Perkins v. Comm'r of Internal Revenue

• Decision Date: 03 April 1989
• Docket Number: Docket No. 14968-87
• Citation: 92 T.C. No. 42,92 T.C. 749
• Parties: JAMES W. PERKINS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

92 T.C. 749

92 T.C. No. 42

JAMES W. PERKINS, Petitioner

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 14968-87

United States Tax Court

Filed April 3, 1989

R issued a notice of deficiency to P on December 19, 1983, for the taxable year 1980. On December 30, 1983, P forwarded a check to R with the designation that the remittance be credited to accrued interest on the 1980 deficiency. On his 1983 return, P deducted the amount paid as a payment of interest and R disallowed the deduction. In response to a notice of deficiency issued for the taxable year 1983, P filed a petition alleging entitlement to the interest deduction claimed on his 1983 return. The parties filed cross-motions for summary judgment on the issue of whether P was entitled to claim an interest deduction in 1983 for the remittance to respondent. HELD that P's remittance in 1983 constitutes the payment of interest on indebtedness within the meaning of sections 163(a) and 461(f). HELD FURTHER P's motion for summary judgment is granted and R's motion for summary judgment is denied. Kevin O'Connell, for the petitioner.

Marsha Keyes and Kathey I. Shaw, for the respondent.

OPINION

GERBER, JUDGE:

This case was assigned to Special Trial Judge Peter J. Panuthos pursuant to the provisions of section 7443A(b)(3) of the Internal Revenue Code of 1986 and Rule 180 et seq. of the Tax Court Rules of Practice and Procedure. ¹ The Court agrees with and adopts the opinion of the Special Trial Judge, which is set forth below.

OPINION OF THE SPECIAL TRIAL JUDGE

PANUTHOS, SPECIAL TRIAL JUDGE:

This case is before the Court on cross-motions for summary judgment. The question to be decided is whether an amount paid by petitioner in 1983 on a deficiency determined by respondent for the taxable year 1980, was deductible in 1983 as a payment of interest under section 163(a).

FACTUAL BACKGROUND

Respondent by notice of deficiency dated February 27, 1987, determined a deficiency in petitioner's Federal income tax for the taxable year 1983 in the amount of $3,694. The only adjustment to his 1983 taxable year contested by petitioner is the disallowance of an interest expense deduction in the amount of $7,362.00. ² Pursuant to the notice of deficiency, petitioner filed a timely petition with this Court. At the time of filing the petition herein, petitioner resided at Lake Oswego, Oregon.

Petitioner is a cash basis taxpayer. On December 19, 1983, respondent issued a notice of deficiency to petitioner for the taxable year 1980 determining a deficiency in the amount of $17,588.50. On December 30, 1983, petitioner calculated the interest accrued on the deficiency, as of that date, and mailed a check in the amount of $7,361.57 to respondent. In the letter accompanying the check, petitioner requested that the remittance be credited to his account as a payment of accrued interest. Upon receipt of petitioner's check, respondent credited the entire amount as an advance payment on the tax deficiency. Respondent did not notify petitioner that the amount had been credited as a payment of tax rather than as a payment of interest as petitioner had directed. Petitioner claimed an interest deduction on his 1983 Federal income tax return in the amount of $7,362.00.

Pursuant to the December 19, 1983 notice of deficiency, petitioner filed a petition with this Court to contest the deficiency for the taxable year 1980. The ensuing case was resolved on April 18, 1986, by a stipulated decision wherein petitioner's deficiency for 1980 was decided to be $17,588.50, the exact amount determined in the notice of deficiency.

OPINION

Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials. Shiosaki v. Commissioner, 61 T.C. 861, 862 (1974). Summary judgment is not a substitute for trial, in that disputes over factual issues are not to be resolved in such proceedings. Naftel v. Commissioner, 85 T.C. 527 (1985); Espinoza v. Commissioner, 78 T.C. 412, 416 (1982). Rule 121 provides that either party may move for a summary judgment in his favor upon all or any part of the legal issues in controversy. The Rule further provides that a decision shall be rendered if the pleadings, answers to interrogatories, depositions, admissions, and any other acceptable materials show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law.

There is no dispute as to a material fact here. Further, there is no question but that petitioner actually paid the amount claimed in 1983. Thus, the only issue for decision is whether the payment is properly deductible in 1983 as a payment of interest.

Petitioner argues that he is entitled to claim the deduction in 1983 by virtue of section 461(f). That section provides as follows:

(f) Contested Liabilities. — If —

(1) the taxpayer contests an asserted liability,

(2) the taxpayer transfers money or other property to provide for the satisfaction of the asserted liability,

(3) the contest with respect to the asserted liability exists after the time of the transfer, and

(4) but for the fact that the asserted liability is contested, a deduction would be allowed for the taxable year of the transfer (or for an earlier taxable year),

then the deduction shall be allowed for the taxable year of the transfer. * * *

Section 461(f) itself does not authorize a deduction, rather it relates only to the timing of a deduction otherwise allowable under the Code. It is section 163(a) which provides for the deduction. Section 163(a) provides that: ‘There shall be allowed as a deduction all interest paid or accrued within the taxable year on indebtedness.‘ ³

Respondent argues that there was no indebtedness within the meaning of section 163(a). Respondent further argues that petitioner does not qualify under section 461(f)(2) or under section 461(f)(4). In this regard, we note that the requirements of section 461(f)(4) provide that the deduction would be allowed but for the fact that the asserted liability is contested. Thus, respondent's argument under section 461(f)(4) is identical to his first argument, which is that there was no indebtedness.

We will first address respondent's argument under section 461(f)(2). Respondent argues that the liability asserted was for additional tax, not interest, and petitioner did not designate any of the payment as a payment of tax.

Section 6601(a) provides as follows:

If any amount of tax imposed by this title * * * is not paid on or before the last date prescribed for payment, interest on such amount at an annual rate established under section 6621 shall be paid for the period from such last date to the date paid.

Section 6601(e) provides in part as follows:

Interest described under this section on any tax shall be paid upon notice and demand, and shall be assessed, collected, and paid in the same manner as taxes. * * *

Thus, under section 6601(a), interest is required to be paid on any underpayment of tax. Further, under section 6601(e), the interest is assessed and collected in the same manner as the tax. However, it is not required to be included in a notice of deficiency since as a general rule this Court has no jurisdiction with respect to interest under section 6601(a). ⁴ See Standard Oil Co. v. McMahon, 244 F.2d 11, 13 (2d Cir. 1957); LTV Corp. v. Commissioner, 64 T.C. 589, 597 (1975); Hudgins v. Commissioner, 55 T.C. 534, 538 (1970); Chapman v. Commissioner, 14 T.C. 943, 946-947 (1950), affd. per curiam 191 F.2d 816 (9th Cir. 1951). But, it is well settled that tax and interest thereon constitute a single liability, the interest being merely a part of the tax made so by statute. Colorado Milling & Elevator Co. v. Howbert, 57 F.2d 769, 772 (10th Cir. 1932); Big Diamond Mills Co. v. United States, 51 F.2d 721, 725 (8th Cir. 1931); see also United States v. Childs, 266 U.S. 304 (1924).

In addition, we note that in the Explanation of Adjustments attached to the 30-day letter, respondent included a page which showed the total amount due from petitioner as $24,405.61. This amount was broken down as follows:

+----------------------------------------------------------+
                ¦Total amount due as a result of the examination¦          ¦
                +-----------------------------------------------+----------¦
                ¦on 07/08/83                                    ¦$24,405.61¦
                +----------------------------------------------------------+
                

Additional taxes
                Balance due            17,588.50
                Total additional taxes 17,588.50
                

Interest
                20% from 02/01/82 to 12/31/82                   3,218.94
                Plus 12% from 04/15/81 to 01/31/82              1,682.71
                Total simple interest                           4,901.65
                Total additional taxes plus simple interest     22,490.15
                Interest compounded after 12/31/82              1,915.46
                Total additional taxes plus interest            24,405.61
                Total additional taxes, interest, and penalties
                as of 07/08/83                                  24,405.61
                

The Explanation of Adjustments further stated as follows:

ADDITIONAL INTEREST WILL ACCRUE AT THE CURRENT RATE OF 11% COMPOUNDED DAILY AND THE NEGLIGENCE PENALTY, IF APPLICABLE, WILL ALSO CONTINUE TO ACCRUE.

SINCE ADDITIONAL TAX IS DUE, YOU MAY WANT TO PAY IT NOW AND LIMIT THE INTEREST AND PENALTY CHARGES. PLEASE MAKE YOUR CHECK PAYABLE TO INTERNAL REVENUE SERVICE.

Based on the foregoing, we find that respondent's claim included both additional taxes and interest.

Respondent argues, however, that regardless of whether the amount claimed by him includes interest, there was no ‘asserted liability‘ within the meaning of section 461(f) at the time petitioner paid the amount because there had been no assessment.

In Arheit v. Commissioner, 31 T.C. 46 (1958), respondent examined the taxpayer's Federal income tax returns for the taxable years 1945 through 1950. As a result of the examination, agents of respondent proposed deficiencies. Since respondent was considering criminal tax charges against the taxpayer, respondent did...