Brink v. Comm'r of Internal Revenue
| Citation | 39 T.C. 602 |
| Decision Date | 28 December 1962 |
| Docket Number | Docket No. 90518. |
| Parties | MARION BRINK, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
K. G. Seitz, Esq., for the petitioner.
Henry T. Nicholas, Esq., for the respondent.
Petitioner in 1958 paid an amount in compromise of assessed income taxes, additions to tax, and interest and accrued but unassessed interest in her husband's estate, her own liability, and the liability of her daughter as transferee. The amount paid was less than the primary liabilities for assessed income taxes and additions to tax, excluding duplicate and transferee assessments. Held, since there is no showing that any portion of the amount paid in compromise was for interest on petitioner's liability, no portion of the payment is deductible by petitioner as interest paid in 1958.
Respondent determined a deficiency in petitioner's income tax for the year 1958 in the amount of $52,625.77. By amended answer, he claimed an increased deficiency of $1,841.11, making a total deficiency here involved of $54,466.88.
The issue for decision is whether petitioner is entitled to deduct all or any part of a payment made in compromise of a liability for assessed income taxes, additions to tax and interest, and accrued but unassessed interest, where the amount paid was less than the total liability for the assessed income taxes and additions to tax.
All of the facts have been stipulated and are found accordingly.
Petitioner is an individual who filed her income tax return for the year 1958 with the district director of internal revenue at Louisville, Ky. She is the widow of James H. Brink and executrix of his estate.
On October 4, 1957, petitioner individually and as executrix of the estate of James H. Brink and with her daughter, Marilyn R. Brink, transferee, filed an offer in compromise with respect to the following outstanding primary liabilities, excluding duplicate and transferee assessments, as of the date of the offer:
+-----------------------------------------------------------------------+
¦Assessed income¦Assessed additions ¦ ¦Accrued interest¦
+---------------+--------------------+-----------------+----------------¦
¦tax ¦to tax under sec. ¦Assessed interest¦(unassessed) ¦
+---------------+--------------------+-----------------+----------------¦
¦ ¦293 (b), I.R.C. 1939¦ ¦ ¦
+---------------+--------------------+-----------------+----------------¦
¦ ¦ ¦ ¦ ¦
+---------------+--------------------+-----------------+----------------¦
¦$369,589.94 ¦$196,083.63 ¦$133,491.34 ¦$180,383.22 ¦
+---------------+--------------------+-----------------+----------------¦
¦ ¦ ¦ ¦ ¦
+-----------------------------------------------------------------------+
This offer in compromise was addressed to respondent through the district director of internal revenue and recited that charges of violation of law or failure to meet an internal revenue obligation had been made against the proponent as deficiencies in income tax for the years 1942 through 1952 and that to secure the release of the proponent from liability resulting from the violation or failure specified, the sum of $247,500 to be paid as set forth in an attached statement, together with interest at the rate of 6 percent per annum on all deferred payments from the date this offer is accepted until the respective payments are made in full, is tendered voluntarily with the request that it be accepted in compromise of all liability for taxes, additions to tax, and interest as set forth in certain docketed cases. The attached statement recited in part:
It is proposed that the manner of payment of the deficiencies would be as follows:
1. There will be paid to the Government in compromise of the tax deficiencies, interest and penalties the sum of $300,000.00, less credit for all jeopardy seizures already in the hands of the Government. The jeopardy seizures are established at $52,941.36, and are represented by the following items:
2. The balance owing in round figures would be $247,500.00. Of that amount approximately $8,000 will be paid immediately upon acceptance by the Commissioner of Internal Revenue of this offer in compromise. * * *
3. The remaining balance owing of approximately $239,000.00 will be paid in full within nine (9) months of the acceptance of this offer in compromise, although every effort will be made to pay the agreed amount as early as possible.
4. As further consideration for the acceptance of this offer in compromise, each of the proponents has executed the enclosed collateral agreement which shall be of no force and effect unless this offer in compromise is accepted by or on behalf of the Commissioner of Internal Revenue.
On November 15, 1957, the offer in compromise was accepted by respondent and petitioner was notified of this acceptance by a latter which stated in part as follows:
This refers to your offer of $247,500.00 together with waiver of refunds as provided by Form 656-C, submitted through the District Director of Internal Revenue, Louisville, Kentucky, in compromise of the liabilities for income tax, penalties and interest, including accrued interest, of James H. Brink, deceased, for the taxable years 1942 through 1947, the joint liabilities of James H. Brink, deceased and Marion Brink for the taxable years 1948 through 1950 and 1952, the liabilities of Marion Brink, individually for the taxable years 1944 through 1947, and the liability of Marilyn Brink, as transferee, for the years 1947 through 1950, and in compromise of any 1951 income tax liability.
The offer has been accepted under the terms proposed. The amount offered should be paid to the District Director of Internal Revenue, Louisville, Kentucky.
On the acceptance of the offer in compromise respondent abated all outstanding liabilities and set up a separate liability for the amount due under the offer in compromise, or $247,500, on his accounting records.
In compliance with the terms of the offer in compromise petitioner paid $9,498.24 on December 27, 1957, which represented the proceeds from certain insurance policies held by petitioner on the life of James H. Brink.
In 1952 and 1953 respondent seized property of petitioner, Marilyn Brink, and James H. Brink, having a value of $52,941.36 which was credited to the then outstanding liabilities. In accordance with the terms of the offer in compromise and the acceptance by respondent, the proponents of the offer waived any claims they may have had for refund of these amounts.
On August 5, 1958, petitioner paid respondent $248,409.07 in compliance with the terms of the offer in compromise and respondent's acceptance. This payment was acknowledged by the acting district director of internal revenue on August 5, 1950, with the following statement:
Receipt is acknowledged of certified check in the amount of $248,409.07 in compromise of the liabilities for income tax, penalties and interest, including accrued interest, of James H. Brink, deceased, for the taxable years 1942 through 1947, the joint liabilities of James H. Brink, deceased, and Marion Brink for the taxable years 1948 through 1950 and 1952, the liabilities of Marion Brink, individually, for the taxable years 1944 through 1947, and the liabilities of Marilyn Brink, as transferee, for the years 1947 through 1950 and in compromise of any 1951 income tax liability as set forth in paragraph one of the Commissioner's letter of November 15, 1957.
The amount of $248,409.07 constituted the balance of the amount due under the offer in compromise of $238,001.76 and $10,407.31 in interest which had accrued on the amount due from the date of acceptance of the offer to the date of payment.
On page 2 of her income tax return for 1958, petitioner claimed an interest deduction in the amount of $279,218 which amount was stated to have been paid to the district director of internal revenue.
Respondent in his notice of deficiency allowed an interest deduction of $10,407.31 which represented the accrued interest payment on the amount due under the offer in compromise and disallowed the balance of the claimed interest deduction with the following explanation:
It is held that your allowable deduction for interest under section 163 of the Internal Revenue Code of 1954, as amended, is $10,407.31, rather than $279,218.00 as claimed on your return.
Respondent by amendment to answer claimed an increased deficiency in the amount of $1,841.11, resulting from a reduction of...
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