Smith v. Commissioner of Internal Revenue, T.C. Memo. 2009-33 (U.S.T.C. 2/11/2009)
| Decision Date | 11 February 2009 |
| Docket Number | No. 22223-07.,22223-07. |
| Parties | DAVID LEE SMITH AND MARY JULIA HOOK, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. |
| Court | U.S. Tax Court |
When this deficiency case was called for trial, the parties represented that they had just reached a basis of settlement, consisting of adjustments to income reflected on Forms 4549-A, Income Tax Discrepancy Adjustments. Each of the forms included a line 19(c) for "Interest", on which the amount "0.00" was typed for each year in suit; but no mention of interest was made by the parties among themselves or before the Court. After consultation, the parties confirmed that the calculations reflected on the Forms 4549-A were correct and that they were willing to settle on that basis, and the Court ordered them to file a stipulated decision document within 30 days. The parties could not stipulate. Instead, R moved the Court to enter decision in the amounts of tax, additions to tax, and penalties shown on the Forms 4549-A with no decision as to interest; P-W did not object to R's motion; and P-H cross-moved the Court to enter decision in those same amounts of tax, additions to tax, and penalties, plus zero amounts in interest.
Held: In a deficiency case under sec. 6213(a), I.R.C., the Tax Court has no jurisdiction to determine interest due on the deficiency.
Held, further, where R and P-W reasonably believed that interest was not included in the parties' proposed settlement, but P-H reasonably believed (from the zero entries for interest on line 19(c) of Forms 4549-A) that zero interest was a term in the parties' proposed settlement, the parties failed to have a meeting of the minds on a material term and did not settle the case.
David Lee Smith, pro se.
Ted H. Merriam, for petitioner Mary Julia Hook.
Joan E. Steele, for respondent.
This case is before the Court on the parties' cross-motions for entry of decision. On October 7, 2008, respondent filed a motion for entry of decision requesting that the Court enter a decision "pursuant to the agreement of the parties", determining deficiencies in tax, additions to tax, and penalties for the years 2001 through 2005. Petitioner Mary Julia Hook filed a response on October 24, 2008, indicating that she does not object to the requested entry of decision. Petitioner David Lee Smith filed a response and cross-motion on October 23, 2008, in which he objects to the entry of decision as requested by respondent, and instead requests that decision be entered in those same amounts but "including $0.00 for interest." We will deny both respondent's motion and Mr. Smith's cross-motion for the reasons stated below.
On July 3, 2007, the Internal Revenue Service (IRS) issued to petitioners David Lee Smith and Mary Julia Hook notices of deficiency pursuant to section 6212(a),1 determining deficiencies in tax for the tax years 2001 through 2005, along with additions to tax under section 6651(a)(1) and penalties under section 6662, totaling $626,756. Attached to the notices were Forms 4549-A, Income Tax Discrepancy Adjustments, that showed the IRS's proposed adjustments to their income, and that gave the deficiency (on line 14) and the additions to tax and penalties (on line 17(a) and (b)) that appeared on the notice of deficiency.
The Forms 4549-A attached to the notices of deficiency also included a line 19(c) with the printed caption "Interest (IRC § 6601) — computed to", which was completed with the typed date "07/15/2007" (the date one month after the forms were dated), and in the column for each of the five years, an amount of interest was stated. These interest amounts totaled $152,382, which was about 24 percent of the total liabilities for tax, additions to tax, and penalties. However, as usual, the interest amounts did not appear on the notices of deficiency.
On September 28, 2007, Mr. Smith and Ms. Hook filed their petition challenging the deficiencies the IRS had determined in
tax, additions to tax, and penalties. (The petitions made no mention of interest.) At that time both petitioners resided in Colorado. The petition alleged that the petitioners are "married individuals who are separated". Ms. Hook thereafter obtained separate representation, and Mr. Smith represents himself. Since May 2008 the petitioners have each submitted their own non-joint filings in this case.
On April 8, 2008, the Court issued its notice that the case would be tried at the calendar commencing September 8, 2008, in Denver, Colorado. After the issuance of that notice, Mr. Smith filed four motions2 that, if granted, would have had the practical result of delaying the September 2008 trial. The Court denied all of his motions. The case was called during the September 8 calendar, and the Court ordered that the case would be tried on September 9, 2008.
On September 9, 2008, the parties appeared, and counsel for respondent informed the Court that the parties had reached "a basis of settlement." She presented "a computation form" which "shows all the adjustments to income for all of the issues for the years before the Court." Respondent's counsel requested "to lodge [the form] with the Court as the basis of settlement and
request[ed] 30 days for the filing of the decision document." The document was lodged with the Court.
The "computation form" consisted of two Forms 4549-A. Like the equivalent forms previously attached to the notices of deficiency, these forms gave, for each of the five years, amounts of deficiency (on line 14) and additions to tax and penalties (on line 17(a) and (b)), though in this instance those amounts totaled only $314,154—just slightly more than 50 percent of the total amounts on the notice of deficiency.
Like the equivalent forms attached to the notice of deficiency, these Forms 4549-A also included a line 19(c) with the printed caption "Interest (IRC § 6601) — computed to", and in this instance it was completed with the typed date "10/08/2008" (the date one month after the form was dated), and in the column for each of the five years the figure "0.00" was typed. At the September 9 hearing, no mention was made of these entries.
At the September 9 hearing, counsel for Ms. Hook explained that the parties had reached . He indicated that this meant that the parties had not actually reached agreement on the amounts of deficiencies to be determined, but had so far agreed only on the outcomes of the issues in the case. The Court instructed the parties to The Court then
recessed for 20 minutes, after which Ms. Hook's counsel and Mr. Smith affirmed that they had confirmed "the correctness of the calculations reflected on the Form 4549A". Mr. Smith stated that he was 3 The Court ordered the parties to cooperate in filing a stipulated decision document within 30 days.
At the September 9 hearing, the parties made no mention of the subject of interest and no mention of the zero figures on line 19(c). Neither party alleges any statement made among the parties outside the hearing that informs the terms of an agreement between the parties. Ms. Hook's counsel did inform her (apparently out of the hearing of the other parties) that statutory interest would be added to the amount of any settlement.
Thereafter, respondent prepared a draft decision document. The draft was consistent with the conventions normally used to
settle Tax Court cases.4 It consisted of two parts—first, a "Decision" determining deficiencies, additions to tax, and penalties for the suit years (in the amounts on the Forms 4549-A lodged on September 9, 2008), followed by a blank to be signed by the Judge; and second, below the Judge's signature blank, three additional paragraphs followed by signature blocks for the parties. The three paragraphs read as follows:
It is hereby stipulated that the Court may enter the foregoing decision in this case.
It is further stipulated that interest will be assessed as provided by law on the deficiencies, penalties, and additions to tax due from petitioners.
It is further stipulated that, effective upon the entry of this decision by the Court, petitioners waive the restrictions contained in I.R.C. § 6213(a) prohibiting assessment and collection of the deficiencies, penalties, and additions to tax (plus statutory interest) until the decision of the Tax Court becomes final.
In correspondence with the IRS, Mr. Smith objected to the second and third of these paragraphs. As to the provision about interest, Mr. Smith wrote: "This stipulation would change the calculation agreed to by the parties and their attorneys and approved by the Tax Judge on September 8 [sic], 2008. As you will recall, the Tax Court Judge said that he would not permit any changes to be made to the September 8 [sic], 2008
calculation." As to the provision about waiver of the restriction of section 6213(a), Mr. Smith stated simply: "I do not see the need for this stipulation."
On October 7, 2008, respondent filed a motion for entry of decision, asking the Court to enter a decision in the amounts of deficiencies of tax, additions to tax, and penalties that appear on the Forms 4549-A that were lodged with the Court on September 9, 2008. Respondent does not request any decision or ruling either on waiver of the restriction of section 6213(a) or on the issue of interest.
Ms. Hook's response to respondent's motion explains her...
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