Court Opinion

ID: 4474557
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:11:00.683203+00
Date Added: 2024-06-11T14:53:52.408109
License: Public Domain

Goeke, J., dissenting: The opinion adopted today reaches an unjust result, reasoning that the principle of finality requires that result. The estate and respondent entered into agreed Rule 155 computations and submitted the computations to this Court with a suggested decision document. The agreed computations clearly treat the overpayment of tax as an amount separate from the interest owed by the estate. In arriving at the overpayment amount of $238,847.24, the parties simply subtracted the estate’s tax liability ($385,747.17) from its payments that were applied to the tax liability ($624,594.41). Indeed, the agreed computations include a chart that lists tax in one column, and interest in a separate column. See majority op. p. 18. These computations reveal the parties’ intent not to include interest in the overpayment amount. It is obvious from the computations that the separate treatment of interest and tax was not an accident. Included in the parties’ agreed computations is the following information: Total interest due 1 $209,943.54 Interest paid . -144,947.89 Interest not paid for which the estate was given a deduction . 64,995.65 The estate is provided an interest deduction for interest on its estate tax deficiency in the agreed computations, but the overpayment computation does not take into account that interest. As a result, the Court’s opinion allows the estate to receive a deduction for the amount of interest due, $209,943.54, having paid interest of only $144,947.89, and the adopted opinion orders respondent to forgo offsetting the overpayment refund by the outstanding interest liability, which as a result will never be collected. Rather than inadvertence, the overpayment computation was the result of the parties’ adherence to a longstanding practice, followed by parties in many of our cases, to submit agreed computations of overpayments without interest. The adopted opinion ignores the parties’ agreed overpayment computations to reach an incorrect and unjust result. Indeed, the result reached by the adopted opinion is contrary to both statutory law and our Rules of Practice and Procedure (Rules). This is the first instance where this Court has asserted the jurisdiction to overturn the Commissioner’s offset of an overpayment pursuant to section 6402(a) to satisfy an interest assessment. This Court does not have this asserted jurisdiction, but if it did, the estate should be estopped from successfully avoiding an agreement reached under our Rules that the agreed computation conformed with the Court’s opinion in Estate of Smith v. Commissioner, T.C. Memo. 2001-303, affd. 54 Fed. Appx. 413 (5th Cir. 2002), and manipulating the judicial process by taking inconsistent positions to avoid the enforcement of its agreement. I. Basis of the Adopted Opinion The foundation of the adopted opinion is that sections 6402(a) and 6512(b)(4) do not apply to the facts in this case. Section 6402(a) allows the Commissioner to credit the amount of an overpayment against “any liability in respect of an internal revenue tax” and to refund only the balance of that liability. The adopted opinion would establish that there is a flaw in that statutory language and that the term “any liability” was not intended to include interest (whether paid or unpaid, whether assessed or unassessed) when the interest arises from a deficiency that is also the subject of an overpayment of tax. Section 6512(b)(4) provides: “The Tax Court shall have no jurisdiction under this subsection to restrain or review any credit or reduction made by the Secretary under section 6402.” Despite section 6512(b)(4), the adopted opinion would find that the Court may prevent the Commissioner from applying section 6402(a) to offset an unpaid interest liability against an overpayment determined by the Court when that interest liability arises in the same year before the Court. This is an issue of first impression and raises the question why this apparent error in the statute has never arisen before. Because some version of section 6402(a) has been part of the internal revenue statutory scheme since 1949,1 suggest that one answer to the question is that there is nó flaw in the statutory scheme. The statutory scheme is intended to permit the offset of overpayments with interest liabilities even arising in the same statutory year. The assumed error in the statute is not the result of a congressional misstep but rather judicial overreach. A construction of section 6402(a) that restricts interest offsets is inconsistent with the clear language of section 6512(b)(4), several other statutory provisions, and the general context of the Code dealing with Tax Court decisions. The statutory scheme operates smoothly if interest issues are addressed after decisions are entered by this Court regarding deficiencies and overpayments. The report’s only citation regarding the section 6402(a) analysis is Belloff v. Commissioner, 996 F.2d 607 (2d Cir. 1993), affg. T.C. Memo. 1991-350. Reliance on Belloff is misplaced. The Court of Appeals’s holding in Belloff is that this Court must respect assessments set off under section 6402(a) if they are procedurally valid assessments and “will not address the merits of legal issues underlying the assessment.” Id. at 617. Indeed, section 6512(b)(4) specifically denies us jurisdiction to restrain or review “any credit or reduction made by the Secretary under section 6402” once the assessment is made. On May 12, 1998, the interest assessment was made, and it was procedurally valid. Our only authority to review this interest assessment is under section 7481(c) and Rule 261, neither of which is the subject of the estate’s motion. The statutory scheme, contrary to the assumptions of the adopted opinion, is based on a chronology that places the resolution of unpaid interest on a deficiency after the entry of decision. “Unpaid” in this context means unaccounted for by the Commissioner or not treated as paid by the Commissioner. The period of limitations for the assessment of interest provides an initial example of the fallacy in the adopted opinion that sections 6402(a) and 6512(b) do not mean what they say. II. Statutory Conflicts Generated by the Adopted Opinion Section 6601(g) allows the Commissioner to assess and collect interest at any time during the period within which the tax to which such interest relates may be collected. See also sec. 301.6601~l(f)(l), Proced. & Admin. Regs. Generally, tax must be assessed pursuant to section 6501, but interest may be assessed anytime during the collection period of the tax. This period is usually at least 10 years. Sec. 6502(a)(1). Therefore, the statutory scheme provides a distinct and longer assessment period of limitations for interest, and bifurcates the tax and the interest in this context. In contrast, the adopted opinion accelerates interest assessment in the context of overpayment cases, and eliminates any possibility for later assessment of interest or the correction of a prior interest assessment. The plain language of the Code would require the Commissioner to determine interest liabilities after the determination and assessment of tax, including overpayments of tax, and offset those liabilities against the overpayment. The analysis of the adopted opinion is also inconsistent with the statutory provisions permitting the parties to net interest obligations where there is an overlapping period when interest and/or tax has been underpaid and overpaid for different tax liabilities. Sec. 6621(d). The adopted opinion would require that all such netting be finalized at the time the decision document is entered. In other situations in the Code where subsequent events could alter the impact of a Tax Court decision, the Code has a specific exception that permits revisiting the results of the decision because of the subsequent events; for example, the statutory treatment of net operating losses. Sec. 6511(d)(2)(B)(iii). Similar treatment is afforded for credit carrybacks. Sec. 6511(d)(4)(B). There is no corresponding provision regarding interest netting, although it is obvious that subsequent year payments and the result of other tax years can fundamentally change interest liabilities. This omission implies Congress did not intehd that this Court fix interest liabilities in its decisions. If Congress had intended that our overpayment decisions under section 6512(b) were to include final interest determinations, there would have been no need to include section 7481(c)(2)(B), and the language of section 7481(c)(3) would be inaccurate. Section 7481(c)(2)(B) specifically gives this Court jurisdiction to determine interest overpayments and underpayments after the Court has determined that there is an overpayment pursuant to section 6512(b). In addition, section 7481(c)(3) provides as follows: If the Tax Court determines under this subsection that the taxpayer has made an overpayment of interest or that the Secretary has made an underpayment of interest, then that determination shall be treated under section 6512(b)(1) as a determination of an overpayment of tax. An order of the Tax Court redetermining interest, when entered upon the records of the court, shall be reviewable in the same manner as a decision of the Tax Court. Section 7481(c)(2)(B) would be unnecessary if the adopted opinion were correct, and the reference to the term “overpayment of tax” in section 7481(c)(3) is inconsistent with the whole rationale of the report and points out the inherent ambiguity in the term “overpayment”. It is telling that Congress did not simply say “overpayment”. In adding interest disputes to this Court’s jurisdiction, Congress deemed it necessary to include section 6512(b) determinations and to provide that our interest determinations would be reviewable similar to our “overpayment of tax” determinations. This congressional action would have been unnecessary if overpayment decisions included interest liability. III. Reliance on Baumgardner and Barton Reliance upon Estate of Baumgardner v. Commissioner, 85 T.C. 445 (1985) and Barton v. Commissioner, 97 T.C. 548 (1991), is not only misplaced, but misleading. The rationales of Estate of Baumgardner and Barton are premised upon and relate to interest that has been paid or overpaid prior to the issuance of the notice of deficiency. Neither case suggests, or leads to the conclusion that, the Court’s overpayment jurisdiction contemplates assessed, but unpaid, interest. In an overpayment context, we have no authority or jurisdiction to order respondent to abate interest otherwise properly assessed. “Interest may be part of an overpayment if the interest accrued and was paid prior to the time the overpayment was claimed or arose. This is the type of interest we are considering in this case.” Estate of Baumgardner v. Commissioner, supra at 452 (emphasis added). “Our holding that the term ‘overpayment’ includes assessed and paid interest at the time of overpayment”. Id. at 460 (emphasis added). “Petitioners contend that they paid the increased interest under section 6621(c), and that the Court has jurisdiction to determine a taxpayer’s claim that there has been an overpayment of tax with respect to a year that is otherwise properly within the Court’s jurisdiction.” Barton v. Commissioner, supra at 550 (emphasis added). Neither of these cases, or the subsequent opinions following them, forced this Court to restrict the Commissioner’s authority to offset, which is explicitly provided in section 6402(a). IV. Assessed v. Unassessed Interest Under the concurring analysis, it is suggested that the adopted opinion should be limited to assessed interest. My view is that there is no support in the statutory language for such a distinction. In the present case, although interest was assessed, it was interest on the liability before our first Opinion was reversed and remanded ($410,000), not the correct amount based upon our revised opinion ($209,943.54, less the payment of $144,947.89, leaving an unpaid balance of $64,995.65). The prior interest assessment in this case does not reflect the actual interest liability due and owing. When it was assessed, this interest was beyond our jurisdiction because the case was in a deficiency situation. Our authority to address this unpaid assessment of interest is now limited to section 7481(c) and Rule 261, neither of which is before us. V. Rule 155 The present issue originates with this Court’s execution of the decision document in question. The opinion was based on a computation which the parties agreed was in conformity with this Court’s opinion after remand pursuant to Rule 155(a). The Court executed the decision relying on the parties’ agreement without reviewing the agreed computation. A review of the computation would have revealed that the overpayment amount was not reduced by interest liabilities but that an interest deduction was permitted for the anticipated payment of Federal interest of $64,995.65 on the estate tax deficiency. The estate represented to the Court that the computation submitted was in conformity with the Court’s opinion and the estate also represented that the interest in the amount of $64,995.65 was deductible, explicitly acknowledging that such interest would be paid by offset against the overpayment of tax shown in the agreed Rule 155 computation. The Court relied upon the estate’s representation in executing the decision without reviewing or challenging the agreed computation. The Court now interprets the estate’s position to be that the interest should not be paid because the overpayment was erroneously overstated. The estate has never explicitly argued this, but if the adopted opinion has correctly interpreted the estate’s position,2 the estate previously made a factual assertion on which the Court granted the deduction, that the interest payment would be made. If the adopted opinion’s legal analysis is correct, the estate’s change of course causes the Court to look foolish for relying on the estate’s prior representation. This Court should hold the estate to its stipulation under Rule 155(a). This is not a question of finality, rather one of consistency. The inconsistency created by this result threatens judicial integrity and the integrity of this Court’s Rules. The estate is rewarded for misleading the Court and avoiding the agreement reached pursuant to Rule 155(a). This Court has the authority to construe the Rules to deny this abuse of our process and to reach a just result. As Judge Laro explains, this Court has the authority of a court of law. We can implement that authority to fill in gaps in our Rules pursuant to Rule 1(a). We also have the inherent authority to enforce our own Rules to provide a just result. Rule 1(b); Goldsmith v. Bd. of Tax Appeals, 270 U.S. 117 (1926). This includes the authority to enforce agreements reached under our Rules. Willamette Indus., Inc. v. Commissioner, T.C. Memo. 1995-150. Implicit in the authority to enforce agreements reached under Rule 155(a) is the understanding that we enter decisions in conformity with the agreed computation. If the Court’s interpretation of the decision was not in conformity with the parties’ agreement and the Court’s opinion, we had no basis to enter the decision, and it should be vacated. The alternative is to enforce the parties’ agreed interpretation of the term “overpayment”. I believe we have exceeded our statutory authority today, but perhaps the most unfortunate aspect of today’s opinion is that Rule 155(a) now becomes a trap for the parties before our Court. In this case, the Court did not review the agreed Rule 155 computations submitted by the parties before executing the decision document. The adopted opinion determines that the Court is prevented from considering the agreed computations after a decision is entered, so the computation is ignored before and after the decision is executed. This effectively renders Rule 155(a) a nullity. The agreed computation becomes irrelevant to the outcome regarding the meaning and effect of the decision document. Given the ambiguity inherent in the term “overpayment”, we have created a procedural pitfall. For the stated reasons, I respectfully dissent. Haines, Wherry, Kroupa, and Holmes, JJ., agree with this dissenting opinion.  The amount of total interest due was determined in reference to the estate’s tax liability of $385,747.17.    Sec. 6402(a) was first added to the Internal Revenue Code of 1939 as sec. 3770(a)(4) by the Tax Administrative Amendments of 1949, ch. 517, sec. 9(a), 63 Stat. 669, and was moved to sec. 6402 by the Internal Revenue Code of 1954, ch. 736, 68 Stat. 730. It has been amended by the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, secs. 3505 and 3711(c)(1), 112 Stat. 771, 781; Balanced Budget Act of 1997, Pub. L. 105-33, sec. 5514(a)(1), 111 Stat. 620; Personal Responsibility and Work Opportunity Reconciliation Act of 1996, Pub. L. 104-193, sec. 110(1)(7)(A), 110 Stat. 2173; Deficit Reduction Act of 1984, Pub. L. 98-369, sec. 2653(b)(2), 98 Stat. 1155; Omnibus Budget Reconciliation Act of 1981, Pub. L. 97-35, sec. 2331(c)(1), 95 Stat. 861; and Tax Reform Act of 1976, Pub. L. 94-455, sec. 1906(b)(13)(A), and (K), 90 Stat. 1834.    There are no briefs on this issue, and the estate’s motion is unclear at best.