Court Opinion

ID: 4474556
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:11:00.676785+00
Date Added: 2024-06-11T14:53:52.405601
License: Public Domain

Thornton, J., concurring: The majority opinion holds that this Court’s previous decision as to the amount of the estate tax overpayment necessarily incorporated the estate’s liability for certain underpayment interest that had already been assessed (and had not been abated). I agree with this holding, as confined to its facts. Inasmuch as the facts of this case do not present any issue as to the treatment of unassessed underpayment interest in the calculation of an overpayment, I do not believe that the majority opinion should be construed as resolving that issue. Background Certain procedural facts, not discussed in the majority opinion, are important for understanding how the underpayment interest in question had come to be assessed before this Court entered its decision as to the overpayment. On June 4, 1997, we issued our original Opinion in the instant case. See Estate of Smith v. Commissioner, 108 T.C. 412 (1997).1 Pursuant to that Opinion, on February 18, 1998, we entered our original decision determining an estate tax deficiency of $564,429.87. On March 31, 1998, the estate paid $646,325.76, comprising a portion of the estate tax deficiency and an estimate of underpayment interest.2 On April 10, 1998, the estate filed a timely notice of appeal with the Court of Appeals for the Fifth Circuit. The estate did not, however, file bond, as generally required to stay assessment or collection of the deficiency during appellate review. See sec. 7485(a). Consequently, on May 12, 1998, respondent assessed an estate tax deficiency of $564,429.87 plus underpayment interest of $410,848.76. Respondent gave the estate credit for the March 31, 1998, payment of $646,325.76 and also gave the estate credit for a 1992 income tax overpayment of $63,052. After taking these credits into account, the estate had a balance due of $265,900.87. Collection of this balance due, however, was administratively stayed during the pendency of the estate’s appeal. On December 15, 1999, the Court of Appeals for the Fifth Circuit reversed, vacated, and remanded our original decision for further proceedings with respect to the estate tax deficiency. See Estate of Smith v. Commissioner, 198 F.3d 515 (1999). On April 3, 2000, the estate filed a motion to restrain collection, abate assessment, and refund amounts collected by respondent. In Estate of Smith v. Commissioner, 115 T.C. 342 (2000), we denied the estate’s motion. On November 21, 2001, pursuant to the remand from the Court of Appeals for the Fifth Circuit, we issued another opinion in this case, again sustaining respondent’s determination of an estate tax deficiency.3 Estate of Smith v. Commissioner, T.C. Memo. 2001-303. On January 18, 2002, respondent filed respondent’s computation for entry of decision along with a proposed decision. The parties acknowledged that respondent’s computation was in accordance with our last-mentioned opinion and stipulated that we should enter a decision “that there is an overpayment in estate tax in the amount of $238,847.24, which amount was paid after the mailing of the notice of deficiency”. On January 24, 2002, we entered a decision that there was a $238,847.24 overpayment of estate tax paid after the mailing of the notice of deficiency. On May 6, 2002, respondent abated $180,564.04 of the previously assessed underpayment interest and $238,847.24 of the previously assessed estate tax. On May 13, 2002, respondent issued to the estate a refund check of $210,467.35, consisting of a $153,510.41 refund for overpayment of estate tax and $56,956.94 in interest on that refunded amount. Respondent computed the $153,510.41 portion of the refund by subtracting $85,336.83 from the $238,847.24 overpayment amount in our final decision.4  On November 7, 2002, the Court of Appeals for the Fifth Circuit affirmed our second decision in Estate of Smith and entered judgment against the estate. Estate of Smith v. Commissioner, 54 Fed. Appx. 413 (5th Cir. 2002). The estate did not file a timely petition for certiorari with the U.S. Supreme Court, and our second decision thereafter became final. See sec. 7481(a)(2)(A) (providing that Tax Court decisions become final when petition for certiorari not filed on time); Sup. Ct. R. 13 (providing that petition for certiorari is timely if filed within 90 days of entry of judgment by a U.S. Court of Appeals). In summary, to make a long story short: when this Court entered its decision as to the amount of the overpayment in question, the estate had a liability for assessed and unpaid underpayment interest. In computing the estate’s overpayment, respondent omitted this liability. Respondent now argues that he is entitled to reduce the estate’s overpayment to compensate for this omission. The majority opinion rejects respondent’s argument and grants the estate’s motion to enforce our overpayment determination. Inclusion of Assessed Interest in Overpayment Determination Insofar as it addresses the treatment of assessed underpayment interest, the majority opinion is a logical extension of Estate of Baumgardner v. Commissioner, 85 T.C. 445 (1985), which we have followed consistently for nearly 20 years. Estate of Baumgardner held that “overpayment”, within the meaning of section 6512(b)(1), includes assessed and paid interest. In Estate of Baumgardner, this Court concluded that because the interest on an estate tax deficiency had been assessed, we could exercise jurisdiction and decide the correct amount of interest to arrive at the correct amount of net overpayment. Although Estate of Baumgardner, unlike the instant case, involved interest that was paid prior to the overpayment determination, I do not believe that distinction warrants a different result. It follows from Estate of Baumgardner and its progeny that an overpayment should also reflect assessed but unpaid underpayment interest. It would make no sense to award an overpayment that includes assessed and paid interest while ignoring interest that has been assessed but remains unpaid.5  More fundamentally, the majority opinion is a natural application of the widely accepted definition of an overpayment as “any payment in excess of that which is properly due.” Jones v. Liberty Glass Co., 332 U.S. 524, 531 (1947). There would seem to be no question that assessed underpayment interest is “properly due”. There is no question in this case about the other half of the equation; i.e., the amount of the taxpayer’s payment. Thus, a straightforward application of the Supreme Court’s definition of overpayment clearly supports the result in the majority opinion. I agree with the majority opinion that sections 6402(a) and 6512(b)(4) do not demand a different result. Section 6402(a) authorizes the Secretary to credit an overpayment against “any liability”. I agree with the majority opinion that once we decide that there is an overpayment of tax, properly taking into account assessed underpayment interest, there is no longer any separate liability for the assessed underpayment interest against which the overpayment might be credited; rather, any liability for the assessed underpayment interest must be subsumed in the overpayment, if our final decision is to be respected and given effect. Moreover, in enforcing our decision of an overpayment under section 6512(b)(2), we are not restraining or reviewing any credit or reduction made by respondent under section 6402. Instead, we are simply enforcing our decision that the estate has made an overpayment of tax. Because underpayment interest that is properly due must be considered in determining the amount of an overpayment, it follows that we have jurisdiction to order a refund of the overpayment consistent with our decision and not reduced by underpayment interest that has already been factored into our decision. Inasmuch as the underpayment interest in question had already been computed and assessed when we entered our overpayment decision, there is no compelling practical reason why the underpayment interest should not have been included in the overpayment calculation. Indeed, in computing the estate’s estate tax liability, respondent had allowed the underpayment interest as a section 2053 estate tax deduction. To be consistent, the overpayment computation should include consideration of this assessed underpayment interest, as the majority opinion holds. Confining the Majority Opinion Holding to Its Facts Properly confined to its procedural and factual context, then, and notwithstanding some rather open-ended language in the majority opinion, its holding is that the assessed underpayment interest in question should have been taken into account in calculating the amount of the estate’s overpayment. I do not believe the majority opinion should be construed as deciding issues beyond those actually presented by the facts of this case. In particular, I do not believe the majority opinion should be construed as deciding the proper treatment of unassessed interest in the calculation of an overpayment. The resolution of that more difficult issue should await a case that squarely presents it. Gerber, Laro, and Gale, JJ., agree with this concurring opinion.   Pursuant to our original Opinion, the parties submitted separate computations of the estate tax deficiency under Rule 155. On Jan. 12, 1998, we issued a Supplemental Opinion resolving a disagreement between the parties with respect to their computations. See Estate of Smith v. Commissioner, 110 T.C. 12 (1998).    Respondent’s Appeals Office estimated the amount of interest on the then “underpayment” of estate tax. In conjunction with this estimate, respondent allowed a deduction from the gross estate for estimated interest which would be due on the deficiency, determined as of a hypothetical payment date of Mar. 31, 1998.    Ultimately, the parties agreed that the estate tax liability pursuant to the mandate was $385,747.17. Respondent’s computations submitted under Rule 155 considered this amount in calculating the estate’s overpayment.   According to respondent, the $85,336.83 was the amount of assessed but unpaid underpayment interest. On Oct. 6, 2003, respondent made an additional abatement of $20,341.20 in underpayment interest and refunded $30,108.47 to the estate.    For example, assume a simple hypothetical: The taxpayer makes payments of $100,000, has a tax liability of $80,000 (exclusive of interest), and owes assessed underpayment interest of $30,000. I believe this taxpayer has a $10,000 underpayment, rather than a $20,000 overpayment (as would be indicated if the assessed interest were omitted from the calculation).