Opinion
14886-08 19940-09
02-18-2022
DANIEL E. LARKIN & CHRISTINE L. LARKIN, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent DANIEL E. LARKIN & CHRISTINE LARKIN, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Joseph H. Gale Judge
These cases, concerning deficiencies in petitioners' Federal income tax for the taxable years 2003 through 2006, have been assigned to the undersigned for disposition pursuant to the mandate of the U.S. Court of Appeals for the District of Columbia Circuit issued September 21, 2020. Because respondent acknowledged certain errors on appeal, the Court of Appeals affirmed our previous decisions in these cases in part, vacated them in part, and remanded both cases for entry of decisions reflecting the proper computation of the deficiencies, additions to tax, and penalties due for the years at issue, after correcting the errors that respondent acknowledged. See Larkin v. Commissioner, No. 17-1252, 2020 WL 2301462, at *1, *3 (D.C. Cir. Apr. 21, 2020).
Pursuant to the Court's Orders served April 20, 2021, and May 14, 2021, respondent timely filed a revised Computation for Entry of Decision under Rule 155in each of these cases on July 16, 2021. Petitioners did not timely file computations of their own, nor did they timely file any objection to respondent's revised computations. However, petitioners filed a Motion for Extension of Time on September 27, 2021, seeking additional time to respond to respondent's revised computations. By Order served October 6, 2021, we advised the parties that we were unable to reconcile the revised deficiency and penalty that respondent proposed for 2004, based on the adjustments set forth in his revised computation in the case at docket No. 14886-08, with the amounts we determined in our Order and Decision entered in that case on September 14, 2017. We accordingly directed respondent to supplement or further revise that computation to address the discrepancies we identified. In addition, solely because of the possibility of error in respondent's revised computation, we granted petitioners' Motion for Extension of Time and directed them to file objections to respondent's revised computation, as thereafter supplemented, in the case at docket No. 14886-08, and to his revised computation in the case at docket No. 19940-09.
All Rule references are to the Tax Court Rules of Practice and Procedure, and all statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times.
Respondent thereafter filed a First Supplement to Computation for Entry of Decision (Supplement) in the case at docket No. 14886-08 on November 3, 2021. Respondent explains in his Supplement that his revised computation was drafted to show the total tax liability and the total section 6662(a) penalty due from petitioners for 2004 (rather than to show adjustments to the deficiency and penalty set forth in our previous Order and Decision), after accounting for correction of the errors he had acknowledged before the Court of Appeals. Respondent further explains that petitioners' correct total tax liability for 2004 is $99,399, consisting of $53,961 of tax assessed on June 18, 2007, pursuant to a "defaulted AUR notice" (the precise nature of which he does not explain), plus the $63,619 deficiency determined in our previous Order and Decision (which was assessed while petitioners' appeal was pending since they did not post an appeal bond, see § 7485(a)), less a downward adjustment of ($18,181). As for the section 6662(a) penalty for 2004, respondent's position, in short, is that petitioners are liable for a total penalty of 20% of their total corrected tax liability of $99,399.
The assessment thus predated the notice of deficiency underlying the case at docket No. 14886-08, a copy of which is attached to the Petition in that case and is dated April 24, 2008.
One of the errors that respondent acknowledged on appeal was the inclusion of an excess $10,792 in the amount of the section 6662(a) penalty we previously determined for 2004. See Larkin, 2020 WL 2301462, at *3. Respondent's Supplement does not clearly explain the origin of this error, but it includes a Form 3623, Statement of Account, for 2004 showing that he assessed a section 6662(a) penalty of $10,792 on June 18, 2007, which is 20% (rounded down to the nearest dollar) of the $53,961 of tax assessed on the same date. This already-assessed $10,792 penalty was included again in the total amount of the section 6662(a) penalty set forth in respondent's original Rule 155 computation and our previous Order and Decision in the case at docket No. 14886-08. The full amount of the penalty determined in our previous Order and Decision was evidently assessed while petitioners' appeal was pending, pursuant to section 7485(a), such that the same $10,792 penalty was assessed against petitioners twice.
Respondent's view appears to be that our revised decision should reflect a deficiency and penalty equal to petitioners' total liability for 2004 (instead of simply revising the amounts of the deficiency and penalty we previously determined) because correction of the errors that respondent acknowledged on appeal will require only partial abatement of the amounts already assessed. In line with that view, respondent represents that he will abate any tax and penalty already assessed for 2004 in excess of the total corrected amounts that he now contends are due. But respondent's view seems to conflict with his original Computation for Entry of Decision filed on July 18, 2017, and supplemented on September 7, 2017 (Original Computation), as well as our opinion in Heasley v. Commissioner, 45 T.C. 448 (1966). In Heasley, we held that because section 6211(a) excludes from the definition of a "deficiency" any amount that was shown as tax on a taxpayer's return (or treated as such) or that was "previously assessed . . . as a deficiency," a prior unabated assessment for the year at issue (which we assumed was lawfully made) had to be subtracted in computing the taxpayer's deficiency under Rule 50 (the predecessor to Rule 155)). Id. at 457-58. Consistent with Heasley, respondent's Original Computation, which we incorporated in our previous Order and Decision in the case at docket No. 14886-08, took the position that the tax assessed in 2007, before the notice of deficiency was issued, did not constitute part of the deficiency that was at issue for 2004. Respondent does not adequately explain why he now believes that the 2007 assessment should be treated as part of the deficiency to be determined for 2004 in our revised decision.
With respect to the other years at issue, respondent's computations include Forms 3623, Statement of Account, that appear to indicate that he has assessed the amounts set forth in our previous decisions in these cases pursuant to section 7485(a), that those amounts represent petitioners' total tax liabilities for the years at issue, and that he intends to abate those assessments as necessary to correct the errors he acknowledged on appeal. For those years, respondent proposes that our revised decisions find deficiencies, additions to tax, and penalties equal to the amounts already assessed, less downward adjustments necessary to correct the errors respondent acknowledged on appeal.
In response to respondent's position, petitioners contend that our revised decisions cannot properly find deficiencies equal to petitioners' total liabilities for each year at issue, as respondent proposes, if respondent has made assessments for such years that have not been abated. In petitioners' view, the exclusion of any amounts "previously assessed . . . as a deficiency" from the definition of a deficiency in section 6211(a) dictates that we cannot now find a deficiency for any year at issue unless and until respondent abates any prior deficiency assessments. Petitioners therefore request that, before entering revised decisions, we direct respondent to prove that there are no assessments outstanding for any of the years at issue. Petitioners state that they otherwise do not object to our entering decisions in conformity with respondent's revised computation, as supplemented, in the case at docket No. 14886-08 and his revised computation in the case at docket No. 19940-09.
Petitioners' view, however, appears to be inconsistent with section 7486 (which provides for abatement of amounts assessed pursuant to section 7485(a) that are disallowed on appeal), as interpreted by Estate of Smith v. Commissioner, 115 T.C. 342 (2000). We explained in Estate of Smith that section 7486 generally does not require the Commissioner to abate an amount assessed in accordance with section 7485(a) unless and until the Tax Court, on remand, enters a revised decision finding a reduced deficiency. See id. at 345-47.
To aid the Court in resolving the conflict between the parties' positions and in determining the extent to which the remaining issues in these cases are controlled by Heasley and Estate of Smith, we will direct each party to file a memorandum addressing the following issues:
(1) The nature of the "defaulted AUR notice" that gave rise to the June 18, 2007, assessments for the 2004 taxable year. We note in this regard that respondent's Supplement would seem to suggest that this notice related in some way to the determination of a deficiency, whereas respondent represented before the Court of Appeals that the 2007 assessments resulted from "adjustments that did not require a notice of deficiency." See Final Answering Brief for the Commissioner at 55, Larkin v. Commissioner, No. 17-1252 (D.C. Cir. Aug. 12, 2019).
(2) Whether, in accordance with section 6211(a) and our opinion in Heasley, 45 T.C. 448, the amounts assessed in 2007 with respect to the 2004 taxable year ($53,961 of tax and the corresponding section 6662(a) penalty of $10,792) should be excluded from the amounts of the deficiency and penalty to be determined for 2004 in our revised decision in the case at docket No. 14886-08.
(3) Whether and how section 7486, as interpreted by Estate of Smith, 115 T.C. 342, applies under the circumstances presented in these cases.
(4) If section 7486 applies, whether respondent's revised computation, as supplemented, in the case at docket No. 14886-08 and respondent's revised
computation in the case at docket No. 19940-09 include adequate representations concerning the amounts that respondent has assessed for each of the years at issue, and the amounts that respondent intends to abate to correct the errors he has acknowledged, to support the entry of revised decisions in these cases.
If respondent concludes that further supplementation or revision of his computations is appropriate in light of his analysis of the foregoing issues, he shall file any appropriate supplement or further revised computation concurrently with his memorandum.
The foregoing considered, it is
ORDERED that, on or before March 18, 2022, each party shall file a memorandum as described herein. It is further
ORDERED that, on or before March 18, 2022, respondent shall file any supplement to his revised computations, or any further revised computation, that he concludes is appropriate in light of the analysis set forth in his memorandum.