1989 U.S. Tax Ct. LEXIS 47">*47
R issued a notice of deficiency to P on Dec. 19, 1983, for the taxable year 1980. On Dec. 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.
92 T.C. 749">*749 OPINION
This case was assigned to Special Trial Judge Peter J. Panuthos pursuant to the provisions of
92 T.C. 749">*750 OPINION OF THE SPECIAL TRIAL JUDGE
Panuthos,
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. 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, petitioner1989 U.S. Tax Ct. LEXIS 47">*50 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.
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 92 T.C. 749">*751 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.
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
(1) the taxpayer contests an asserted liability, (2) 1989 U.S. Tax Ct. LEXIS 47">*52 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),
1989 U.S. Tax Ct. LEXIS 47">*53 Respondent argues that there was no indebtedness within the meaning of
We will first address respondent's argument under
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 prescribed under this section on any tax shall be paid upon notice and demand, and shall be assessed, collected, and paid in1989 U.S. Tax Ct. LEXIS 47">*54 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
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 |
1989 U.S. Tax Ct. LEXIS 47">*56 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
In
In
After an examination of the return, the IRS determined, approximately 3 years later, that the total tax due was approximately $ 129,000. When the taxpayer failed to file a petition with this Court, the deficiency of approximately $ 49,000 was assessed. The IRS applied the balance of the suspense account (approximately $ 40,000) to the assessed amount and in April 1938 the taxpayer paid the remainder 1989 U.S. Tax Ct. LEXIS 47">*59 of the liability.
The IRS rejected the taxpayer's claim for refund filed in 1940 on the basis that the tax had been paid more than 3 years prior to the filing of the claim (except the payment made in April 1938). The IRS argued that the payment of taxes was made in December 1934 when the $ 120,000 check was remitted.
The Supreme Court held that the remittance in 1934 was in the nature of a deposit or cash bond and not a payment which would begin the running of the period of limitations. The Court held that "the taxpayer did not discharge what he deemed a liability nor pay one that was asserted. This was merely an interim arrangement to cover whatever contingencies the future might define."
In
Also, based upon an examination of the 1944 and 1945 tax years, the taxpayer forwarded approximately $ 179,000 to the IRS in September 1947. The taxpayer designated a part of the remittance for tax and part for interest. No notice of deficiency for 1944 and 1945 had been issued. The IRS deposited the funds to the suspense account.
The taxpayer argued that the portion of the remittances with respect to excess profits taxes and interest should be 92 T.C. 749">*756 allowed as a deduction in computing net operating losses for 1947. The issue thus was whether the excess profits taxes and interest could be considered as "paid" in that year.
The court of appeals, relying on
While we do not read
Accordingly, the court held that the remittances did not constitute a payment.
In
The aforementioned cases can be distinguished from this case. The tax years involved in
1989 U.S. Tax Ct. LEXIS 47">*63 In
In
In
Here, were it not for the restrictions on assessment in section 6213, discussed
1989 U.S. Tax Ct. LEXIS 47">*66 Respondent in this case applied the remittance to the tax deficiency. The aforementioned cases applied the taxpayer's remittance as a cash bond to a suspense account. While we do not believe that respondent's application of the remittance should necessarily determine its characterization for tax purposes, we note that in this case respondent did not treat the remittance as a cash bond. Thus, to the extent that respondent relies upon his treatment of a remittance as a cash bond as determinative of its characterization for tax purposes, those cases are inapplicable. Here respondent treated the remittance as a payment. Under the circumstances of this case, we find that the payment made by petitioner, after issuance of the notice of deficiency, was a transfer of money to provide for the satisfaction of an asserted liability within the meaning of
Respondent also argues that petitioner fails to meet the requirement of
"Indebtedness" for the purpose of determining deductible interest means "an existing, unconditional and legally enforceable obligation for the payment of money."
It appears that the only thing which prevented the deficiency from being an "existing, unconditional or legally enforceable obligation for the payment of money" is section 6213. Section 6213 allows petitioner to contest the asserted liability in the Tax Court and prevents respondent from immediately1989 U.S. Tax Ct. LEXIS 47">*68 assessing the asserted liability.
Petitioner made a clear and unambiguous designation to respondent that the payment should be applied to interest. Generally, a partial payment made by a taxpayer to respondent with specific instructions as to its application will be applied in accordance with those instructions. See
Specifically, respondent relies upon
1989 U.S. Tax Ct. LEXIS 47">*70 We find that the payment by petitioner was a payment of interest for which a deduction could be claimed in 1983 but for the fact that respondent was forbidden by section 6213 from taking immediate action to assess or collect the tax. Accordingly, we hold that petitioner is entitled to a deduction in 1983, in the amount of $ 7,362, for interest paid on indebtedness. Petitioner's motion for summary judgment will be granted, and respondent's cross-motion for summary judgment will be denied.
1. Unless otherwise indicated, all subsequent section references are to the Internal Revenue Code of 1954 as amended and in effect during the year in issue. All Rule references are to the Tax Court Rules of Practice and Procedure, unless otherwise noted.↩
2. The actual amount of interest petitioner claims to have paid to respondent is $ 7,361.57. However, petitioner apparently rounded to the nearest dollar all amounts shown on his 1983 return.↩
3.
4. See, however, sec. 6246(a), Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-647, 102 Stat. 3342, 3751, amended Code sec. 7481 by adding new subsec. (c). The amendment provides that the Tax Court may reopen a case to determine whether the taxpayer overpaid interest and the amount of such overpayment.↩
5.
6. S. Rept. 830, 88th Cong., 2d Sess. (1964), 1964-1 C.B. (Part 2) 505, 604-605.↩
7. On Jan. 17, 1989, after briefs in this case were submitted, respondent issued
8. We note that the dissent in
9. Respondent has not argued that the procedure constitutes a long-standing administrative position with congressional or judicial approval. See