Court Opinion

ID: 4331578
Source: CourtListenerOpinion
Date Created: 2018-11-14 00:14:35.82683+00
Date Added: 2024-06-11T14:47:37.936682
License: Public Domain

110 T.C. No. 3

                UNITED STATES TAX COURT

     JAMES G. & KATHERINE BOUREKIS, Petitioners v.
      COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 5894-97.                    Filed January 13, 1998.

     R determined a deficiency for the taxable year
1981. The notice of deficiency did not include any
additions to tax or penalties; however, the notice did
include a statement that interest would accrue on the
deficiency. In a timely petition, Ps attempt to place
in dispute penalties and interest. Ps did not make a
written request with the IRS to abate interest;
however, they assert that they made an informal request
and that the notice of deficiency should be considered
a "final determination" not to abate interest under
sec. 6404(g). R filed a motion to dismiss for lack of
jurisdiction and to strike with respect to penalties
and interest.

     Held: We lack jurisdiction to consider additions
to tax or penalties which were not determined in the
notice of deficiency.
                               - 2 -

          Held further: We lack jurisdiction under sec.
     6404(g) since, under these circumstances, the notice of
     deficiency issued to Ps does not constitute a notice of
     the Secretary's final determination not to abate
     interest.

     Robert E. Kovacevich, for petitioners.

     Michelle K. Loesch and Pamela Wilson Fuller, for respondent.

                              OPINION

     COHEN, Chief Judge:   This case was assigned to Chief Special

Trial Judge Peter J. Panuthos, pursuant to the provisions of

section 7443A(b)(4).1   The Court agrees with and adopts the

opinion of the Special Trial Judge, which is set forth below.

                OPINION OF THE SPECIAL TRIAL JUDGE

     PANUTHOS, Chief Special Trial Judge:     This matter is before

the Court on respondent's Motion to Dismiss for Lack of

Jurisdiction and to Strike With Respect to Penalties and

Interest.   As explained in greater detail below, we shall grant

respondent's motion.

     1
        Unless otherwise indicated, section references are to the
Internal Revenue Code as amended. Rule references are to the Tax
Court Rules of Practice and Procedure.
                               - 3 -

Background

     James G. and Katherine Bourekis (petitioners) claimed a loss

on their 1981 Federal income tax return related to their

investment in PCS Ltd. Partnership (PCS or the partnership).

Following an examination of the partnership, respondent proposed

to disallow a substantial portion of petitioners' claimed loss.

As a consequence of these developments, petitioners (1) agreed to

extend the period of limitations for their 1981 tax year and (2)

agreed to be bound by the Court's redetermination of the PCS loss

issue in Kantor v. Commissioner, T.C. Memo. 1990-380, affd. in

part and revd. in part 998 F.2d 1514 (9th Cir. 1993).

     In June 1996, petitioners received a letter from Revenue

Agent Janet Kenley, along with a copy of the opinion issued by

the Court of Appeals for the Ninth Circuit in Kantor, a Form 4549

(an examination report), and a Form 870 (a closing agreement).

In the letter, Revenue Agent Kenley advised petitioners that a

final decision had been entered in the Kantor case sustaining

respondent's determination disallowing the PCS loss.    The Form

4549, which contained a computation of petitioners' 1981 tax

liability including the disallowance of petitioners' distributive

share of the PCS loss, indicated that petitioners are liable for

a deficiency in tax in the amount of $4,472, as well as statutory

interest on the deficiency computed through June 30, 1996, in the

amount of $15,174.   Revenue Agent Kenley's letter, which also
                               - 4 -

stated that no penalties were being asserted, requested that

petitioners execute the Form 870 and pay the resulting tax and

interest due for 1981.   It appears that petitioners declined to

execute the Form 870.

     On October 7, 1996, petitioners submitted a check to

respondent in the amount of $4,472 to be treated as an advance

payment of any tax deficiency thereafter found to be due for

1981.   Petitioners intended to terminate the running of statutory

interest on any deficiency for 1981.

     On October 24, 1996, respondent issued a notice of

deficiency to petitioners determining a deficiency in their

Federal income tax for 1981 in the amount of $4,472.   The notice

of deficiency included a statement that interest will accrue on

the deficiency from the due date of the return until the date the

deficiency is paid.   The notice of deficiency did not include a

determination that petitioners were liable for any additions to

tax or penalties.

     Petitioners invoked the Court's jurisdiction by filing a

timely petition for redetermination.   At the time the petition

was filed, petitioners resided in Spokane, Washington.

     Paragraph 3 of the petition states that petitioners are

contesting the deficiency in the amount of $4,472, as well as

"penalties" under sections 6601 and 6653(a)(1) and (2) and

interest.   Paragraph 4.2 includes an allegation that "The
                                - 5 -

Commissioner erred in asserting that the Petitioners were liable

for any interest accruing since date of filing of return as the

interest abatement principles of 26 USC 6404(e) apply."     In

connection with the foregoing, paragraph 5.6 of the petition

includes allegations that there was an unreasonable delay between

the filing of petitioners' 1981 tax return and the issuance of

the notice of deficiency.   The petition also includes an

allegation that the notice of deficiency was issued beyond the

applicable period of limitations.

     After filing an answer to the petition, respondent filed a

Motion to Dismiss for Lack of Jurisdiction and to Strike With

Respect to Penalties and Interest.      Respondent contends that the

Court lacks jurisdiction to consider petitioners' liability for

any additions to tax or penalties in this case because respondent

did not determine that petitioners are liable for any such items.

Respondent further contends that the Court lacks jurisdiction to

consider petitioners' liability for statutory interest because

respondent did not issue a final determination not to abate

interest.

     Petitioners filed an objection to respondent's motion to

dismiss.    Petitioners do not dispute respondent's assertion that

respondent did not determine additions to tax or penalties in

this case.   On the other hand, petitioners maintain that the

Court has jurisdiction to consider the question of whether
                                - 6 -

interest should be abated for 1981.     Petitioners assert that they

requested that respondent abate interest during settlement

conferences with respondent and that the Court should treat the

notice of deficiency as respondent's "final determination" not to

abate interest.

     This matter was called for hearing at the Court's motions

session in Washington, D.C.    Counsel for respondent appeared at

the hearing and presented argument in support of the pending

motion.   Further, respondent stated that, at the time of the

hearing, petitioners were not precluded from filing a request for

abatement of interest.    Although petitioners did not appear at

the hearing, they did file a written statement with the Court

pursuant to Rule 50(c).    Petitioners' Rule 50(c) statement

includes allegations that the Court should treat the notice of

deficiency in this case as respondent's final determination to

deny petitioners' request to abate interest in light of

respondent's final determination denying a request for abatement

of interest filed by T. John Tsalaky, petitioner James Bourekis'

brother-in-law and partner in PCS. (T. John and Magdaline B.

Tsalaky filed a petition for review of respondent's denial of

their request to abate interest.    That matter is currently

pending before the Court at docket No. 7012-97.)    Petitioners

contend that, under the circumstances, it would be "futile,
                                 - 7 -

costly, and administratively inconvenient" for them to file a

request for abatement of interest.

Discussion

     The Tax Court is a court of limited jurisdiction, and we may

exercise our jurisdiction only to the extent authorized by

Congress.    Naftel v. Commissioner, 85 T.C. 527, 529 (1985).

Respondent's motion to dismiss and to strike concerns the Court's

jurisdiction over additions to tax and penalties on the one hand

and statutory interest on the other.     For clarity, we address the

two matters separately.

     1.     Jurisdiction--Additions to Tax and Penalties

     The Court's jurisdiction to redetermine a deficiency in tax

depends upon the issuance of a valid notice of deficiency and a

timely filed petition.    Rule 13(a) and (c); Monge v.

Commissioner, 93 T.C. 22, 27 (1989); Normac, Inc. v.

Commissioner, 90 T.C. 142, 147 (1988).     Further, the Court's

jurisdiction generally is limited to a redetermination of the

deficiency determined in the notice of deficiency or an increased

deficiency, additional amounts, or additions to tax asserted by

the Commissioner at or before a hearing or rehearing.      See secs.

6213(a), 6214(a).

     Petitioners filed a timely petition contesting respondent's

deficiency determination, as well as additions to tax and

penalties for 1981.    However, there is no dispute in this case
                                 - 8 -

that respondent did not determine, and does not assert, that

petitioners are liable for additions to tax or penalties for

1981.     Consequently, we shall grant respondent's motion to

dismiss for lack of jurisdiction and to strike insofar as

respondent moves to dismiss and strike allegations in the

petition contesting additions to tax and penalties.

     2.     Jurisdiction--Statutory Interest

     Respondent also moves to dismiss for lack of jurisdiction

and to strike allegations in the petition contesting statutory

interest.     The Court's jurisdiction to redetermine a tax

deficiency generally does not extend to statutory interest

imposed under section 6601.     See 508 Clinton St. Corp. v.

Commissioner, 89 T.C. 352, 354-355 (1987); LTV Corp. v.

Commissioner, 64 T.C. 589, 597 (1975); see also Asciutto v.

Commissioner, T.C. Memo. 1992-564, affd. 26 F.3d 108 (9th Cir.

1994).     Outside of the Court's normal deficiency jurisdiction,

however, section 6404(g) authorizes the Court to review the

Commissioner's denial of a taxpayer's request to abate an

assessment of statutory interest.     See White v. Commissioner, 109

T.C. 96 (1997); Banat v. Commissioner, 109 T.C. 92 (1997).

Petitioners rely upon section 6404(g) as the basis for the

Court's jurisdiction in this case.

     Before proceeding with our analysis, we briefly review the

Commissioner's authority to abate assessments of interest as set
                               - 9 -

forth in section 6404(d) and (e).   Section 6404(d) authorizes the

Commissioner to abate an assessment of interest where the

underlying underpayment is attributable in whole or in part to a

mathematical error if the return was prepared by an officer or

employee of the Internal Revenue Service acting in his official

capacity to provide assistance to taxpayers in the preparation of

income tax returns.   Further, section 6404(e) authorizes the

Commissioner to abate an assessment of interest that is computed

based upon any deficiency or payment of tax that is attributable

in whole or in part to any unreasonable error or delay by an

officer or employee of the Internal Revenue Service in performing

a ministerial or managerial act.

     Section 6404(g), recently codified under section 302(a) of

the Taxpayer Bill of Rights 2, Pub. L. 104-168, 110 Stat. 1452,

1457 (1996), provides in pertinent part as follows:

          (g) Review of Denial of Request for Abatement of
     Interest.--

               (1) In General.--The Tax Court shall
          have jurisdiction over any action brought by
          a taxpayer who meets the requirements
          referred to in section 7430(c)(4)(A)(ii) to
          determine whether the Secretary's failure to
          abate interest under this section was an
          abuse of discretion, and may order an
          abatement, if such action is brought within
          180 days after the date of the mailing of the
          Secretary's final determination not to abate
          such interest.

     Petitioners oppose the portion of respondent's motion

seeking to dismiss and to strike the allegations in the petition
                              - 10 -

contesting statutory interest, on the ground that the Court

should treat the notice of deficiency as respondent's notice of

final determination not to abate interest under section 6404(g).

We disagree.

     A notice of deficiency under section 6213(a) and a notice of

final determination not to abate interest under section 6404(g)

share similarities in function and purpose.   Specifically, like a

notice of deficiency, a notice of final determination not to

abate interest is a prerequisite to the Court's jurisdiction and

serves as a taxpayer's "ticket" to the Tax Court.   In addition,

the mailing of both notices starts the running of separate

statutorily defined periods for filing a petition for review with

the Court.

     It is well established that the Court lacks jurisdiction

over a petition that is filed with respect to a letter from the

Commissioner to the taxpayer that was not intended to constitute

a notice of deficiency.   See Abrams v. Commissioner, 84 T.C.

1308, 1310 (1985), affd. 814 F.2d 1356 (9th Cir. 1987); Lerer v.

Commissioner, 52 T.C. 358, 362-366 (1969); Schoenfeld v.

Commissioner, T.C. Memo. 1993-303 n.2.   In applying this

principle in the present case, it is evident that respondent did

not intend for the notice of deficiency to serve as a final

determination not to abate interest under section 6404(g).

Petitioners admit that they did not file a formal request for
                              - 11 -

abatement of interest with respondent.   See Rev. Proc. 87-42,

1987-2 C.B. 589 (requests for abatement of an assessment of

interest should be made on Form 843 (Claim for Refund and Request

for Abatement)).   In this regard, neither Revenue Agent Kenley's

June 1996 letter, the examination report that accompanied that

letter, nor the notice of deficiency that petitioners received in

this case indicates that respondent has given any consideration

to whether it would be appropriate to abate an assessment of

interest in this case.   Under the circumstances, we decline to

treat the notice of deficiency as a notice of final determination

not to abate interest under section 6404(g).

     Petitioners' argument that the notice of final determination

not to abate interest that respondent issued to T. John and

Magdaline B. Tsalaky provides a basis for the Court to exercise

jurisdiction in this case is likewise misplaced.   At best,

petitioners' argument is a request that we assume jurisdiction

under section 6404(g) based upon equitable considerations.

However, as a court of limited jurisdiction, we may not apply

equitable principles to assume jurisdiction over a matter not

authorized by statute.   See Odend'hal v. Commissioner, 95 T.C.

617, 624 (1990), and cases cited therein.   Absent a notice of

final determination not to abate interest on the deficiency in

their own tax, petitioners' attempt to invoke the Court's

jurisdiction under section 6404(g) must fail, and we so hold.
                             - 12 -

Accordingly, we shall grant respondent's motion to dismiss for

lack of jurisdiction and to strike insofar as the motion concerns

allegations in the petition respecting statutory interest.

     To reflect the foregoing,

                                     An order will be issued

                                 granting respondent's Motion

                                 to Dismiss for Lack of

                                 Jurisdiction and to Strike With

                                 Respect to Penalties and Interest.