Michael Patrick and Debye Lee Leahy v. Commissioner

129 T.C. No. 8

• Court: United States Tax Court
• Decided: September 17, 2007
• Docket: 17199-06L
• Status: Unknown

Opinion

129 T.C. No. 8

UNITED STATES TAX COURT

MICHAEL PATRICK AND DEBYE LEE LEAHY, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 17199-06L. Filed September 17, 2007.

Ps filed a petition pursuant to sec. 6330(d), I.R.C., challenging R’s determination concerning collection of Ps’ unpaid income tax for the years 1996- 2000. Ps requested that their case be conducted under the small tax case procedures authorized by sec. 7463(f)(2), I.R.C., in the case of “an appeal under section 6330(d)(1)(A) to the Tax Court of a determination in which the unpaid tax does not exceed $50,000.” On the date respondent issued the notice of determination, the total amount of unpaid tax exceeded $50,000. Nevertheless, Ps contend that because they dispute less than $50,000 of the underlying tax liability, this case should proceed under the small tax case procedures of sec. 7463(f)(2), I.R.C. - 2 -

Held: For a case to qualify for the small tax case procedures under sec. 7463(f)(2), I.R.C., the total amount of “unpaid tax” (which includes interest and penalties), calculated as of the date of the notice of determination, cannot exceed $50,000. The amount of the underlying tax liability in dispute is irrelevant. Therefore, this case is not eligible to be conducted under the small tax case procedures of sec. 7463, I.R.C.

Michael Patrick and Debye Lee Leahy, pro sese.

John R. Bampfield, for respondent.

OPINION

RUWE, Judge: Pursuant to section 6330(d), petitioners filed

a petition for review of respondent’s Notice of Determination

Concerning Collection Action(s) Under Section 6320 and/or 6330

(notice of determination).1 Petitioners request that this case

be conducted under section 7463(f)(2), which provides for what

are commonly referred to as “small tax case” or “S case”

procedures where a taxpayer is challenging a collection

determination in which the unpaid tax does not exceed $50,000.2

In this Opinion we decide whether this case is eligible to

proceed as a small tax case.

1 Unless otherwise indicated, all section references are to the Internal Revenue Code, and all Rule references are to the Tax Court Rules of Practice and Procedure. 2 Sec. 7463 and Rule 174(b) generally allow disputes in small tax cases to be decided in proceedings in which the normally applicable procedures and evidentiary rules are relaxed. - 3 -

On February 14, 2007, this Court held that the $50,000 limit

in section 7463(f)(2) refers to the total amount of “unpaid tax”

(including interest and penalties)3 which the Commissioner has

determined to collect. Schwartz v. Commissioner, 128 T.C. 6, 12

(2007).4 Respondent argues that this case cannot proceed as a

small tax case because the total amount of unpaid tax on the date

he issued the notice of determination exceeded $50,000.5

Petitioners do not dispute respondent’s assertion that the

aggregate unpaid tax that respondent determined to collect for

the years 1996 through 2000 exceeded $50,000 on the date of

respondent’s notice of determination. Nevertheless, petitioners

argue that a section 6330 collection case may be conducted under

the small tax case procedures of section 7463(f)(2) when the

amount of the underlying tax liability “in dispute” is less than

$50,000. In their petition, they agree to $20,000 of the

underlying tax liability. Petitioners argue that the remaining

amount of the underlying tax liability, which they dispute, is

3 Sec. 7463(f)(2) refers to the amount of “unpaid tax” in a sec. 6330 collection case. Any reference in the Internal Revenue Code to “tax” (with exceptions not applicable to this case) shall be deemed to include interest and penalties. Secs. 6601(e)(1), 6665(a); Schwartz v. Commissioner, 128 T.C. 6, 8 table n.1 (2007). 4 The fact that the unpaid tax for each individual year did not exceed $50,000 was held to be irrelevant. Schwartz v. Commissioner, supra at 12. 5 Respondent alleges that the amount of unpaid tax on the date of the notice of determination was $61,397.54. - 4 -

less than $50,000, making this case eligible to proceed under the

small tax case procedures.6 Respondent argues that the amount of

the underlying tax liability in dispute is not relevant to

determining small tax case eligibility in a section 6330

collection case because eligibility is measured by the amount of

“unpaid tax” that the Commissioner has determined to collect, not

the amount of the underlying tax liability in dispute.

Section 7463(f) provides:

SEC. 7463(f). Additional Cases in Which Proceedings May Be Conducted Under This Section.–-At the option of the taxpayer concurred in by the Tax Court or a division thereof before the hearing of the case, proceedings may be conducted under this section (in the same manner as a case described in subsection (a)) in the case of--

(1) a petition to the Tax Court under section 6015(e) in which the amount of relief sought does not exceed $50,000, and

(2) an appeal under section 6330(d)(1)(A) to the Tax Court of a determination in which the unpaid tax does not exceed $50,000.[7]

6 In their last filing with the Court petitioners state: “Petitioner [sic] argues that this determination should be conducted under ‘S case’ procedures as the amount in dispute is not the fall [sic] amount of the determination ($61,397.54). Petitioner [sic] does not dispute $20,310.00 of this determination. The amount of dispute is $41,097.54, which is below the $50,000 threshold.” We attribute to a math error the $10 difference between the amount respondent determined and the sum of the tax petitioners conceded plus the alleged amount in dispute. 7 Sec. 6330(d) was amended by the Pension Protection Act of 2006, Pub. L. 109-280, sec. 855(a), 120 Stat. 1019, for determinations made after the date which is 60 days after Aug. 17, 2006. The amendment eliminated subsec. (d)(1)(A). However, (continued...) - 5 -

Unlike the dollar limitation in section 7463(a) that refers to

“the amount of the deficiency placed in dispute,”8 the dollar

limitation in section 7463(f)(2) refers to the amount of “unpaid

tax”. Section 7463(f)(2), not section 7463(a), controls whether

7 (...continued) the reference to subsec. (d)(1)(A) in sec. 7463(f)(2) was not changed. In any event, the amendment does not affect this case because the determination was made on Aug. 1, 2006. See Schwartz v. Commissioner, supra at 9 n.4. 8 Sec. 7463(a) provides:

SEC. 7463(a). In General.--In the case of any petition filed with the Tax Court for a redetermination of a deficiency where neither the amount of the deficiency placed in dispute, nor the amount of any claimed overpayment, exceeds--

(1) $50,000 for any one taxable year, in the case of the taxes imposed by subtitle A,

(2) $50,000, in the case of the tax imposed by chapter 11,

(3) $50,000 for any one calendar year, in the case of the tax imposed by chapter 12, or

(4) $50,000 for any 1 taxable period (or, if there is no taxable period, taxable event) in the case of any tax imposed by subtitle D which is described in section 6212(a) (relating to a notice of deficiency),

at the option of the taxpayer concurred in by the Tax Court or a division thereof before the hearing of the case, proceedings in the case shall be conducted under this section. Notwithstanding the provisions of section 7453, such proceedings shall be conducted in accordance with such rules of evidence, practice, and procedure as the Tax Court may prescribe. A decision, together with a brief summary of the reasons therefor, in any such case shall satisfy the requirements of sections 7459(b) and 7460. - 6 -

the instant section 6330 collection case qualifies for the small

tax case procedures. Therefore, we look to the amount of “unpaid

tax” that respondent has determined to collect, not the amount of

the underlying tax liability in dispute, to decide whether this

case may proceed under the small tax case procedures of section

7463(f)(2). Schwartz v. Commissioner, supra.9

It is true that, in certain limited circumstances, a

taxpayer can dispute all or a portion of the “underlying tax

liability” in a section 6330 collection case. See Goza v.

Commissioner, 114 T.C. 176, 180-182 (2000). However, the fact

that petitioners are disputing less than $50,000 of the

underlying tax liability has no relevance to the application of

the dollar limit in section 7463(f)(2). Section 7463(f)(2)

applies to the case of “an appeal under section 6330(d)(1)(A) to

the Tax Court of a determination in which the unpaid tax does not

exceed $50,000.” (Emphasis added.) We hold that for a case to

qualify for the small tax case procedures under section

7463(f)(2), the total amount of unpaid tax that the Commissioner

has determined to collect cannot exceed $50,000. The amount of

the underlying tax liability in dispute is irrelevant.

Respondent cites Schwartz for the proposition that the

amount of “unpaid tax” (including interest and penalties) should

9 In Schwartz, the taxpayers were not disputing the amount of their underlying tax liability. Schwartz v. Commissioner, supra at 10 n.6. - 7 -

be determined as of the date of the notice of determination. In

Schwartz, we did not explicitly decide when the amount of unpaid

tax should be calculated for purposes of applying the dollar

limit in section 7463(f)(2). Even though petitioners do not

dispute respondent’s assertion that the amount of unpaid tax

should be determined as of the date of the notice of

determination, this issue concerns the Court’s authority to

proceed under section 7463 and is in the nature of a

jurisdictional question, which may be raised sua sponte at any

time.10 Petrane v. Commissioner, 129 T.C. 1, __ (2007) (slip op.

at 3); see Schwartz v. Commissioner, 128 T.C. at 8; Stewart v.

Commissioner, 127 T.C. 109, 112 (2006).

This Court has previously held “that the date of filing a

petition under section 6015(e) [for relief from joint liability]

is the date on which the amount of relief sought should be

calculated for purposes of deciding whether a section 6015(e)

stand-alone case may proceed under the small tax case procedures

of section 7463(f)(1).” Petrane v. Commissioner, supra at __

(slip op. at 11). Section 7463(f)(1) refers to the case of “a

petition to the Tax Court under section 6015(e) in which the

amount of relief sought does not exceed $50,000”. (Emphasis

10 There is no question that we have jurisdiction to review respondent’s determination under sec. 6330. The question is whether we can decide this matter as a small tax case under sec. 7463. Schwartz v. Commissioner, 128 T.C. at 8 n.3. - 8 -

added.) The words “in which” in section 7463(f)(1) can logically

refer back only to “a petition”, not to “the Tax Court” or

“section 6015(e)”. While the petition date was the appropriate

date on which to calculate the amount of spousal relief sought

for purposes of section 7463(f)(1), the proper date to calculate

the amount of unpaid tax in a section 6330 collection case must

be analyzed separately under the specific, but different,

language of section 7463(f)(2).

Respondent alleges that the amount of unpaid tax on the date

of the notice of determination exceeds $50,000, and petitioners

do not dispute this. If the date of the notice of determination

is the date for determining the amount of unpaid tax for purposes

of section 7463(f)(2), then this case cannot proceed as a small

tax case. However, if a subsequent date, such as the date of

filing the petition, is the relevant date, we would have to

ascertain the unpaid tax on that later date. Occurrences after

issuance of the notice of determination, such as abatements,

payments, or credits, could decrease the amount of unpaid tax as

of any subsequent date. The amount of unpaid tax depends on the

amount of accrued interest as of a particular date. Therefore,

it is necessary to decide the date on which the amount of unpaid

limit in section 7463(f)(2). - 9 -

Section 7463(f)(2) refers to the case of “an appeal under

section 6330(d)(1)(A) to the Tax Court of a determination in

which the unpaid tax does not exceed $50,000.” (Emphasis added.)

The words “in which” could conceivably refer back to either “an

appeal” or “a determination”. An “appeal” within the meaning of

section 7463(f)(2) occurs when the taxpayer petitions the Tax

Court. However, if the words “in which” were meant to refer to

“an appeal”, then inclusion of the words “of a determination”

immediately preceding “in which the unpaid tax does not exceed

$50,000” would be rendered surplusage and could have been

omitted. Statutory language is interpreted by giving each word

its plain, obvious, and rational meaning. Am. Tobacco Co. v.

Patterson, 456 U.S. 63, 68 (1982); United States v. Merriam, 263

U.S. 179, 187-188 (1923); Liddle v. Commissioner, 103 T.C. 285,

293 n.4 (1994), affd. 65 F.3d 329 (3d Cir. 1995). Fundamental

principles of statutory construction generally preclude us from

reading a statute in such a way as to render statutory language

mere surplusage. Zapara v. Commissioner, 126 T.C. 215, 231

(2006); see also United States v. Campos-Serrano, 404 U.S. 293,

301 n.14 (1971). Failure to give any meaning to the words “of a

determination” in interpreting section 7463(f)(2) would violate

these canons of statutory construction. In addition, it is a

general rule of style and composition to position a modifying

word or clause close to the term it explains in order to avoid - 10 -

awkwardness, confusion, and ambiguity. See Strunk & White, The

Elements of Style 28-31 (4th ed. 2000); see also Richmond, Legal

Writing: Form and Function 145-147 (2002). The clause “in which

the unpaid tax does not exceed $50,000” acts as a modifier to a

noun, and the noun “determination” immediately precedes “in which

the unpaid tax does not exceed $50,000”.

We conclude that the $50,000 limit refers to the total

unpaid tax as of the date of the determination. Accordingly, we

hold that for purposes of deciding whether a section 6330

collection case may proceed under the small tax case procedures

provided for in section 7463(f)(2), the date the Commissioner

issues the notice of determination is the date on which the

amount of unpaid tax should be calculated.11

The total unpaid tax on the date respondent issued the

notice of determination exceeds the $50,000 limit provided in

section 7463(f)(2). We will therefore deny petitioners’ request

to have this case proceed under the small tax case procedures.

To reflect the foregoing,

An appropriate order will be issued.

11 The total amount of unpaid tax is often omitted from notices of determination issued pursuant to sec. 6330. The Commissioner could assist taxpayers and the Court if he were to calculate the total unpaid tax as of the date of the sec. 6330 notice of determination and include it in the notice.