Court Opinion

ID: 4486620
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:34:34.443905+00
Date Added: 2024-06-11T15:03:49.275034
License: Public Domain

OPINION SWIFT, Judge:*  Respondent determined additions to petitioner’s Federal income taxes with respect to 1980 through 1983, as follows: Additions to tax Year 1980 1981 1982 1983 Sec. 6653(a)1 $804 Sec. 6653(a)(1) Sec. 6653(a)(2) Sec. 6661 $528 783 582 ** ** ** $3,904 2,909 **50 percent of the interest due on the portion of the underpayment attributable to negligence. After concessions, the only issue for decision is petitioner’s liability for the additions to tax under section 6661 with respect to 1982 and 1983. The relevant facts were fully stipulated and are so found. Petitioner, a medical physician, resided in Hanover Park, Illinois, at the time he filed his petition in this case. With respect to each of the years 1980, 1981, 1982, and 1983, petitioner did not file timely Federal income tax returns, petitioner did not have any Federal income taxes withheld from his income, and petitioner did not make any estimated tax payments. After a criminal investigation by respondent, on April 2, 1985, petitioner was indicted by a Federal grand jury for willfully failing to file Federal income tax returns for 1980 through 1983, in violation of section 7203. After trial, on July 26, 1985, petitioner pled guilty to each of the charges. Pursuant to petitioner’s guilty plea and conviction, on September 27, 1985, petitioner was sentenced by the U.S. District Court for the Northern District of Illinois to 1 year in prison, and petitioner was ordered to file Federal income tax returns for 1980 through 1983, and to perform 1,000 hours of community service. In compliance with the order of the Federal District Court that petitioner file tax returns, in September of 1985 petitioner filed Federal income tax returns for 1980 through 1983, showing taxes due and owing of $16,079, $10,579, $15,617, and $11,636, respectively. Petitioner appealed his conviction for violation of section 7203, and on April 3, 1986, the U.S. Court of Appeals for the Seventh Circuit affirmed petitioner’s conviction in an unpublished order. On March 3, 1987, petitioner paid the taxes reported due on his late-filed 1982 and 1983 Federal income tax returns. On September 6, 1988, respondent, among other additions to tax, determined that petitioner was liable for additions to tax under section 6661 with respect to 1982 and 1983.2  The amount of section 6661 additions to tax, assessed after October 21, 1986, is equal to 25 percent of the amount of any underpayments attributable to substantial understatements. Section 8002 of the Omnibus Budget Reconciliation Act of 1986, Pub. L. 99-509, 100 Stat. 1874, 1951; see Pallottini v. Commissioner, 90 T.C. 498, 501-502 (1988). In respondent’s September 6, 1988, notices of deficiency to petitioner for 1982 and 1983, respondent did not, and respondent does not now, dispute the amount of Federal income tax liability shown on petitioner’s 1982 and 1983 tax returns as they were filed late by petitioner in September of 1985. Petitioner, generally, interprets the addition to tax for a substantial understatement under section 66613 as applying only where taxpayers show substantial understatements on tax returns actually filed and regardless of when the taxpayers filed the tax returns. Petitioner therefore concludes that since his Federal income tax liabilities were correctly shown on his 1982 and 1983 tax returns filed in September of 1985, he is not subject to the section 6661 additions to tax. Respondent argues that a taxpayer’s failure to file a return for a particular year constitutes a statement of zero tax liability that can trigger the section 6661 substantial understatement addition to tax if the taxpayer in fact has a tax liability. Respondent also argues that tax liabilities shown on amended returns or on delinquent returns filed after respondent has contacted the taxpayer are to be disregarded in determining whether taxpayers made substantial understatements for a particular year. Respondent’s interpretation of section 6661 is expressly supported by Treasury regulations. Section 1.6661-2(d)(2), Income Tax Regs., provides in pertinent part, as follows: Tax shown on return. For purposes of section 6661, the amount of tax shown on the return for the taxable year is determined * * * without regard to any amount of additional tax shown on a return (including an amended return, so-called) filed after the taxpayer is first contacted by [respondent] concerning the tax liability of the taxpayer for the taxable year. * * * If no return was filed for the taxable year or if the return * * * shows no tax due, the amount of tax shown on the return is considered to be zero. * * * Respondent’s interpretation of section 6661 (and the validity of the above regulation) is also supported by numerous opinions of this Court in which we have upheld the imposition of additions to tax under section 6661 where taxpayers have filed no tax returns, and where taxpayers have filed amended or late tax returns only after first being contacted by respondent. See Estate of McClanahan v. Commissioner, 95 T.C. 98 (1990); Woods v. Commissioner, 91 T.C. 88 (1988) (Court reviewed); Eckel v. Commissioner, _F.2d_(10th Cir. 1991), affg. T.C. Memo. 1990-174; Wallmeyer v. Commissioner, T.C. Memo 1990-166; Egner v. Commissioner, T.C. Memo. 1989-247, affd. without published opinion _F.2d _(10th Cir. 1991); Fulks v. Commissioner, T.C. Memo. 1989-190; Guthrie v. Commissioner, T.C. Memo. 1989-168; Mosher v. Commissioner, T.C. Memo. 1989-157, affd. without published opinion 927 F.2d 599 (5th Cir. 1991); Schroeder v. Commissioner, T.C. Memo. 1989-110; Garcia v. Commissioner, T.C. Memo. 1989-106. In our published opinion in Estate of McClanahan v. Commissioner, supra at 103-104, involving facts very similar to those before us in the instant case, we commented at some length concerning the validity of the applicable portion of the regulations under section 6661 as follows: Section 6661 was enacted in 1982 to, inter alia, enhance taxpayer compliance and deter taxpayer participation in the “audit lottery” whereby taxpayers take questionable positions on their tax returns in the hope that they will not be audited. S. Rept. 97-494, at 272 (1982). Petitioners assert that section 6661 was intended to apply to “wrong positions taken on filed returns that create substantial tax deficiencies” and not to “late-filed” returns. We do not agree with petitioners’ position. The compliance purpose of section 6661 is to provide an incentive against taking highly questionable positions which go undetected through either failure to file or failure to provide adequate disclosure on a filed return. In our opinion, a taxpayer who fails to timely file a return until after he is contacted by [respondent] is as much a participant in the audit lottery as a taxpayer who submits a timely return containing highly questionable positions. Our reading of section 6661 and its legislative history convinces us that imposing section 6661 additions to tax against petitioners is not beyond the scope of the statute. Prior to being contacted by the special agent, petitioners had not filed tax returns for the years [in issue]. Consequently, prior to contact, the amount of tax shown on the returns is zero. Sec. 1.6661-2(d)(2), Income Tax Regs. The amount of tax shown on the returns filed subsequent to contact by [respondent] is therefore “additional” to the zero amount prior to contact and is plainly within the intendment of section 1.6661-2(d)(2), Income Tax Regs. Accordingly, we hold that section 6661 is applicable where a delinquent return is filed after the taxpayer is first contacted by a representative of [respondent]. In our Court-reviewed opinion in Woods v. Commissioner, supra at 95 n.ll, we stated that the above “regulation is not plainly inconsistent with the statute.” More recently, in affirming on this issue our opinion in Mosher v. Commissioner, supra, the U.S. Court of Appeals for the Fifth Circuit applied the above regulations to a “no return” situation and expressly relied on the regulations under section 6661, as follows: If no valid return is filed for a given taxable year, the amount of tax considered to be shown on that return is zero. 26 C.F.R. 1.6661-2(d)(2). As a result * * * —that is [the taxpayer’s] failure to file a valid return in 1982 — we agree with the [Tax] court’s conclusion that [respondent] correctly assessed further additions to tax for substantial understatement. [Mosher v. Commissioner, supra, slip op. at 9.4] We note that the section 6661 substantial understatement addition to tax (and with it the issue in this case) has become obsolete with respect to tax returns due after 1989. See new secs. 6662(a), 6662(b)(2), and 6664(b), as enacted by the Omnibus Budget Reconciliation Act of 1989, Pub. L. 101-239, sec. 7721, 103 Stat. 2106, 2395, 2398. In light of the numerous and consistent court opinions interpreting and/or applying the addition to tax under section 6661 to situations in which taxpayers filed either no returns, or amended, or late returns after first being contacted by respondent, as well as the obsolescence of this issue to returns filed after 1989, we believe application of the well-established principle of stare decisis is particularly apropos to our resolution of this issue in the instant case. With regard to this principle, the Supreme Court recently stated- Stare decisis is the preferred course because it promotes the evenhanded, predictable, and consistent development of legal principles, fosters reliance on judicial decisions, and contributes to the actual and perceived integrity of the judicial process. * * * [Payne v. Tennessee, 501 U.S_(June 27, 1991) (slip op. at 34).] and— the important doctrine of stare decisis [is] the means by which we ensure that the law will not merely change erratically, but will develop in a principled and intelligible fashion. * * * While stare decisis is not an inexorable command, the careful observer will discern that any detours from the straight path of stare decisis in our past have occurred for articulable reasons, and only when the Court has felt obliged “to bring its opinions into agreement with experience and with facts newly ascertained.” Burnet v. Coronado Oil & Gas Co., 285 U.S. 393, 412 (1932) (Brandeis, J., dissenting). Our history does not impose any rigid formula to constrain the Court in the disposition of cases. Rather, its lesson is that every successful proponent of overruling precedent has borne the heavy burden of persuading the Court that * * * the values served by stare decisis yield in favor of a greater objective. * * * [Vasquez v. Hillery, 474 U.S. 254, 265-266 (1986). Emphasis in the original.] This Court has explained the principle of stare decisis as follows: the doctrine of stare decisis, which arose from a necessity to preserve the harmony and stability of the law, requires adherence by courts to a principle of law settled by a series of decisions. 21 C.J.S., Courts, secs. 187, 188; 10 Mertens, Law of Federal Income Taxation, sec. 60.21 (1964 rev.). * * * [Jefferson v. Commissioner, 50 T.C. 963, 967 (1968). Emphasis in the original.] Also, various Federal Courts of Appeal, in addressing Federal tax issues and appeals from this Court, have recognized the viability of the principle of stare decisis. In affirming this Court, the U.S. Court of Appeals for the District of Columbia Circuit made the following statement that is pertinent to our consideration of the principle of stare decisis in the instant case: This principle assumes increased importance when the antecedent case involves construction of a statute. See IB Moore’s Federal Practice, par. 0.402[5] * * * This principle encourages uniformity in the application of legal standards, enhances predictability in decision making, promotes the interests of judicial efficiency and economy, and evinces respect for the efforts of earlier courts that have struggled to educe the appropriate legal norms. [Brewster v. Commissioner, 607 F.2d 1369, 1373-1374 (D.C. Cir. 1979), affg. on the relevant issue 67 T.C. 352 (1976).] In Cottrell v. Commissioner, 628 F.2d 1127, 1131 (8th Cir. 1980), revg. on a disclaimer issue under section 2511, 72 T.C. 489 (1979), the Eighth Circuit explained further the particular applicability of stare decisis to questions of statutory interpretation, as follows: The doctrine of stare decisis, weighty in any context, is especially so in matters of statutory construction. For in such cases Congress may cure any error made by the courts. Until it does, the bar and the public are justified in expecting the courts, except in the most egregious cases, neither to depart from previous interpretations of statutes, nor to give them a grudging application. * * * [Emphasis in the original; fn. ref. omitted.] We believe that the principle of stare decisis should be adhered to in resolving the question of statutory interpretation before us in this case. Further, and apart from stare decisis, we disagree with petitioner’s interpretation of the language of section 6661, and we continue to believe that the regulations under 6661 are a reasonable interpretation of the statutory intent. The language of section 6661 is silent and, in our opinion, obviously unclear and lacking in guidance as to how the section 6661 addition to tax is to apply to “no-return,” to “amended return,” and to “late-return” situations. The relevant statutory language nowhere contains the words “filed,” “amended,” or “late return.” The operative verb in section 6661(2)(A)(ii) is “shown.” Where a taxpayer does not file a tax return for a year, the taxpayer has not “shown” a tax on any return. Further, where a taxpayer files an amended or a late tax return after being contacted by respondent with regard to his or her tax liability for a year, the regulations reasonably treat the taxpayer as not having “shown” a tax liability on the return, since it was respondent’s contact, not the taxpayer’s voluntary act, that may be presumed to have precipitated the filing of the amended or late return and that indirectly caused a tax liability to be “shown” on the return. Treasury regulations enjoy a presumption of validity, and they are to be sustained unless “unreasonable and plainly inconsistent with the revenue statutes.” Commissioner v. South Texas Lumber Co., 333 U.S. 496, 501 (1948). We believe the regulations under section 6661 that are at issue in this case are reasonable. We note further that when Congress in 1989 enacted revisions to the various additions-to-tax provisions of the Code, the statutory language utilized for the new accuracy-related additions to tax expressly limited their application to situations where a tax return has been filed. See sec. 6664(b). Omnibus Budget Reconciliation Act of 1989, Pub. L. 101-239, sec. 7721, 103 Stat. 2106, 2395. In doing so, Congress expressly acknowledged that the language of section 6661 that is in issue in this case was unclear, as follows: the bill provides that an accuracy-related or fraud penalty is to be imposed only if a return has been filed. This is intended to improve the coordination between the accuracy-related penalties and the failure to file penalties. Under present law, the courts have dealt with a number of difficult interpretative issues on the relationship between the penalty for failure to file a tax return and the accuracy-related penalties. The committee determined that it would clarify the law if the penalty for failure to file were entirely separate and distinct from the accuracy-related penalties. * * * [H. Rept. 101-247, at 1393-1394 (1989). Emphasis added.] See also H. Rept. 101-386 (Conf.), at 651-655 (1989). If the statutory language in question is clear, why did Congress deem it necessary in 1989 to “clarify” that language, and why were the courts addressing “difficult, interpretative issues” thereunder? Petitioner relies on Commissioner v. Acker, 361 U.S. 87 (1959). In that case, however, a different statutory scheme involving estimated taxes was at issue, and we believe it is not controlling. Under the above circumstances, we conclude that the regulations under section 6661 at issue in this case constitute a reasonable interpretation of the statutory language of section 6661. On the basis of stare decisis and on the basis of the reasonableness of the applicable regulations under section 6661, we hold for respondent. Decision will be entered for the respondent. Reviewed by the Court. Nims, Parker, Korner, Shields, Hamblen, Cohen, Clapp, Jacobs, Gerber, Wright, Parr, Wells, Ruwe, and COLVIN, JJ., agree with the majority opinion. Whalen, J., dissents.  By order of the Chief Judge, this case was reassigned to Judge Stephen J. Swift for disposition.   Unless otherwise indicated, all section references are to the Internal Revenue Code of 1954 as in effect for the years in issue.   Sec. 6661 was added to the Code by sec. 323(a) of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, 96 Stat. 324, 613, effective with respect to tax returns due after 1982.   SEC. 6661. SUBSTANTIAL UNDERSTATEMENT OF LIABILITY. SEC. 6661(a). Addition to Tax — If there is a substantial understatement of income tax for any taxable year, there shall be added to the tax an amount equal to * * * [25] percent of the amount of any underpayment attributable to such understatement. (b) Definition and Special Rule.— ‡ ‡ ‡ sfe ‡ ‡ ‡ (2) Understatement.— (A) In general. — For purposes of paragraph (1), the term “Understatement” means the excess of— (i) the amount of the tax required to be shown on the return for the taxable year, over (ii) the amount of the tax imposed which is shown on the return.    With regard to unpublished opinions of the Fifth Circuit, rule 47.5.3, Fed. Local Ct. Rules, 5th Cir., provides as follows: 47.5.3 Unpublished Opinions. Unpublished opinions are precedent. However, because every opinion believed to have precedential value is published, an unpublished. opinion should normally be cited only when it (1) establishes the law of the case, (2) is relied upon as a basis for res judicata or collateral estoppel, or (3) involves related facts. If an unpublished opinion is cited, a copy shall be attached to each copy of the brief. By order entered this date, the Clerk of the Tax Court is directed to serve the parties with a copy of the unpublished opinion of the Court of Appeals for the Fifth Circuit in Mosher v. Commissioner, 927 F.2d 599 (5th Cir. 1991), affg. T.C. Memo. 1989-157.