TAX COURT OPINION

Case: Richard & Lisa Nichols
Docket Number: 1384-05L
Judge: Holmes
Opinion Type: memo
Filed: 01/09/2007
Pages: 8

SERVIC E C AL . S T AT . I j' r9' JUDG E FILES T .C . Memo . 2007- 5 UNITED STATES TAX COUR T RICHARD NICHOLS AND LISA NICHOLS, Petitioners v . COMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 1384-05L . Filed January 9, 2007 . David B . Shiner , for petitioners . Gregory J . Stull , for respondent . MEMORANDUM OPINION HOLMES, Judge : In 2001, Richard Nichols and his wife Lisa reached a compromise with the IRS on their 1994 tax liability . The Nicholses agreed that the IRS could immediately assess and collect an agreed amount, but they reserved the right to sue for a refund . The Nicholses then learned that they had net operating losses from later years . They asked the Commissioner to let them use these losses to reduce their 1994 tax liability ; they als o S!I O) 'JAN 0 9 2001 - 3 - collection of a specific deficiency is not the same as agreeing that the deficiency agreed to is accurate . A taxpayer who signs the form may later claim a refund after paying . But he gives up the right to come to Tax Court : "If you later file a claim and the Service disallows it, you may file suit for refund in a district court or in the United States Claims Court, but you may not file a petition with the United States Tax Court ." Just to make sure that point is clear, the form also states--directly above the signature line--"I understand that by signing this waiver, I will not be able to contest these years in the United States Tax Court, unless additional deficiencies are determined for these years . " The Commissioner assessed the tax as agreed, but the Nicholses never paid because they learned later in 2001 that one of their businesses had produced net operating losses (NOL5) for the tax years 1995 and 1997 . This spurred them to file an amended 1994 tax return (Form 1040X) in December 2002, claiming these NOLs as deductions that they could carry back to the 1994 tax year . The IRS treated their 1040X as a refund claim and rejected it as untimely .2 The filing and rejection of a Form 1040X is often the prelude to a refund action, but the Nicholse s 2 The rejection letter stated that no credit or refund would be allowed for a claim filed more than three years after the due date of the returns which established the NOLs ; i .e ., the 1995 and 1997 tax returns . - 5 - The Nicholses finally requested interest abatement on October 31, 2003, in a letter sent to an IRS agent not involved in the CDP process . In that letter, they asked for an abatement of 75% of the accrued interest because of "numerous lengthy spans of time during which the files just sat on the respective personnel's desks ." They also claimed that the initial audit took six years to complete and that this was an unreasonable amount of time . The letter didn't offer any other reasons for the interest abatement, nor did it explain why they decided to ask for an abatement of only 75 percent of the interest charged . The first IRS agent to consider the matter denied the request quickly, but the Nicholses asked the IRS Appeals Office to review that denial, arguing that the acts complained of were "managerial" under section 301 .6404-2 of the Procedure and Administration Regulations . The Appeals Office has not yet held a conference to consider their request . Although the Nicholses had not listed either the NOL carryback or the interest abatement issues as reasons to release the lien, the Appeals officer who held the CDP hearing considered the NOL carryback issue and noted in the record that th e Nicholses were pursuing interest abatement . In June 2004, that officer tentatively agreed with the Nicholses to allow all the NOLs . In a letter confirming their understanding of thi s agreement, the Nicholses also asked him to abate all interest and - 7 - are any factual inferences to be made, we make them in favor of the party opposing summary judgment--in this case, the Nicholses . See Adickes v . S .H . Kress & Co . , 398 U .S . 144, 157 (1970) . The Nicholses may not, however, rest on their pleadings but "must set forth specific facts showing that there is a genuine issue for trial ." Rule 121(d) ; Dahlstrom v . Commissioner , 85 T .C . 812, 820-21 (1985) . A . Challenge to Deficienc y The first issue is whether the Nicholses can apply their NOLs to reduce the tax liability that they agreed the Commissioner could assess when they signed the Form 870 . If this case was one under section 6213(a) to redetermine a deficiency, the answer would be easy : The Supreme Court itself has ruled that a waiver of assessment, signed before the Commissioner sends a notice of deficiency, is fully effective and allows the Commissioner to begin collection immediately after assessment . See United States v . Price , 361 U .S . 304, 313 (1960) . Courts uniformly understand that signing a Form 870 means giving up the right to come to Tax Court with a deficiency suit . See Smith v . United States , 328 F .3d 760, 766-767 (5th Cir . 2003) ; Phila . & Reading Corp . v . United States , 944 F .2d 1063, 1067 (3d Cir . 1991) ; Kalil v . Enochs , 295 F .2d 467, 469 (5th Cir . 1961) (and cases cited there) ; Webster v . Commissioner , T .C . Memo . 1992-538 . The Nicholses claim that they are not trying to rewrite the - 9 - owes the extra tax--only that the Commissioner can assess and collect it, leaving him with the right to sue for a refund . Likewise, from the Commissioner's perspective, signing a Form 870 isn't his agreement that no more extra tax might be owed ; the "General Information" section of Form 870 states : "[Your consent] will not prevent us from later determining, if necessary, that you owe additional tax * * * . " But the Nicholses have another argument . They contend that, even if the Form 870 would bar them from opening the front door to Tax Court to challenge the deficiency assessed against them, they can still sneak in the back door by challenging the Commissioner's decision to try to collect on the assessment because they never got a notice of deficiency . And section 6330(c)(2)(B) gives their argument a superficial plausibility-- that section allows taxpayers to challenge their underlying tax liability if they "did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability . " The Nicholses, it is undisputed, did not receive a notice of deficiency . But of course the reason they didn't receive one is that they voluntarily waived their right to do so when they signed the Form 870 . We have held that section 6330 "provides no consolation to petitioners who themselves made the choice not to receive * * * [a notice of deficiency] ." Aguirre v . - 11 - This argument hearkens to the liberal rules of pleading that treat issues actually tried as if they had been raised in the pleadings . See Rule 41(b)(1) ; Fed . R . Civ . P . 15(b) . And the Nicholses might even be able to tease such an argument out of the regulations themselves . Consider the regulation as it stood when they had their hearing : In seeking Tax Court or district court review of Appeals' Notice of Determination, the taxpayer can only request that the court consider an issue that was raised in the taxpayer's CDP hearing . Sec . 301 .6320-1(f)(2), A-F5, Proced . & Admin . Regs . (as amended in 2002) (emphasis added) . And compare it to the recent revision : In seeking Tax Court review of a Notice of Determination, the taxpayer can only ask the court to consider an issue, including a challenge to the underlying tax liability, that was properly raised in the taxpayer's CDP hearing . Sec . 301 .6320-1(f)(2), A-F3, Proced . & Admin . Regs . (effective Nov . 16, 2006) (emphasis added) . The problem with this reasoning is that the revised regulation states existing law ; it doesn't change it . We had already held before this revision that the Code itself limits the power of the Commissioner (and on appeal, us) to reconsider liability issues . De novo review such as the Nicholses are requesting is appropriate only "[w]here the validity of the tax liability was properly at issue in the hearing * * * ." H . Conf . - 13 - Katz v . Commissioner , 115 T .C . 329, 340-341 (2000), we held that we have jurisdiction to review the Commissioner's determination not to abate interest that is the subject of his collection effort . That we have jurisdiction to review the Commissioner's refusal to abate interest after a CDP hearing doesn't relieve taxpayers from the usual requirement that they raise the issue . Sec . 301 .6320-1(f)(2), A-F5, Proced . & Admin . Regs . (as amended in 2002) ; see Maaana v . Commissioner , 118 T .C . 488, 493 (2002) (only issues raised during the CDP hearing or otherwise brought to the Appeals Office's attention generally considered on review) . The Nicholses claim they raised interest abatement as an issue, the Commissioner claims they didn't, and the record doesn't provide a clear indication either way . Because this is the Commissioner's summary judgment motion, we assume that the Nicholses properly raised the issue, and ask whether the Commissioner has shown that there is no genuine dispute that his refusal to abate interest was an abuse of discretion . Rule 121 . We begin with the Code : Section 6404(e)(1) states that interest may be abated for "any deficiency attributable * * * to any error or delay by an officer or employee of the Internal Revenue Service * * * in performing a ministerial act," though only when "no significant aspect of such error or delay can be attributed to the taxpayer * * * ." Sec . 6404(e) . 5 5 Section 6404( e) was amended in 1996 to allow relief from (continued . . .) - 15 - tax liability they agreed to or at least posting a bond or remitting a deposit . See Chan v . Commissioner , T .C . Memo . 2001- 268 . We therefore conclude that the Commissioner did not abuse his discretion by refusing to abate the interest that th e Nicholses owe . Summary judgment for the Commissioner being appropriate on both of the issues before us, An order and decision in favo r of respondent will be entered .