Lincir v. Comm'r of Internal Revenue

Decision Date27 September 2000
Docket NumberNo. 22934–89.,22934–89.
Citation115 T.C. No. 22,115 T.C. 293
PartiesTom I. LINCIR and Diane C. Lincir, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent 1*
CourtU.S. Tax Court

OPINION TEXT STARTS HERE

Taxpayers petitioned for redetermination of deficiencies arising from disallowed loss deductions from tax shelters. Following decision against taxpayers, 1999 WL 167693, parties disputed terms of agreed decision relating to interest-netting rules for overpayments and underpayments. The Tax Court, Dawson, J., held that: (1) Court lacked jurisdiction in deficiency proceeding to determine impact of interest-netting rule, and (2) without computed statutory interest, computation of addition to tax for negligence was not ripe for consideration.

Decision for IRS.

Judgment affirmed, 32 Fed. Appx. 278.

Michael D. Savage, for petitioners.

Gary D. Kallevang, for respondent.

SUPPLEMENTAL OPINION

DAWSON, J.

Ps are liable for deficiencies in and additions to their Federal income tax liabilities for the taxable years 1978 through 1982, including interest at the increased rate prescribed under sec. 6621(c), I.R.C., and the “interest sensitive” addition to tax under sec. 6653(a)(2), I.R.C., for 1981 and 1982. The parties agree that Ps are entitled to refunds for overpayments for the taxable years 1984 and 1985 that would partially offset the deficiencies for the earlier years. Ps contend that the Court's decision for the taxable years 1978 through 1982 should state that “The penalties due under section 6621(c) and section 6653(a)(2) are to be determined after the application of the interest-netting rules of section 6621(d).”

Held: The Court lacks jurisdiction in this deficiency proceeding to determine the impact, if any, of the so-called interest-netting rule under sec. 6621(d), I.R.C., on the computation of the sec. 6621(c), I.R.C., interest. Held, further, Because R has not computed the amount of statutory interest payable under sec. 6601, I.R.C., the question of the impact of sec. 6621(d), I.R.C., if any, on the computation of the addition to tax under sec. 6653(a)(2), I.R.C., is not ripe for consideration.

This matter is before the Court for resolution of the parties' dispute over the terms of the decision to be entered in this case pursuant to Rule 155. 1 Although the parties generally agree as to the decision to be entered in this case, petitioners contend that it should include the following statement:

The penalties due under section 6621(c) and section 6653(a)(2) are to be determined after the application of the interest-netting rules of section 6621(d).

Respondent opposes the inclusion of the preceding statement in the decision. As explained in detail below, the decision will not include the disputed statement.

Background

During the taxable years 1978 through 1982, Tom I. Lincir and Diane C. Lincir (petitioners) reported tax losses related to their participation in tax shelter programs known as the “Arbitrage Carry” gold trading program promoted by Futures Trading, Inc. (the FTI program) and the Treasury bill option and stock forward transactions promoted by Merit Securities, Inc. (the Merit Securities program). In 1984 and 1985, petitioners reported taxable gains from offsetting straddle transactions carried out in connection with the Merit Securities program.

Respondent determined deficiencies in and additions to petitioners' Federal income tax liabilities for the taxable years 1978 through 1982 based upon the disallowance of losses that petitioners claimed with respect to the FTI and Merit Securities programs. Respondent also determined that petitioners are liable for interest computed at the increased rate prescribed in section 6621(c) (section 6621(c) interest) for each of the years in issue. Respondent also determined that petitioners are liable for additions to tax under section 6653(a)(2) for 1981 and 1982.

Petitioners filed a timely petition contesting respondent's determinations. They subsequently agreed that adjustments related to their participation in the Merit Securities program would be redetermined in the same manner as certain test cases. In the test cases, reported as Leema Enterprises, Inc. v. Commissioner, T.C. Memo.1999–18, the Court disallowed all losses related to the Merit Securities program on the alternative grounds that the program lacked economic substance and Merit Securities program participants failed to meet the statutory requirements for deducting the losses in dispute because their primary objective was to obtain tax benefits. Petitioners entered into a second stipulation in which they agreed that all transactions related to the FTI program would be ignored for Federal income tax purposes.

Although petitioners made one partial payment of approximately $270,000 in 1990 against their liability for the taxable years 1978 through 1982, the parties agree that petitioners have underpayments for those taxable years on which interest continues to accrue. The parties also agree that petitioners are entitled to refunds for outstanding overpayments for the taxable years 1984 and 1985 attributable to the gains that petitioners reported in those years on transactions associated with the Merit Securities program.2

After the disposition of the substantive tax shelter adjustments described above, the Court conducted a trial to redetermine petitioners' liability for additions to tax and section 6621(c) interest. In Lincir v. Commissioner, T.C. Memo.1999–98, the Court sustained respondent's determinations that petitioners are liable for various additions to tax (including section 6653(a)(2) for 1981 and 1982) and section 6621(c) interest for the years in issue. We subsequently ordered the parties to submit an agreed decision or separate computations for entry of decision pursuant to Rule 155.

Although the parties generally agree with respect to the terms of the Court's decision, petitioners contend that the decision should state that the computations of the addition to tax under section 6653(a)(2) and section 6621(c) interest are subject to (and will be reduced by) the new interest-netting rule contained in section 6621(d). Respondent counters: (1) The question of the applicability of section 6621(d) in respect of the computation of section 6621(c) interest is not ripe for consideration in this deficiency proceeding; and (2) section 6621(d) does not affect the computation of the addition to tax under section 6653(a)(2).

Discussion

Section 6621(d), enacted as part of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub.L. 105–206, sec. 3301, 112 Stat. 685, 741 provides:

To the extent that, for any period, interest is payable under subchapter A and allowable under subchapter B on equivalent underpayments and overpayments by the same taxpayer of tax imposed by this title, the net rate of interest under this section on such amounts shall be zero for such period.

In sum, section 6621(d) provides that for any period during which a taxpayer is simultaneously liable for an underpayment of tax and entitled to a refund for an overpayment of tax in an equivalent amount, the net rate of interest on such amount shall be zero.

Section 6621(c) Interest

Respondent argues that the question whether the interest-netting rule affects the computation of section 6621(c) interest is not ripe for consideration in this deficiency proceeding. Citing the principle that the Court generally lacks jurisdiction in a deficiency proceeding to redetermine interest, respondent argues that the parties have not computed the amount of statutory interest due from petitioners, and thus the parties are unable to compute the amount of increased interest due under section 6621(c). Respondent contends that the legal question of the effect of section 6621(d) is a matter that may only be raised within the context of a supplemental proceeding brought pursuant to section 7481(c).3

Petitioners assert that, because the Court has jurisdiction to redetermine their liability for section 6621(c) interest, the Court also has jurisdiction to determine how such increased interest is computed. Petitioners further assert that a plain reading of the applicable provisions leads to the conclusion that the amounts that they owe pursuant to section 6621(c), an item that is tied directly to the rate of interest under section 6621, will be substantially reduced when computed pursuant to the interest-netting rule.

The Tax Court is a court of limited jurisdiction, and we may exercise our jurisdiction only to the extent authorized by Congress. See sec. 7442; Judge v. Commissioner, 88 T.C. 1175, 1180–1181, 1987 WL 49322 (1987); Naftel v. Commissioner, 85 T.C. 527, 529, 1985 WL 15396 (1985). It is well settled that this Court's jurisdiction to redetermine a deficiency in tax generally does not extend to statutory interest imposed under section 6601. See Bax v. Commissioner, 13 F.3d 54, 56–57 (2d Cir.1993), affg. an Order of this Court; LTV Corp. v. Commissioner, 64 T.C. 589, 597, 1975 WL 3091 (1975); see also Asciutto v. Commissioner, T.C. Memo.1992–564, affd. 26 F.3d 108 (9th Cir.1994). In particular, section 6601(e)(1) provides that interest prescribed by section 6601 is treated as tax “except [for purposes of] subchapter B of chapter 63, relating to deficiency procedures”. Because the effect of such language is to exclude interest from the definition of a “tax” for purposes of section 6211(a), it follows that such interest does not constitute a deficiency within the meaning of that provision. See Pen Coal Corp. v. Commissioner, 107 T.C. 249, 255, 1996 WL 638171 (1996); White v. Commissioner, 95 T.C. 209, 213, 1990 WL 125093 (1990). For this reason, the Court's decision documents normally will not include a reference to a taxpayer's liability for statutory interest. See Thomas v. Commissioner, T.C. Memo.1994–291. Consistent with section 6601(e), the Court does have jurisdiction to redetermine statutory interest where a taxpayer has properly invoked the...

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    ...overpayment. This jurisdiction under section 6512 also permits us to redetermine a taxpayer's statutory interest. Lincir v. Commissioner, 115 T.C. 293, 298 (2000), affd. 32 Fed. Appx. 278 (9th Cir. 2002); see Zfass v. Commissioner, 118 F.3d 184, 192 n.9 (4th Cir. 1997), affg. T.C. Memo. 12.......
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