Estate of Baumgardner v. Comm'r of Internal Revenue, Docket No. 7435-81.

Decision Date11 September 1985
Docket NumberDocket No. 7435-81.
Citation85 T.C. 445,85 T.C. No. 25
PartiesESTATE OF RICHARD B. BAUMGARDNER, JUNE BAUMGARDNER GELBART (FORMERLY JUNE E. BAUMGARDNER), PERSONAL REPRESENTATIVE, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
CourtU.S. Tax Court

OPINION TEXT STARTS HERE

P paid estate tax and interest thereon in installments, pursuant to sec. 6l66A, I.R.C. 1954. The Commissioner determined a deficiency and P filed a petition with the Tax Court. The parties subsequently agreed that there was no deficiency and that P had in fact overpaid its estate tax. The Commissioner contends that the Tax Court, in its determination of an overpayment, has no jurisdiction to consider P's interest payments. HELD, under sec. 6512(b), I.R.C. 1954, the Tax Court has jurisdiction to determine an overpayment of interest as part of its jurisdiction to determine an overpayment of tax on which the interest was paid. Capital Building & Loan Association v. Commissioner, 23 B.T.A. 848 (1931), and Steubenville Bridge Co. v. Commissioner, 11 T.C. 789 (1948), overruled to the extent that they are inconsistent. JOE R. WOLFE, for the petitioner.

KEITH H. JOHNSON, for the respondent.

OPINION

GERBER, JUDGE:

* Respondent, in a January 9, 1981, statutory notice, determined a deficiency in petitioner's Federal estate tax in the amount of $186,705. The parties now agree that petitioner is entitled to an overpayment, but disagree about the composition and amount of the overpayment. After resolution of other issues by the parties, the following issues1 remain for our consideration: (1) Whether an overpayment of estate tax, within the meaning of section 6512(b), 2 may include the overpayment of amounts originally paid as tax and interest by means of section 6l66A installment payments; and (2) whether respondent properly allocated petitioner's section 6l66A installment payments between principal and interest.

The central dispute in this case involves whether interest may be considered a part of an ‘overpayment‘ and whether the Tax Court has jurisdiction to review the amount of said interest.

With limited exceptions (mostly statutory), this Court has declined to consider questions concerning interest in connection with deficiencies and overpayments. Petitioner has requested that we consider questions of interest in the limited situations where, as here, interest has been overpaid on section 6l66A installment payments. Unless there is a clear jurisdictional prohibition or inability, it would be most unjust to require petitioner to seek an overpayment of the tax in this forum and an overpayment of the interest in another. After carefully considering petitioner's and respondent's arguments, we conclude that we possess jurisdiction to determine the amount of interest paid on estate tax installments as part of an overpayment of estate tax.

FACTS

The parties have submitted this case fully stipulated and their stipulation of facts and exhibits are incorporated by this reference. Richard B. Baumgardner died on October 16, 1976. A Federal estate tax return was filed with the Atlanta Service Center on January 17, 1978, within an extended filing period granted by the Internal Revenue Service (Service). With its return, the estate filed a notice of its election to pay the estate tax in installments pursuant to section 6166A.3 The Service sent detailed bills to the estate specifically reflecting the Service's allocations of the required payments into tax (principal) and interest. The estate, without exception or qualification and pursuant to the billings, made the payments to the Service. The following schedule reflects the amount and date of the payments and the Service's allocation between principal and interest:

+---------------------------------------------------+
                ¦             ¦            ¦Allocation  ¦Allocation ¦
                +-------------+------------+------------+-----------¦
                ¦Date         ¦Payment     ¦to principal¦to interest¦
                +-------------+------------+------------+-----------¦
                ¦July 20, 1977¦$450,000.00 ¦$450,000.00 ¦0          ¦
                +-------------+------------+------------+-----------¦
                ¦July 17, 1978¦107,693.56  ¦69,563.98   ¦$38,129.58 ¦
                +-------------+------------+------------+-----------¦
                ¦July 13, 1979¦100,272.26  ¦69,434.00   ¦30,838.26  ¦
                +-------------+------------+------------+-----------¦
                ¦July 17, 1980¦108,273.13  ¦69,434.00   ¦38,839.13  ¦
                +-------------+------------+------------+-----------¦
                ¦July 15, 1981¦114,446.36  ¦69,434.00   ¦45,012.36  ¦
                +-------------+------------+------------+-----------¦
                ¦Feb. 12, 1982¦305,669.02  ¦305,669.02  ¦0          ¦
                +-------------+------------+------------+-----------¦
                ¦June 1, 1982 ¦22,008.17   ¦0           ¦22,008.17  ¦
                +-------------+------------+------------+-----------¦
                ¦Total        ¦1,208,362.50¦1,033,535.00¦174,827.50 ¦
                +---------------------------------------------------+
                

The Federal estate tax return, received by the Service on January 17, 1978, reported $1,033,535 in estate tax. In a January 9, 1981, statutory notice of deficiency respondent determined a deficiency in Federal estate tax in the amount of $186,705. The estate, by its personal representative (June Baumgardner Gelbart, widow of decedent), filed a timely petition with this Court. At the time of filing the petition the personal representative's residence and the estate's address were both in the State of Florida. After the case had been petitioned to this Court, the parties settled all of the issues set forth in the notice of deficiency. The settlement resulted in the elimination of the entire amount determined as a deficiency and further reduced the amount of estate tax due to $938,215.07, which amount was $95,319.93 less than the amount originally returned by the estate.

Petitioner maintains that the overpayment should be $141,224.63, which takes into account interest overpaid on the section 6l66A installments. Respondent maintains that the overpayment should be limited to $95,319.93, the difference between the amount of tax returned ($1,033,535) and the amount of tax the parties agree is due ($938,215.07).

LEGAL ANALYSIS
‘OVERPAYMENT‘ WITHIN THE MEANING OF SECTION 6512(b)

Although the parties disagree about the amounts and remedies available, they agree that there is an overpayment of estate tax and interest on that estate tax. Respondent argues that this Court lacks jurisdiction to decide issues concerning interest. His argument suggests that petitioner, if not barred by expiration of the period of limitation on filing a claim, must bring a separate action in a district court or the Claims Court in order to obtain a refund of overpaid interest. Petitioner contends that where the interest is a part of the overpayment this Court may hold that interest has been overpaid. Where, as here, an estate makes installment payments pursuant to section 6l66A and those payments are broken into tax (principal) and interest and paid prior to our determination, an exceptional situation is presented.

Our jurisdiction is limited by statute (section 7442) and is confined to a determination of the amount of a deficiency or overpayment for the particular tax year in which the Commissioner determines a deficiency and in which the taxpayer petitions for a review. Commissioner v. Gooch Co., 320 U.S. 418, 420 (1943). More specifically, our jurisdiction to determine an overpayment of estate tax is rooted in section 6512(b). The pertinent parts of section 6512(b) provide:

(b) Overpayment Determined by Tax Court.

(1) Jurisdiction to determine.—Except as provided by paragraph (2) * * * if the Tax Court finds that there is no deficiency and further finds that the taxpayer has made an overpayment * * * of estate tax in respect of the taxable estate of the same decedent, * * * the Tax Court shall have jurisdiction to determine the amount of such overpayment, and such amount shall, when the decision of the Tax Court has become final, be credited or refunded to the taxpayer.

(2) Limit on amount of credit or refund.—No such credit or refund shall be allowed or made of any portion of the tax unless the Tax Court determines as part of its decision that such portion was paid,

(A) after the mailing of the notice of deficiency,

(B) within the period which would be applicable under section 6511(b)(2), * * * if on the date of the mailing of the notice of deficiency a claim had been filed (whether or not filed) stating the grounds upon which the Tax Court finds that there is an overpayment, * * *

Section 6512(b) provides that the Tax Court has jurisdiction over ‘an overpayment * * * of estate tax * * *.‘ The Tax Court has jurisdiction to determine the amount of such overpayment and such amount shall be credited or refunded to the taxpayer when the decision of the Tax Court becomes final. The Tax Court has jurisdiction to determine an overpayment under section 6512(b)(2)(A) if petitioner pays the amount in question after the mailing of the notice of deficiency. This Court also has jurisdiction to determine an overpayment under section 6512(b)(2)(C) if petitioner has in fact filed a claim for refund of tax paid. Finally, this Court has jurisdiction to determine an overpayment under section 6512(b)(2)(B) if petitioner could have timely filed a claim on the mailing date of the deficiency notice even though petitioner has not in fact filed a claim for refund for tax paid. While the Tax Court has jurisdiction to determine an overpayment, the term ‘overpayment‘ is not defined. We must determine whether the use of ‘estate tax‘ in section 6512(b) limits our jurisdiction to overpayments of tax alone or whether a broader meaning is intended to permit consideration of overpayments of interest.

The absence of a statutory definition of ‘overpayment‘ leads us to search other sources. Section 6401 contains a description of certain specific items that are statutorily treated as overpayments.4 These classifications do not provide the basis for a definition. The Supreme Court, in...

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