After being investigated by respondent and after being indicated and pleading guilty to criminal charges for failing to file Federal income tax returns for 1980 through 1983, petitioner, in compliance with the sentence imposed by the Federal district court, filed delinquent tax returns.
1991 U.S. Tax Ct. LEXIS 66">*66 97 T.C. 94">*94 OPINION
Respondent determined additions to petitioner's Federal income taxes with respect to 1980 through 1983, as follows:
Additions to Tax, Secs. 21991 U.S. Tax Ct. LEXIS 66">*67 | ||||
Year | 6653(a) | 6653(a)(1) | 6653(a)(2) | 6661 |
1980 | $ 804 | -- | -- | -- |
1981 | -- | $ 528 | * | -- |
1982 | -- | 783 | $ 3,904 | |
1983 | -- | 582 | 2,909 |
97 T.C. 94">*95 After concessions, the only issue for decision is petitioner's liability for the additions to tax under
The relevant facts were fully stipulated and are so found. Petitioner, a medical physician, resided in Hanover Park, Illinois, at the time he filed his petition in this case.
With respect to each of the years 1980, 1981, 1982, and 1983, petitioner did not file timely Federal income tax returns, petitioner did not have any Federal income taxes withheld from his income, and petitioner did not make any estimated tax payments. After a criminal investigation by respondent, on April 2, 1985, petitioner was indicted by a Federal grand jury for willfully failing to file Federal income tax returns for 1980 through 1983, in violation of section 7203. 1991 U.S. Tax Ct. LEXIS 66">*68 After trial, on July 26, 1985, petitioner pled guilty to each of the charges.
Pursuant to petitioner's guilty plea and conviction, on September 27, 1985, petitioner was sentenced by the United States District Court for the Northern District of Illinois to 1 year in prison, and petitioner was ordered to file Federal income tax returns for 1980 through 1983, and to perform 1,000 hours of community service.
In compliance with the order of the Federal district court that petitioner file tax returns, in September of 1985 petitioner filed Federal income tax returns for 1980 through 1983, showing taxes due and owing of $ 16,079, $ 10,579, $ 15,617, and $ 11,636, respectively.
Petitioner appealed his conviction for violation of section 7203, and on April 3, 1986, the United States Court of Appeals for the Seventh Circuit affirmed petitioner's conviction in an unpublished order.
On March 3, 1987, petitioner paid the taxes reported due on his late-filed 1982 and 1983 Federal income tax returns. On September 6, 1988, respondent, among other additions to tax, determined that petitioner was liable for additions to tax under
1991 U.S. Tax Ct. LEXIS 66">*69 The amount of
In respondent's September 6, 1988, notices of deficiency to petitioner for 1982 and 1983, respondent did not, and respondent does not now, dispute the amount of Federal income tax liability shown on petitioner's 1982 and 1983 tax returns as they were filed late by petitioner in September of 1985.
Petitioner, generally, interprets the addition to tax for a substantial understatement under
1991 U.S. Tax Ct. LEXIS 66">*70 Respondent argues that a taxpayer's failure to file a return for a particular year constitutes a statement of zero tax liability that can trigger the
Respondent's interpretation of 97 T.C. 94">*97 Tax shown on return. For purposes of
Respondent's interpretation of
In our published opinion in The compliance purpose of Our reading of
In our Court-reviewed opinion in
More recently, in affirming on this issue our opinion in If no valid return is filed for a given taxable year, the amount of tax considered to be shown on that return is zero. We note that the 97 T.C. 94">*99 In light of the numerous and consistent court opinions interpreting and/or applying the addition to tax under Stare decisis is the preferred course because it promotes the evenhanded, predictable, and consistent development of legal principles, fosters reliance on judicial decisions, and contributes to the actual and perceived integrity of the judicial process. * * * [ the important doctrine of Our history does not impose any rigid formula to constrain the Court in the disposition of cases. Rather, its lesson is that every successful proponent of overruling precedent has borne the heavy burden of persuading the Court that * * * the values served by This Court has explained the principle of stare decisis as follows: the doctrine 1991 U.S. Tax Ct. LEXIS 66">*77 of stare decisis, which arose from a necessity to preserve the harmony and stability of the law, requires adherence by courts to a Also, various Federal courts of appeal, in addressing Federal tax issues and appeals from this Court, have 97 T.C. 94">*100 recognized the viability of the principle of stare decisis. In affirming this Court, the United States Court of Appeals for the District of Columbia Circuit made the following statement that is pertinent to our consideration of the principle of stare decisis in the instant case: This principle assumes increased importance when the antecedent case involves construction of a statute. See 1B In The doctrine of We believe that the principle of stare decisis should be adhered to in resolving the question of statutory interpretation before us in this case. Further, and apart from stare decisis, we disagree with petitioner's interpretation1991 U.S. Tax Ct. LEXIS 66">*79 of the language of 97 T.C. 94">*101 Further, where a taxpayer files an amended or a late tax return after being contacted by respondent with regard to his or her tax liability for a year, the regulations reasonably treat the taxpayer as not having "shown" a tax liability on the return, since it was respondent's contact, not the taxpayer's voluntary act, that may be presumed to have precipitated the filing of the amended or late return and that indirectly caused a tax liability to be "shown" on the return. Treasury regulations enjoy a presumption of validity, and they are to be sustained 1991 U.S. Tax Ct. LEXIS 66">*80 unless "unreasonable and plainly inconsistent with the revenue statutes." We note further that when Congress in 1989 enacted revisions to the various additions-to-tax provisions of the Code, the statutory language utilized for the new accuracy-related additions to tax expressly limited their application to situations where a tax return has been filed. See sec. 6664(b). Omnibus Budget Reconciliation Act of 1989, Pub. L. 101-239, sec. 7721, 103 Stat. 2106, 2395. In doing so, Congress expressly acknowledged that the language of the bill provides that an accuracy-related or fraud penalty is to be imposed only if a return has been filed. This is intended to improve the coordination between the accuracy-related penalties and the failure to file penalties. Under present law, the courts have dealt with a number of See also H. Rept. 101-386 (Conf.), at 651-655 (1989). If the statutory language in question is clear, why did Congress deem it necessary in 1989 to "clarify" that language, and why were the courts addressing "difficult, interpretative issues" thereunder? Petitioner relies on Under the above circumstances, we conclude that the regulations under On the basis of stare decisis and on the basis of the reasonableness of the applicable regulations under Reviewed by the Court.
and --
HALPERN,
I.
Petitioner contends that the term "understatement" means the excess of -- (i) the amount of the tax required to be shown on the return for the taxable year, over (ii) the amount of tax imposed which is shown on the return, reduced by any rebate (within the meaning of section 6211(b)(2)).
It cannot be denied that the definition does not, in so many words, address the calculation of an understatement where no return, a late return, or an amended return is filed. Simply, it directs that, to calculate an understatement, 97 T.C. 94">*103 the amount of tax shown on the return is subtracted from the amount of tax required to be shown on the return. As simply, the difference between the parties here concerns how the phrase1991 U.S. Tax Ct. LEXIS 66">*83 "amount of tax imposed which is shown on the return" is to be interpreted when no return is filed (or, as here, no return is deemed to have been filed).
Respondent contends that a permitted interpretation of the statute can be found in Tax shown on return. For purposes of
The majority agree with respondent's contention that the regulation contains a proper interpretation of the statute.
II.
According to the majority, 1991 U.S. Tax Ct. LEXIS 66">*84 the statute "obviously [is] unclear and lacking in guidance as to how the section * * * is to apply to 'no-return,' to 'amended return,' and to 'late-return' situations." Majority op. at 11. Nevertheless, the majority do not directly address the validity of that interpretation or examine the legislative history of Prior to being contacted by the special agent, petitioners had not filed tax returns for the years [in issue]. 1991 U.S. Tax Ct. LEXIS 66">*85 Consequently, prior to contact, the amount of tax shown on the returns is zero.
97 T.C. 94">*105 III.
a.
We are here concerned with a tax statute that imposes a penalty. 2 "The law is settled," the Supreme Court has stated, "that 'penal statutes are to be construed strictly,' * * * and that one 'is not to be subjected to a penalty unless the words of the statute plainly impose it,' * * *."
1991 U.S. Tax Ct. LEXIS 66">*89 97 T.C. 94">*106 b.
It is apt to make reference to
c.
No similar gloss can be found in the legislative history of
Reasons for Change The committee believes that an increasing part of the compliance gap is attributable to the "audit lottery." The audit lottery is played by taxpayers who take questionable (although non-negligent) positions not amounting to fraud or negligence on their returns in the hopes that they will not be audited. If a taxpayer is audited and the questionable position is challenged, then he or she pays the additional tax owing plus interest. Importantly, however, taxpayers are not exposed to any downside risk in taking highly questionable positions on their tax returns since even resolution of the issue against the taxpayer will require only payment of the tax that should have been paid in the first instance with interest to reflect the cost of the "borrowing." Taxpayers rely on opinions of tax advisors to avoid the possibility of fraud or negligence penalties in taking these highly questionable positions, even though the advisor's opinion may clearly indicate that if the issue is challenged by the Internal1991 U.S. Tax Ct. LEXIS 66">*92 Revenue Service, the taxpayer will probably lose the contest. Thus, in the event that the questionable position is not detected, the taxpayer will have achieved an absolute reduction in tax without cost or risk. The committee believes, therefore, that taxpayers should be subject to a penalty designed to deter the use of undisclosed questionable reporting positions. On the other hand, the committee recognizes that taxpayers and the Government may reasonably differ over the sometimes complex Federal tax laws, and that a penalty is not appropriate for in [sic] many cases in which there is a large underpayment. Finally, the committee believes that taxpayers investing in substantial tax shelters should be held to a higher standard of reporting or risk a significant penalty. [S. Rept. 97-494 at 272-273.]
Explanation of Provision In general, under the committee bill, when there is a substantial understatement in income tax for any taxable year attributable to an aggressive filing position not disclosed by the taxpayer in the return, * * * an addition to tax equal to * * * [25] percent of such understatement1991 U.S. Tax Ct. LEXIS 66">*93 will be imposed. For this purpose, an understatement is the excess of the amount of income tax imposed on the taxpayer for the taxable year, over the amount of tax shown on the return. * * * [S. Rept. 97-494 at 273.]
97 T.C. 94">*108 Neither the conference report nor the report of the Committee on Finance gloss the statute in a way that would allow respondent to disregard an original return, showing all of the tax required to be shown, to determine an understatement. As is clear from the Committee on Finance report, the substantial understatement addition was directed at taxpayers taking questionable positions that, if detected, likely would subject them to no more than the proper tax charge plus interest. The "audit lottery" described in the Committee on Finance report is the chance that, given the notoriously low rate of audit coverage by respondent, a return filed by a taxpayer will not be examined. It is not the chance that, if no return is made, the taxpayer will not be caught, for, if it were, the report would not state that taxpayers are exposed to no downside risk (beyond tax and interest) in taking highly questionable positions on their returns. Failure to file without reasonable1991 U.S. Tax Ct. LEXIS 66">*94 cause attracts its own addition to tax (described below), which imposes a significant downside risk if that gambit is tried. 3 Because there was no risk (beyond tax and interest) in failing to disclose a questionable position in a return,
1991 U.S. Tax Ct. LEXIS 66">*95 d.
In fact, the absence of such a gloss is not illogical. When we impose an addition to tax under
1991 U.S. Tax Ct. LEXIS 66">*96 e.
Finally, with regard to the legislative history of
f.
For the reasons stated, I would hold
g.
Before concluding this portion of the dissent, I note (as do the majority) that the issue here presented cannot arise for returns first due after 1989, since, in the Omnibus Budget Reconciliation Act of 1989, Pub. L. 101-239, 103 Stat. 2106. Congress repealed
IV.
I have concluded that the question here presented should be considered as a new matter. Because the majority emphasize that this is an appropriate occasion to apply the principle of
The majority cite1991 U.S. Tax Ct. LEXIS 66">*101
I am convinced that we should in this case correct the error and overrule a decision that does not rest on sound policy or reasoning. The precedent I would here overturn (
1. By Order of the Chief Judge, this case was reassigned to Judge Stephen J. Swift for disposition.↩
2. Unless otherwise indicated, all section references are to the Internal Revenue Code of 1954 as in effect for the years in issue.
*. 50 percent of the interest due on the portion of the underpayment attributable to negligence.↩
3.
4.
(a) Addition to Tax. -- If there is a substantial understatement of income tax for any taxable year, there shall be added to the tax an amount equal to * * * [25] percent of the amount of any underpayment attributable to such understatement.
(b) Definition and Special Rule. --
* * *
(2) Understatement. --
(A) In general. -- For purposes of paragraph (1), the term "Understatement" means the excess of --
(i) the amount of the tax required to be shown on the return for the taxable year, over
(ii) the amount of the tax imposed which is shown on the return.↩
5. With regard to unpublished opinions of the
47.5.3 Unpublished Opinions. Unpublished opinions are precedent. However, because every opinion believed to have precedential value is published, an unpublished opinion should normally be cited only when it (1) establishes the law of the case, (2) is relied upon as a basis for res judicata or collateral estoppel, or (3) involves related facts. If an unpublished opinion is cited, a copy shall be attached to each copy of the brief.
By order entered this date, the Clerk of the Tax Court is directed to serve the parties with a copy of the unpublished opinion of the Court of Appeals for the Fifth Circuit in
1. I have no quarrel with our conclusion in
2. See
3. In addition, we have said in several opinions that failure to file without reasonable cause is in itself sufficient grounds justifying an addition to tax for negligence. Thus, more than one penalty would attach to the taxpayer who unreasonably fails to timely file.↩
4. It appears that respondent would have been justified in here determining an addition to tax under
5. See, e.g.,