b y th e In 1

All st atut ory

refe ren ces are t o t he Int ern al Rev enue Co de ineffe ctat a ll 1 rel ev an t t im es . W e ro un d a ll m on et ary am ou nt s t o the ne ares t d ol lar.- 2 -

[* 2] te rn al Rev enue Serv ic e (IR S o r res po nd en t) t o uph ol d ano ti ce o f Fed eral tax li en(NFTL) fil in g. Th e li enrel at es to unpa idin te res t o n aFed eral gi ft t ax li ab il it y fo r th e ta xabl e y ear 2 00 3. Th e Est at e o f Ant ho ny La Sala, thr ou gh ex ecu to r Ken ne th La Sal a, ag reedth atitwas l iabl e fo r th is gi ft t ax when itset tl edanearl ie r Tax Co urt ca se , Est at e o f La Sal a v . Comm is si on er, T.C. Dkt . No. 1 24 09 -0 8 (s ti pu la te d de ci si on en te redOcto be r 27 , 20 10 ). The es ta te co nt en ds th at , un de r th e te rm s o f th atset tl em en t, n o i nt eres t was pa y ab le on th e 2 00 3 g ifttax li ab il ity . W e d is ag ree an d uph ol d re sp on de nt ’s det erm in at io n. FINDINGS OF FACT So m e o f th e fac ts ha ve be enst ip ul at edan d a re s o fo un d. Th e st ip ul at io n o f fact s an d t he att ach edex hi bi ts are i nc or po rat edby thi s re fere nc e. InAug us t 2 00 1 An th on y La Sal a (An th on y ), th enag e 9 3, fo rm edALS Fam il y LLC (ALSF). In e xc ha ng e fo r a 1 00 % own ers hi p i nt eres t, An th on y co nt rib ute d t o ALSF c as h, m ark et ab le sec ur it ie s, an d fr act io na l equi ty sha res intwo ot he r co m pa ni es : a 2 5% s ha re i n La Sa laHol di ng Co . anda 10 % sh are i n M .H. Partn ers (fra ct io na l equi ty sha res ). On J anua ry 1, 2 00 3, An th on y , th enag e 9 5, s ol d t o h is daug ht er an d h is two grand ch il dr en , inex ch an ge for anan nu it y , a 99 % in te res t i n ALSF. Antho ny retai ne d a1% i nt eres t.- 3 -

[* 3] In e xc ha ng e fo r hi s 9 9% i nt eres t, An th on y was t o re cei ve anan nu it y of $9 13 ,98 6 p er y ear t o b e p ai d fo r th e res t o f hi s l ife . For p ur po se s o f effe ct in g t hi s tra ns act io n, An th on y

va lu edth e tr an sf

erre d 9 9% i nt eres t at$2 ,78 1,9 00 an d h is rem ai ni ng 1% i nt eres t at$2 8,1 00 . In d et erm in in g t he se va lu es he ap pl ie d d is co un ts of 5 0% a nd35 %, res pe ct iv el y , to th e v al ue s o f th e fra ct io na l equi ty sha res he ldby A LSF. Ant ho ny die d o n J anua ry 9, 2 00 4, h av in g re cei ve d o ne an nu it y pa ym en t, whi chwas m ad e b y

hi s d au gh te r an d h is gra nd ch il dr enwith fu nd s d is tri bu te d t o th em by A LSF. Kenn eth La Sa la , as e xe cu to r of Antho ny’ s es ta te , ti m el y fil ed Fo rm 70 6, Un it edSta te s Es ta te (an d Gen erat io n- Sk ip pi ng Tran sf er) Tax Return. The Fo rm 70 6 re po rte d An th on y ’s 1% i nt eres t i n ALSF a s an ass etof t he est at e with ava lu e o f $2 8,1 00 . The Fo rm 70 6 re po rte d t he sal e o f hi s 9 9% i nt eres t o n Sch edul e I, Annui ti es . The es ta te to okth e p os it io n t ha t An th on y ’s li fe ex pe ct an cy ex ceed edon e y ear o n J anua ry 1, 2 00 3; if tha t wer e so , th e p riv at e an nu it y trans act io n wo ul d b e res pe ct edan d t he va lu e o f th e 9 9% i nt eres t i n ALSF wo ul d b e ex cl ud edfro m

th e g ro ss est at e. See s ec. 1 .75 20 -3 (b )(3 ), In co m e Tax Reg s. The IRS s el ect edth e es ta te ’s return fo r ex am in at io n a ndde te rm in eda de fici en cy inFed eral est at e ta x o f $1 ,99 9,0 45 . The IR S co nc lu de d t ha t the est at e h ad us edex ces si ve di sc ou nt s i n v al ui ng th e frac ti on al equi ty sha res he ldby A LSF an d- 4 -

[* 4] th atth e d at e-o f-d eath v al ue of i ts ass et s was $4 ,36 8,5 34 . The IR S fu rth er de te rm in edth at , un de r se ct io n 2 03 6, the ful l v al ue of ALSF ’s ass et s was in cl ud ib le inth e g ro ss est at e as op po se d t o t he 1% i nt eres t the est at e h adrep orte d. The est at e ti m el y

pe ti ti on edth is Co urt fo r rev ie w of t he est at e ta x d efi ci en cy , Est at e o f La Sal a v . Comm is si on er, Do ck etNo. 1 24 09 -0 8, an d t ha t ca se was cal en da redfor

tri al inDecem

be r 20 09 . Rob ertJ. Alt er s erv edas c ou ns el to th e es ta te , andJo se ph Bo y la n re pr es en te d re sp on de nt . Befo re tria l the parti es reac he d a b as is of s et tl em en t. The IRS co nc ed edth atAntho ny, as of Jan ua ry 1, 2 00 3, was reas on ab ly exp ect edto su rv iv e fo r atlea ston e y ear. Th e es ta te co nc ed edth atth e fai r m ark etva lu es of t he frac ti on al equi ty sha res he ldby A LSF were u nd ers ta te d by the cla im in g o f ex ces si ve di sc ou nt s. An d t he pa rti es ag reedth at , to th e ex te nt th e v al ue of t he tra ns ferr ed99 % in te res t ex ceed edth e co ns id erat io n p ai d t he refo r-- i.e., the va lu e o f th e an nu it y --the ex ces s co ns ti tu te d u nd er s ect io n 2 50 3 atax ab le gi ft t o An th on y ’s dau gh te r an d g ran dc hi ldrenforth e ta xabl e y ear 2 00 3. Mr. Bo y la n a tt en de d the cal en da r cal l an d l od ge d wi th th e Co urt a s ti pu la ti onof s et tl edis su es . Alth ou gh th is st ip ul at io n re ci te d t ha t the pa rti es ha d re so lv edall is su es inth e cas e, itdi d n otst at e al l t erm s o f th e se tt le m en t ex pl ic it ly. Whi le reci ti ng th e p art ie s’ agr eem en t tha t the va lu es of t he frac ti on al equi ty shares he ldby A LSF “ were u nd ers ta te d b y cla im in g e xc es si ve di sc ou nt s o f 35 % * * *- 5 -

[* 5] an d 5 0%,” th e st ip ul at io n d idno t s pe ci fy whatdi sc ou nt s wer e ap pr op ria te . Andwhi le reci ti ng th e p art ie s’ agr eem en t tha t “ th e am ou ntby whi chth e de te rm in edva lu e o f th os e two ass et s ex ceed s the co ns id erat io n p ai d c on st itut es a ta xabl e g iftpu rs uantto I.R.C. § 25 03 ,” th e st ip ul at io n d idno t s pe ci fy th e am ou nt of th attax ab le gi ft. No ti ng th es e o m is si on s, the Co urt g av e th e p art ie s 6 0 d ay s t o fil e d eci si on do cu m en ts . Befo re en try of d eci si on , Mr. Bo y la n l eftres po nd en t’s em pl oy. Ro be rt Mo ps ic k re pl acedhi m

as I RS co un se l i n t he cas e atdo ck etNo. 1 24 09 -0 8. Bec au se th e te rm s o f th e st ip ul at io n d idno t ex pl ic it ly reso lv e al l re le va ntis su es , Mr. Mo ps ic k i ni ti al ly que st io ne d wh ethe r a s et tl em en t h adactua ll y be enreac he d. On J un e 4 , 20 10 , th e es ta te fil eda m ot io n fo r en try of d eci si on see ki ng to en fo rce th e se tt le m en t. Rep res en ti ng th atth e p art ie s h adag reedto ap pl y a 25 % di sc ou nt in va lu in g t he frac ti on al equi ty sha res he ldby A LSF, th e es ta te urg edth e Co urt t o en te r a d eci si on “ th atth ere i s a d efi ci en cy inEst at e Tax du e fro m

th e p et it io ne r in th e am ou ntof $ 17 7,4 18 an d Gi ft Tax inth e am ou ntof $ 23 4,9 76 .” The p ro po se d de ci si on do cu m en t s ti pu la te d t ha t, “ effe ct iv e upo n the en try of the de ci si on by the Co urt, p et it io ne r wai ve s the res tri ct io n c on ta in edinI.R.C. § 62 13 (a) p ro hi bi ti ng as se ss m en t an d c ol le ct io n o f th e d efi ci en cy (pl us st atut ory

in te res t).”- 6 -

[* 6] On J un e 2 4, 2 01 0, M r. Mo ps ic k n ot ifi edMr. Alt er o f res po nd en t’s co nc es si onth ata se tt le m en t h adin de edbe enreac he d, an d t he est at e th ereupo n wi th dr ew it s m ot io n fo r en try of d eci si on . The p art ie s the n b eg anto ex ch an ge do cu m en ts an d c al cu la ti on s t o c om

pu te th e es ta te tax de fic ie nc y an d g ifttax li ab il it y

to whi ch th e se tt le m en t g av e ri se . Em pl oyin g a25 % di sc ou ntforva lu in g the frac ti on al equi ty sha res , th e p art ie s ca lc ul at eda gi ft t ax li ab il it y fortax ab le y ear 2 00 3 o f $2 35 ,20 7. Al th ou gh in te res t o n t ha t g ifttax li ab il ity wou ldha ve be ena de du ct ib le ex pe ns e in co m

pu ti ng th e es ta te tax , nei th er the est at e’s no r res po nd en t’s ca lc ul ati on s t oo k a cco un t o f any in te res t o n t he gi ft t ax . InSep te m

be r 20 10 Mr. Mo ps ic k re qu es te d tha t the est at e ex ecu te an d fi le a Fo rm 70 9, Un it edSta te s Gi ft ( an d Gen erat io n- Sk ip pi ng Tran sf er) Tax Return, rep orti ng th e ag reedgi ft t ax li ab il it y . In Oct ob er 2 01 0 t he est at e ex ecu te d a ndsen t to th e IRS a Fo rm

70 9 re po rti ng a ta xabl e g iftfor20 03 of $ 1,0 25 ,34 3 a nda gi ft ta x l iabi li ty of $2 35 ,20 7. Th is gi ft t ax return i nc lu de d t he fol lo win g n ot at io n:

“ The fil in g o f th is return i s co nd it io ne d o n t he co nc urren t fi li ng of aDeci si on with th e U.S. Tax C ou rt i n Es ta te of An th on y La Sal a, Doc ke t No . 12 40 9- 08 , refl ect in g anest at e ta x s et tl em en t re ach edby the Est at e an d t he Int ern al Rev enue Serv ic e.” The pa rti es ’ at to rn ey s ex ecu te d ade ci si on do cu m en t s ho win g areca lc ul at ed es ta te tax de fic ie nc y

of $ 16 0,1 76 . This de fic ie nc y refl ect edth e tr eat m en t o f th e- 7 -

[* 7] 20 03 gi ft a s a p rio r ta xabl e g iftan d t he all owa nc e o f de du ct io ns forad di ti on al at to rn ey ’s fees . This Co urt o n Oct ob er 2 7, 2 01 0, en te reda st ip ul at edde ci si on acco rd in gl y . (Thi s d eci si on di d n otm en ti onth e 2 00 3 g ifttax li ab il it y be cau se th e no ti ce o f de fic ie nc y

inth e cas e atdo ck etNo. 1 24 09 -0 8 d et erm in eda de fic ie nc y in es ta te tax on ly.) O n No ve m be r 15 , 20 10 , th e es ta te sen t the IRS a c he ckfor $2 30 ,83 8, re pr es en ti ng th e es ta te tax du e p lu s i nt eres t o f $7 0,6 62 , th us di sc ha rg in g th e es ta te tax li ab il it y

inful l. On No ve m

be r 18 , 20 10 , th e es ta te sen t the IRS a c he ck for$2 35 ,20 7, re pr ese nt in g t he 20 03 gi ft t ax li ab il it y bu t wi th ou t i nt eres t. OnJan ua ry 3, 2 01 1, the IRS p ro ces se d t he Fo rm

70 9 andass es se d t he gi ft t ax as r ep orte d p lu s p en al ti es for la te fil in g a ndlat e p aym en t. Tha t s am e d ay th e IRS Cin ci nn at i Se rv ic e Cen te r se nt th e es ta te a Not ic e CP1 61 , Reque stforPaym en t-- Fed eral GiftTax, s ho win g a n unpa idba la nc e due of $ 48 4,6 83 . This co m pr is edgi ft t ax of $ 23 5,2 07 , a lat e fi li ng pe na lty of $ 52 ,92 2, a l at e p aym en t p en al ty of $5 8,8 02 , andst atut ory in te res t (i ncl ud in g i nt eres t o n p en al ti es ) of $1 37 ,75 2. On Fe brua ry

1, 2 01 1, co un se l fo r th e es ta te sen t a l ette r to th e IRS Ci nc in na ti Serv ic e Cen te r, no ti ng th atth e g ifttax li ab il it y ha d a lre ady

be enpa id an d o bjec ti ng to th e im

po si ti on of i nt eres t an d p en al ti es . Thatlet te r ap pa ren tl y- 8 -

[* 8] eli ci te d n o re sp on se . On Ja nu ary 17 , 20 12 , th e IRS sen t the est at e b y cert ifi ed m ai l a No ti ce o f Fed eral Tax Li enFil in g a ndYou r Ri gh t t o aHeari ng . The est at e ti m el y

reque st eda CDP h eari ng an d, o n J un e 2 2, 2 01 2, a s et tl em en t o ffi cer ( SO) fro m

th e IRS App eal s Off

ic e co nduc te d atel ep ho ne he ari ng with c ou ns el forth e es ta te . The es ta te po in te d o utth atth e g ifttax li ab il ity ha d al read y be enpa id ; co nt en de d t ha t n o p en al ti es were jus ti fie d b ecau se th e g ifttax was pa idpurs ua ntto a se tt le m en t; an d a rg ue d t ha t n o i nt eres t was du e b ecau se th e gi ft t ax was a ll eg ed ly a m ere “ no ta ti on al am ou nt ” u se d i n c al cu la ti ng th e es ta te tax de fic ie nc y . The es ta te di d n otreque sta co ll ect io n a lt ern at iv e. The SO ve rif

ie d t ha t the gi ft t ax for20 03 ha d b eenpro pe rly ass es se d a nd th atth e p ro vi si on s o f ap pl ic ab le law an d a dm in is tra ti ve pro cedur e h adbe enfol lo wed . She en suredth atth e es ta te ’s gi ft t ax pa ym en t was co rrec tl y po st edto it s acco un t as of No ve m

be r 18 , 20 10 . She ab at edinful l the lat e fi li ng an d l at e p ay m en t p en al ti es , as wel l as all in te res t at tri bu tabl e to th e p en al ti es . Howev er, s he de te rm in edth atth e es ta te was l iabl e fo r st atut ory in te res t o n t he 20 03 gi ft t ax li abi li ty andfou ndno jus ti fic at io n fo r ab at in g t ha t i nt eres t. OnAug us t 6 , 20 13 , th e IRS i ss ue d t he est at e a n ot ic e o f de te rm in at io n s us ta in in g the NFTL. K en ne th La Sal a, as ex ecu to r of

th e es ta te th enres id in g i n New Yo rk , ti m el y pe ti ti on edfor rev ie w of t ha t d et erm in at io n.- 9 -

[* 9] OPINION I. St an dardof R ev ie w Sect io n 6 33 0( d) (1 ) pr ov id es a pe rs on with t he rig htto ob ta inTax C ou rt r evi ew of anIRS ad m in is tra ti ve de te rm in at io n i n aCDP cas e. Whe re the am ou ntof th e ta xp ay er’s u nd erl y in g t ax li ab il ity is pro pe rly at is su e, we rev ie w th e IRS ’ de te rm in at io n d e n ov o. Go za v . Comm is si on er, 1 14 T.C. 17 6, 1 81 -1 82 (20 00 ). Secti on63 30 (c)( 2) (B) p erm it s a t ax pa y er t o c ha ll en ge th e ex is te nc e o r am ou ntof h is un de rlyin g l iabi li ty onl y

if h e d idno t re cei ve a no ti ce o f de fic ie nc y or o th erwi se ha ve a pr io r op po rtu ni ty to co nt es t i t. We revi ew th e IRS ’ de te rm in at io ns reg ard in g n on li ab il it y

is su es for

ab us e o f di sc ret io n. Ho y le v. Co m m is si on er, 1 31 T.C. 19 7, 2 00 (20 08 ); Go za, 1 14 T.C. at 1 82 . The est at e h as no t h ada pr io r op po rtu ni ty to co nt es t i ts li ab il it y forin te res t on th e 2 00 3 g ifttax , andth e es ta te pro pe rly rais eddu rin g t he CDP h eari ng th e qu es ti on whet he r in te res t was pro pe rly im po se d. We will ex am in e d e n ov o t he es ta te ’s li ab il it y

forin te res t an d re vi ew th e SO’s ot he r de te rm in at io ns forab us e o f di sc ret io n. Se e Urb an o v . Comm is si on er, 1 22 T.C. 38 4, 3 90 -3 91 (20 04 ). Abu se of di sc ret io n e xi st s wh ena de te rm in at io n i s arbi trary , cap ric io us , or wi th ou t s ou nd ba si s i n fa ctor l aw. See M ur ph y v. Co m m is si on er, 1 25 T.C. 30 1, 3 20 (20 05 ), aff’d, 4 69 F.3d27 (1s t Ci r. 20 06 ).- 10 -

[* 10 ] II. The Est at e’s Liab il it y forInt eres t Sect io n 2 00 1( a) i m

po se s a t ax on th e tr an sf

er o f th e ta xabl e es ta te of ade cede ntwho is a U.S. cit iz enor r es id en t. The est at e ta x i s co m pu te d b y fir stde te rm in in g aten ta ti ve tax on th e su m of t he tax ab le est at e an d a dju st edtax ab le gi fts an d t he n b y

reduc in g t ha t t en ta ti ve tax by the am ou ntof g ifttax th atwou ldha ve be enpay ab le onth os e g ift s, u si ng th e rat es ineffe ctat t he de ced en t’s d eath. Se c. 20 01 (b ). The t erm

“ ad jus te d t ax ab le gi fts ” m ean s the to ta l am ou ntof t ax ab le gi fts (wit hi n t he m ean in g o f se ct io n 2 50 3) m ad e b y th e d eced en t af

te r Decem

be r 31 , 19 76 , othe r th angi fts th atare i nc lu di bl e in th e g ro ss est at e. See s ec. 2 00 1( b) (2 ). Sect io n 2 50 1( a) i m

po se s a t ax on th e tr an sf

er o f pr op erty

by giftdu rin g t he y ear. In te res t ac cru es on a Fed eral gi ft t ax li ab il it y at t he rat e sp eci fie d b y

sec ti on 66 21 fro m

th e la stda te pre sc rib edforpa ym en t u nt il th e d at e o n wh ic h t he tax is actua ll y pa id . Sec. 6 60 1( a). Unl es s a s ta tu to ry ex cep ti onap pl ie s, the co urts lac k di sc ret io n t o e xc us e a t ax pay er fro m pa y m en t o f in te res t. See Jo hn so n v . Uni te d St at es , 60 2 F .2d73 4, 7 38 (6t h C ir. 1 97 9) . “ Co ng res s i nt en de d the Uni te d S ta te s t o ha ve th e u se of t he m on ey lawf ul ly due when itbe cam e due .” Man ni ng v. Se el ey Tub e & Bo x C o., 3 38 U.S. 56 1, 5 66 (19 50 ). If a t ax is no t p ai d b y th e d at e p resc rib edth eref

or , in te res t i s as se ss edto co m pe ns at e th e Gov ern m en t fo r lo ss of t he- 11 -

[* 11 ] ti m e v al ue of m on ey , irre sp ect iv e o f th e rea so n fo r th e la te pa ym en t. See Su ffn es s v . Uni te d S ta te s, 9 74 F.2d60 8, 6 10 (5t h C ir. 1 99 3) . A st ip ul at io n o f se tt le m en t i s a c on tra ctby whi cheach party gran ts to th e ot he r a co nc es si onof s om e ri gh ts as c on si de rat io n fo r th e ri gh ts sec ur ed . Saig h v . Co m m is si on er, 2 6 T.C. 1 71 , 17 7 (1 95 6) . As a co nt ract , a se tt le m en t i s s ub ject t o jud ic ia l i nt erp ret at io n a s t o i ts m ean in g i n t he li gh t o f th e la ng ua ge us edan d t he ci rcu m st an ces surro un di ng it s ex ecu ti on . Dorch es te r In du s. In c. v. Co m m is si on er, 10 8 T.C. 3 20 , 33 0 (1 99 7) , aff’d, 2 08 F.3d20 5 (3 d C ir. 2 00 0) . In the ab se nc e o f a m utua l m is ta ke , an a ffi rm at iv e m is rep res en ta ti on by one of t he pa rti es , or o th er si mil ar ci rcu m st an ces , th is Co urt wi ll en fo rce t he set tl em en t the pa rti es reac he d. See S tam m Int ’l Cor p. v . Comm is si on er, 9 0 T.C. 3 15 , 32 2- 32 5 (1 98 8) ; M cMu ll en v. Co m m is si on er, T.C. Mem o. 2 01 5- 21 9, at*7 -* 9. The est at e as ks us to in te rp retth e st ip ul at io n o f se tt le m en t t o i nc lu de , as a n im pl ie d t erm , th atno in te res t wo ul d b e due on th e 2 00 3 g ifttax li ab il it y . The es ta te adva nc es two co nt en ti on s t o s up po rt t ha t co nc lu si on . Neithe r is pe rs ua si ve . Fi rs t, the est at e arg ue s tha t i t d idno t h av e, un de r th e se tt le m en t ag reem en t, anactua l d el in qu en t g ifttax li ab il it y for20 03 . Rath er, i t s ay s tha t the $2 35 ,20 7 fig ur e was a m ere “ no ta ti on al am ou nt ” th atwas u se d i n c al cu la ti ng th e es ta te tax de fic ie nc y

an d g en erat in g a n o ve ral l s et tl em en t o f th e es ta te tax cas e. The e st at e- 12 -

[* 12 ] ass ert s tha t i t fi le d t he Fo rm 70 9, n otto ackno wled ge anactua l g ifttax li ab il it y , bu t s im

pl y to crea te , at M r. Mo ps ic k’s re qu es t, anacco un t en try to wh ic h th e $ 23 5,2 07 paym en t co ul d b e p os te d. Insupp ort o f th e la tt er ar gu m en t, the es ta te cit es it s n ot at io n o n t he Fo rm 70 9 t ha t “ [t]he fil in g o f th is return i s co nd iti on edon th e co nc urren t fi li ng of aDeci si on with the U.S. Tax Co urt * * * refle ct in g [t he ] es ta te tax set tl em en t.” W e are no t co nv in ced . Thro ug h n eg ot ia ti on s wi th IRS co un se l the est at e se cu reda se tt le m en t en su rin g t ha t the pri va te an nu it y tra ns act io n wo ul d b e res pe cte d. In ex ch an ge for

th atco nc es si on , th e es ta te co nc ed edth atitha d u nd erv al ue d th e fra ct io na l equi ty sha res he ldby A LSF an d t ha t “ th e am ou ntby whi chth e d ete rm in edva lu e o f th os e two ass et s ex ceed s the co ns id erat io n p ai d c on st itut es a ta xabl e g iftpu rs uantto I.R.C. § 25 03 .” It i s tru e th atth e 2 00 3 g ift , as apri ortax ab le gi ft, g en erat edaninpu t i n c al cu la ti ng th e es ta te tax . Butitals o e st ab li sh edan in de pe nd en t g ifttax li ab il it y forth e ta xabl e y ear 2 00 3; if tha t i s n otwhatth e es ta te in te nd ed , itsh ou ldno t h av e si gn eda st ip ul at io n c on ced in g tha t An th on y ha d m ad e, on Jan ua ry

1, 2 00 3, “ a ta xabl e g iftpu rs ua ntto I.R.C. § 25 03 .” See Ap pl est ei n v . Comm is si on er, T.C. Mem o. 1 98 9- 42 , 56 T.C.M. (CCH) 1 16 9, 1 17 0- 11 71 . The est at e v ol un ta ril y

fil eda Fo rm

70 9 re po rti ng a gi ft t ax li ab il it y for20 03 . Tha t thi s re tu rnwas fi le d a t the reque stof r es po nd en t’s co un se l d idno t m ak e it- 13 -

[* 13 ] an y les s v ol un ta ry ; the fil in g o f th is return was a ne ces sa ry st ep insec ur in g a se tt le m en t tha t the est at e d es ire d t o s ecu re. The ap pe nd edno ta ti on th atth e fi li ng of th e g ifttax return was co nd it io ne d o n e nt ry of ade ci si on inth e es ta te tax cas e di d n otren de r th e Fo rm

70 9 a“ no n- return.” Thatno ta ti on si m pl y in di cat ed , cor rect ly, th atth e es ta te ’s rep orti ng of a20 03 gi ft t ax li ab il ity ha d a s a qui d p ro qu o th e co nc es si on s the IRS m ad e in th e es ta te tax cas e. The est at e’s expl ic itco nc es si on th atAntho ny m ad e a t ax ab le gi ft i n 2 00 3 es tabl is he d agi ft t ax li ab il it y forth aty ear. Th atco nc es si on was b in di ng ev en th ou gh no gi ft t ax li ab il it y was d et erm in edinth e n ot ic e o f de fic ie nc y co m m en ci ng th e es ta te tax cas e. The e st at e o wes in te res t o n t hi s g ifttax li ab il it y , justas i t wou ldowe i nt eres t o n a ny oth er t ax li ab il it y no t p ai d a t the pre sc rib edti m e. Sec. 66 01 ; s ee Gen . Dy

na m ic s C or

p. v . Uni te d S ta te s, 5 62 F.2d12 01 (Ct . Cl. 1 97 7) . Ass um in g a rg ue nd o t ha t the re was a de li nque ntgi ft t ax li ab il it y for 20 03 , th e es ta te co nt en ds th atth e st ip ul at io n o f se tt le m en t i nc lu de d a n a gr eem en t tha t th is li ab il it y

wou ldno t b ear i nt eres t. Thi s co nt en ti on is equa ll y unpe rs ua si ve . The re i s n ot hi ng inth e st ip ul at io n o f se tt le m en t o r th e p art ie s’ subs eque ntco rres po nd en ce ad dr es si ng in te res t o n t he gi ft t ax li ab il it y , m uc h l es s ev id en ci ng a m utua l und ers ta nd in g t ha t n o i nt eres t wo ul d b e due .- 14 -

[* 14 ] Mr. Bo y la n a t tria l cr ed ib ly test ifi edto hi s b el ie f th athe lac ke d aut ho rit y to waiv e in te res t an d t ha t h e co ul d n ev er h av e g ot te n app ro va l fo r a s et tl em en t tha t pu rp orte d t o wai ve in te res t. See Int ern al Rev enue Manua l p t. 3 5.8 .2.5 .1 (Au g. 1 1, 20 04 ) (“ The Serv ic e d oe s n otset tl e Tax Co urt ca se s b y waiv in g s ta tu to ry

in te res t.”) . Mr. Alt er, anex pe rie nc edatt orne y on th e o th er s id e o f th e n eg ot ia ti on s, te st ifi edth athe was u na ware o f an y ot he r in st an ce i n wh ic h t he IRS h adwaiv ed st atut ory in te res t as pa rt o f a s ettl em en t. Un de r th es e ci rcu m st an ces , we canno t co ns tru e th e st ip ul at io n o f se tt le m en t t o i nc lu de as a n i m pl ie d t erm

a waiv er o f in te res t o n t he 20 03 gi ft t ax li ab il it y . See Sm it h v . Comm is si on er, T.C. Mem o. 20 09 -3 3, 9 7 T.C.M . (CCH) 1 13 4, 1 13 7 (“ Ina ta x d efi ci en cy su it , def ic ie nc y in te res t i s n otat i ss ue , anda se tt le m en t o f th e su itth atm ak es no m en ti on of in te res t s ho ul d n otbe co ns tru edto so m eh ow s et tl e th e is su e o f in te res t s ub si le nt io .”). 2

W e h av e n o o ccas io n t o d eci de whet he r th e IRS wou ldha ve th e au th or it y 2 to waiv e st atut ory

in te res t i n s et tl in g aTax C ou rt c as e. See Sm it h, 9 7 T.C.M . (CCH) at 1 13 7 & n.1 1 (“ It i s ev enth eo ret ic al ly pos si bl e, th ou gh itwou ldbe un us ua l, fo r th e IRS to en te r in to a se tt le m en t i n wh ic h i t wai ve s i nt eres t * * * .” (ci ti ng Antho ny v. Uni te d S ta te s, 9 87 F.2d67 0, 6 74 (10 th Cir . 19 93 ))). Our ho ld in g i s b as edon ou r fi nd in g t ha t the pa rti es to th is set tl em en t n ei th er re ach edno r ex pr es se d am

utua l ag reem en t tha t i nt eres t wo ul d b e wai ve d o n t he gi ft t ax li abi li ty.- 15 -

[* 15 ] The att orne y s wh o re pr es en te d t he est at e dur in g 2 00 9- 20 10 tes ti fie d t ha t th ei r in te rn al cal cu la ti on s co nc ern in g t he co stof t he set tl em en t l eftno roo m for pa ym en t o f in te res t o n t he gi ft t ax li ab il it y . The ev id en ce co nc ern in g t he ir s ubjecti ve un de rs ta nd in g was am bi gu ou s; forex am

pl e, th e m ot io n fo r en try of d eci si on th ey fil edinJu ne 20 10 ask edth is Co urt t o fi nd“ a d efi ci en cy in* * * Gi ft Tax in th e am ou ntof $ 23 4,9 76 ” an d p ro po se d t o t he waiv e res tri ct io ns on “ as se ss m en t an d c ol le ct io n o f th e d efi ci en cy (pl us st atut ory

in te res t).” In a ny even t, o ne pa rty’ s un il at eral m is un de rs ta nd in g o r m is ap pr eh en si on of t he co stof aset tl em en t d oe s no t ju st ify refo rm in g t he set tl em en t o r se tt in g i t as id e. See M cMu ll en , at * 7- *9 ; Rev el l v . Comm is si on er, T.C. Mem o. 2 00 7- 37 , 93 T.C.M (CC H) 91 3, 9 14 ; Es ta te of Mi tc he ll v. Co m

m is si on er, T.C. Mem o. 1 99 3- 11 0, 6 5 T.C.M . (CCH) 2 15 7, 21 59 . The est at e co nt en ds th atup ho ld in g i ts li ab il ity for in te res t o n t he 20 03 gi ft ta x wo ul d b e in equi tabl e b ecau se itis no w pre ve nt edby the st atut e o f li m it at io ns fro m cla im in g ade du ct io n fo r th atin te res t ag ai ns t the est at e ta x. Al th ou gh we ha ve so m e sym

pa th y for th e es ta te ’s po si ti on , th e res po ns ib il it y forcla im in g d edu ct io ns li es with t he tax pay er. The est at e’s fai lu re t o c la im a ti m el y de du ct io n fo r in te res t d oe s n otjus ti fy

set ti ng asi de th e st atut ory in te res t t o wh ic h t he Gov ern m en t i s en ti tl ed . See Ca rls onv. Un it edSta te s (I n re Carl so n) , 12 6 F .3d91 5, 9 20- 16 -

[* 16 ] (7t h C ir. 1 99 7) (no ti ng th ata co urt m ay no t u se it s equi tabl e p owe rs to ci rcu m ve ntth e st atut e’s m an da to ry im po si ti on of i nt eres t). III. Non li ab il it y

Iss ue s Hav in g d et erm in edth atst atut ory in te res t ac cru edas am at te r of law o n t he 20 03 gi ft t ax li ab il it y , we no w add res s wh ethe r th e SO ab us edhe r di sc ret io n i n su st ai ni ng th e NFTL. W e acc or di ng ly con si de r whe th er s he : (1 ) pr op erl y ve rif ie d th atth e requi rem en ts of app li cab le law an d a dm in is tra ti ve pro cedur e h adbe en m et ; (2 ) co ns id eredan y

rel ev an t i ss ue s the est at e rai se d; an d (3 ) de te rm in edwheth er “ an y pro po se d c ol le ct io n a ct io n b al an ces th e n eedforth e eff ic ie ntco ll ect io n of tax es with t he leg it im at e co nc ernof * * * [th e es ta te ] th atan y co ll ect io n a ct io n be no m or e in tru si ve th anne ces sa ry .” See s ec. 6 33 0( c)(3 ). Ourrev ie w of the reco rdest ab li sh es th atth e SO co nduc te d ath or ou gh rev ie w of t he est at e’s acc ou nt , det erm in edth atth e g ifttax li ab il it y was p ro pe rly as se ss ed , andve rif

ie d t ha t o th er re qu ire m en ts of app li cab le law an d a dm in is tra ti ve pr oc edur e were f

ol lo wed . In p art ic ul ar, the SO en su redth atth e es ta te ’s gi ft t ax pa ym en t was pro pe rly cred it edto it s ac co un t as of No ve m be r 18 , 20 10 ; co rrec tl y ab at edth e p en al ti es forlat e fi li ng an d l at e p aym en t; an d c orrect ly abat edall in te res t as so ci at edwith the pe na lt ie s. Th e SO d idno t ab us e h er d is cret io n i n de cl in in g t o aba te in te res t o n t he gi ft t ax li ab il it y be cau se th ere was no erro r or- 17 -

[* 17 ] de lay

att rib ut ab le to “ erro ne ou s o r di la to ry ” p erfo rm an ce o f a m in is te ria l o r m an ag eri al actby an o ffi cer o r em pl oyee of th e IRS . See s ec. 6 40 4( e)(1 ). Sin ce th e es ta te di d n otreque sta co ll ect io n a lt ern at iv e, th e SO p ro pe rly su st ai ne d t he NFTL as a m ean s o f co ll ect in g t he unpa idin te res t o n t he 20 03 gi ft t ax li ab il it y . To re fle ctth e fo reg oi ng , Deci si on wil l b e en te redforres po nd en t.