Court Opinion

ID: 4474558
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:11:00.689354+00
Date Added: 2024-06-11T14:53:52.410455
License: Public Domain

Holmes, J., dissenting: I fully agree with the detailed analysis of Judge Goeke’s lucid dissent. I write separately only to provide a brief introduction to what has become— unnecessarily in my view — a very complicated statutory analysis by focusing on what I see as three fundamental mistakes that the majority makes today. The first lies supra p. 20 of the Court’s opinion, where it states that what we are deciding is “whether the amount of an ‘overpayment’ must include consideration of any underpayment interest owed by a taxpayer at the time of the overpayment calculation.” (Emphasis added.) What follows is the statutory interpretation that Judge Goeke analyzes. However, I don’t think this is the right question. What we should be reviewing here is neither a term used in the Code nor a regulation, but only a term used in an agreed computation under Rule 155. Most cases that we partly decide in a taxpayer’s favor require computing exactly how much is owed by whom for the tax years in question. This computation is nothing more than a complicated math problem, and one we leave for the parties themselves to figure out. “If the parties are in agreement as to the amount of the deficiency or overpayment to be entered as the decision * * *, then they, or either of them, shall file promptly with the Court * * * a computation showing the amount of the deficiency, liability, or overpayment and that there is no disagreement that the figures shown are in accordance with the findings and conclusions of the Court.” Rule 155(a), Tax Court Rules of Practice and Procedure. That’s what the estate and the Commissioner did here. Counsel for the estate signed the agreed decision documents based on the agreed computations, aware that the line item marked “overpayment” did not reflect unpaid interest. This is not surprising: Rule 155 governs all post-opinion computations (including computations of deficiency), and over time the IRS has developed an almost-unbroken custom of using Rule 155 to reach agreement on the amount of tax (rather than tax plus interest) owed. In fact, if interest computations are shown, they are to be labeled “for information only,” Internal Revenue Manual 8.17.3.2.3 Applying Credits and Payments (2001), which is exactly what the parties did here. See Form 3623, Statement of Account Sched. 3. We then typically review any resulting disputes about the amount of tax owed under Rule 155(b) and disputes about the interest computations under Rule 261. In this case, the estate, through counsel, had the opportunity to review the statement of account that the Commissioner prepared. This document clearly shows that interest and tax were to be considered and treated separately, that “overpayment” meant overpayment of tax only and “interest” included only interest assessed after the Court’s initial deficiency determination. The estate’s counsel agreed to this terminology and should not now be allowed to prevail on a claim that the terms as used in this agreement have different meanings. This Court typically treats closing agreements, stipulations of fact, and settlements as contracts, holding parties to their terms. Johnston v. Commissioner, 122 T.C. 124 (2004) (stipulations); Zaentz v. Commissioner, 90 T.C. 753 (1988) (closing agreements); Stamm Intl. Corp. v. Commissioner, 90 T.C. 315 (1988) (settlements). I see no reason to deviate from that practice in this case and would hold that agreements under Rule 155 should be just as binding.1  The majority doesn’t dispute that the parties’ computation under Rule 155 should be binding on them, but it then chooses to resolve the dispute over its meaning quite unlike other courts would. When a legitimate question is raised about the meaning of an ambiguous term in a contract, courts will usually rely on evidence of what the parties intended. “If * * * a court refuses to consider evidence of particular meanings attached by the contracting parties, the court may discover a contract that neither party intended.” Murray, Murray on Contracts 1-5, sec. 86 (2001). That is just what has happened here, with the majority redefining the term “overpayment” in a way that changes the parties’ agreement. It answers the question — “Does the amount of an ‘overpayment’ include any underpayment interest owed by a taxpayer at the time of the overpayment calculation?” with a one-size-fits-all answer of “yes.” The right answer should be “It depends” — with the answer being decided on the particular facts of the case at hand. And this points to the second shortcoming in the majority’s opinion — its focus on section 6512. That section is only a jurisdictional statute, and we construed the word “overpayment” in that section, via section 6601(e)’s general definition of “tax”, to mean that we had jurisdiction over disputes about the overpayment of a tax plus interest instead of tax alone. Barton v. Commissioner, 97 T.C. 548, 552 (1991); Estate of Baumgardner v. Commissioner, 85 T.C. 445, 451-452 (1985). But this is not a case that turns on jurisdiction — everyone agrees we have jurisdiction in an appropriate case to order the payment of an overpayment and any interest due on it. It turns instead on how we have chosen to exercise our jurisdiction; in cases like this one, we have chosen to do so according to rule. When we exercise our jurisdiction under section 6512, we do it by deciding what was the “overpayment determined by the Court * * Rule 260. Rule 260, consistently with Rule 155, should lead us to the agreed decision of the parties, and their intended meaning of its terms. I recognize that this means that parties could define “overpayment” as an overpayment of tax in the context of settling cases, while construing “overpayment” in section 6512 to mean we have jurisdiction over both overpayments of tax and interest. But that sort of context-specific interpretation is recognized throughout the Code. Section 6601(e) itself begins with “Except as otherwise provided in this title”, and this phrase is a recognition by Congress that a complex tax code patched together at many different times for many different purposes should not be interpreted using something akin to a universal search-and-replace function.2 Glossing is almost always necessary to decide the likeliest meaning of the Code, and the majority creates a gloss of its own by construing sections 6512(b) and 6402(a) to not apply to the very tax liabilities at issue in an overpayment case. The third and final issue I wish to highlight is the majority’s seeming indifference to the effects of today’s decision on a large number of third parties. As Judge Goeke points out, today’s definition of “overpayment” threatens to bollix up the procedure for interest calculations by forcing parties to calculate interest before submitting their computations under Rule 155. Resolution of especially complex cases where interest netting applies will become even harder to manage with any kind of reasonable speed. Parties now engaged in Rule 155 computations will have to be very careful that today’s opinion is reflected in their documents. And we can expect litigants who have already settled their cases in the last 120 days (for Rule 260 motions) and the last year (for Rule 261 motions) to return to us seeking the same windfall that the Smith Estate gathers up today. Because there is no reason to let this happen, I respectfully dissent. Haines, Goeke, Wherry, and Kroupa, JJ., agree with this dissenting opinion.  As Judge Goeke convincingly demonstrates, the parties so obviously agreed what the term meant that respondent allowed the estate a deduction for the accrued but unpaid interest that was shown in the computation.    The majority likewise relies on sec. 301.6611-l(b), Proced. & Admin. Regs., as additional support for its conclusion that “overpayment” must mean “the amount by which payments exceed the tax, including any underpayment interest.” See majority op. p. 25. But that regulation defines overpayment for the purpose of computing interest, not drafting settlement documents.