White v. Comm'r of Internal Revenue
| Citation | 95 T.C. 209,95 T.C. No. 16 |
| Decision Date | 30 August 1990 |
| Docket Number | Docket No. 27857-89. |
| Parties | WALLACE J. WHITE AND SANDRA J. WHITE, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | United States Tax Court |
OPINION TEXT STARTS HERE
After the partnership level proceeding was completed, R issued a notice of deficiency to Ps determining that Ps were liable for additional interest under I.R.C. section 6621(c) and additions to tax under I.R.C. sections 6651(a)(1), 6653(a)(1), 6653(a)(2) and 6659. Ps timely filed a petition for redetermination of R's determinations. R filed a motion to dismiss for lack of jurisdiction as to I.R.C. section 6621(c). HELD, this Court does not have jurisdiction under I.R.C. section 6230(a)(2)(A)(i) to redetermine I.R.C. section 6621(c) interest because I.R.C. section 6621(c) interest is not a ‘deficiency‘ attributable to an affected item requiring partner level determinations. HELD FURTHER, this Court does not have jurisdiction under I.R.C. 6621(c)(4) to determine whether section I.R.C. 6621(c) interest applies because the deficiency before the Court is not a substantial underpayment attributable to tax-motivated transactions.
James F. Hart, for the petitioners.
Jeffrey I. Rosenberg and Thomas F. Eagan, for the respondent.
This case is before the Court on respondent's motion to dismiss for lack of jurisdiction as to section 6621(c).
On April 5, 1988, respondent issued a Notice of Final Partnership Administrative Adjustment (the FPAA) to the tax matters partner of Accounting Associates partnership (the tax matters partner) determining adjustments to the 1984 Accounting Associates partnership return. On April 5, 1988, respondent mailed a copy of the FPAA to petitioners as notice partners.
No petition was filed by either the tax matters partner, within the 90-day period provided in section 6226(a), or any of the partnership's notice partners within the 60-day period provided in section 6226(b)(1). Thereafter, respondent assessed the deficiency in tax resulting from the partnership adjustments against petitioners as a computational adjustment. See Saso v. Commissioner, 93 T.C. 730, 734 (1989); sec. 6225(c).
By statutory notice of deficiency dated August 17, 1989, respondent determined that petitioners are liable for additional interest under section 6621(c) for 1984. Respondent also determined that petitioners are liable for the following additions to tax for 1984:
+-----------------------------------------------------------------+
¦Additions to Tax ¦
+-----------------------------------------------------------------¦
¦Sec. 6651(a)(1) ¦Sec. 6653(a)(1) ¦Sec. 6653(a)(2) ¦Sec. 6659 ¦
+-----------------+-----------------+-----------------+-----------¦
¦$72.10 ¦$409.80 ¦1 ¦$2,337.90 ¦
+-----------------------------------------------------------------+
FN* 50% of the interest payable under sec. 6601 with respect to the portion of the underpayment attributable to negligence
On November 20, 1989, petitioners timely filed a petition for redetermination of the additional interest under section 6621(c) (hereinafter ‘additional interest‘) and the additions to tax set forth in respondent's notice of deficiency. On March 30, 1990, respondent filed a motion to dismiss for lack of jurisdiction as to section 6621(c) and a memorandum in support thereof. On April 30, 1990, petitioners filed an objection to motion to dismiss for lack of jurisdiction as to section 6621(c).
The issue for decision is whether this Court has jurisdiction to determine whether petitioners are liable for additional interest.
Petitioners assert that this Court has jurisdiction over additional interest because (1) additional interest is a deficiency and this Court may redetermine deficiencies; and (2) section 6621(c)(4) authorizes this Court to determine whether additional interest applies. Respondent contends that this Court lacks jurisdiction over additional interest because 1) additional interest is not a ‘deficiency‘ attributable to an affected item; and (2) section 6621(c)(4) does not, in the present case, allow this Court to determine whether additional interest applies.
For purposes of clarity, we will separately determine whether (1) additional interest is a deficiency attributable to an affected item; and (2) section 6621(c)(4) gives this Court jurisdiction over additional interest.
An ‘affected item‘ is ‘any item to the extent such item is affected by a partnership item.‘ Sec. 6231(a)(5). Additional interest is an affected item under section 6231(a)(5). N.C.F. Energy Partners v. Commissioner, 89 T.C. 741, 745 (1987).
Affected items are of two types. The first type of affected item is a computational adjustment made to reflect the change in a partner's tax liability resulting from partnership level adjustments. N.C.F. Energy Partners v. Commissioner, supra at 744; sec. 6231(a)(6). Respondent may assess a computational adjustment against a partner without issuing a notice of deficiency once the partnership proceeding is completed. Sec. 6230(a)(1); N.C.F. Energy Partners v. Commissioner, supra at 744.
The second type of affected item requires determinations to be made at the partner level. N.C.F. Energy Partners v. Commissioner, supra at 744. Once the partnership proceeding is completed, respondent may issue, in some circumstances, a notice of deficiency to a partner for additional deficiencies attributable to an affected item requiring partner level determinations. Sec. 6230(a)(2)(A)(i); N.C.F. Energy Partners v. Commissioner, supra at 744.
In N.C.F. Energy Partners v. Commissioner, supra at 746, we stated that ‘Section 6621(c)'s applicability also turns on the amount of the taxpayer's underpayment attributable to a tax-motivated transaction.‘ Thus, additional interest is an affected item which requires a partner level determination. N.C.F. Energy Partners v. Commissioner, at 745.
Respondent contends that the deficiency procedures only apply to a ‘DEFICIENCY attributable to affected items which require partner level determinations ‘ under section 6230(a)(2)(A)(i) and additional interest is not a ‘deficiency.‘ (Emphasis added.) Petitioners, however, assert that additional interest ‘constitutes a deficiency under the Internal Revenue laws‘ and the Tax Court may determine whether petitioners are liable for deficiencies. We agree with respondent.
Section 6230(a) provides in pertinent part:
(a) COORDINATION WITH DEFICIENCY PROCEEDINGS. --
(1) IN GENERAL. -- Except as provided in paragraph (2), subchapter B of this chapter shall not apply to the assessment or collection of any computational adjustment.
(2) DEFICIENCY PROCEEDINGS TO APPLY IN CERTAIN CASES. --
(A) Subchapter B shall apply to any deficiency attributable to --
(i) AFFECTED ITEMS WHICH REQUIRE PARTNER LEVEL DETERMINATIONS * * *. [Emphasis added.]
Subchapter B of chapter 63 sets forth the deficiency procedures in the case of income, estate, gift and certain excise taxes. Section 6213(a) of subchapter B authorizes the Tax Court to redetermine a deficiency provided a timely petition is filed. (Hereinafter subchapter B of chapter 63 will be referred to as ‘the deficiency procedures.‘)
The deficiency procedures do not apply to the assessment or collection of any computational adjustment under section 6230(a)(1). However, the deficiency procedures do apply to ‘any DEFICIENCY attributable to affected items which require partner level determinations‘ under section 6230(a)(2)(A)(i). (Emphasis added.)
Section 6211(a) provides in pertinent part:
For purposes of this title * * * the term ‘deficiency‘ means the amount by which the tax imposed exceeds the excess of --
(A) the amount shown as the tax by the taxpayer upon his return * * * plus
(B) the amounts previously assessed * * * as a deficiency, over --
In general, the term ‘deficiency‘ is defined as the amount by which the tax imposed exceeds the sum of the amount of tax shown on the return and the amount of tax previously assessed over any rebates.
Respondent contends that section 6601(e)(1) excludes interest from the definition of a ‘tax‘ imposed under section 6211(a) and, thus, additional interest is not a ‘deficiency.‘ We agree.
Section 6601(e)(1) provides as follows:
(1) INTEREST TREATED AS TAX. -- Interest prescribed 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. Any reference in this title to any tax imposed by this title shall be deemed also to refer to interest imposed by this section on such tax. [Emphasis added.]
Interest prescribed by section 6601 is treated as a tax ‘except [for purposes of] subchapter B of chapter 63, relating to deficiency procedures.‘ This parenthetical language expressly excludes interest from the definition of a ‘tax‘ for purposes of section 6211(a) and, thus, interest is not a deficiency. In this regard, it is well established that this Court generally lacks jurisdiction to redetermine interest. Transport Manufacturing & Equipment Co. v. Commissioner, 434 F.2d 373, 381 (8th Cir. 1970); Commissioner v. Kilpatrick's Estate, 140 F.2d 887 (6th Cir. 1944).
Section 6601(e)(1) only applies to interest prescribed under section 6601. Section 6601(a) imposes interest on taxes not paid on or before the last date for payment at the underpayment rate established...
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