Charles M. Corbalis & Linda J. Corbalis v. Commissioner , 142 T.C. 46 ( 2014 )

CHARLES M. CORBALIS AND LINDA J. CORBALIS, PETITIONERS
v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
Docket No. 8220–13. Filed January 27, 2014.
Petitioners seek judicial review of Letters 3477 denying
their claim for interest suspension under I.R.C. sec. 6404(g)
and stating that the determinations are not subject to judicial
review under I.R.C. sec. 6404(h). Respondent has moved to
dismiss for lack of jurisdiction. Held: The Court has jurisdic-
tion under I.R.C. sec. 6404(h) to review denials of interest
suspension under I.R.C. sec. 6404(g). Held, further, the Let-
ters 3477 were final determinations for purposes of I.R.C. sec.
6404(h) even though petitioners’ concurrent claims for abate-
ment under I.R.C. sec. 6404(e) were still pending.
Cory Stigile, Sharyn M. Fisk, Della J. Bauserman, and
Charles Paul Rettig, for petitioners.
Najah J. Shariff, for respondent.
OPINION
COHEN, Judge: This case is before the Court on respond-
ent’s motion to dismiss for lack of jurisdiction. The primary
issue for decision is whether section 6404(h) applies to
denials of interest suspension under section 6404(g). If so, we
46
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(46) CORBALIS v. COMMISSIONER 47
must decide whether the notice from which petitioners seek
review is a final determination for purposes of section
6404(h)(1). All section references are to the Internal Revenue
Code in effect at all relevant times, and all Rule references
are to the Tax Court Rules of Practice and Procedure.
Background
The operative facts are set forth in respondent’s motion to
dismiss and have not been disputed. Petitioners resided in
California at the time they filed the petition. Petitioners seek
review of four separate Letters 3477 issued by the Internal
Revenue Service (IRS) on October 11, 2012, in which the IRS
concluded that interest suspension under section 6404(g)
does not apply with respect to taxable years 1996, 1997,
1998, and 1999 because of the effective date and because it
does not apply with respect to a liability reported on a
return. The explanation attached to each of the letters states
that examination of petitioners’ returns followed petitioners’
having filed two Forms 1045, Application for Tentative
Refund. The consequent examination of the returns encom-
passed 1996, 1997, 1998, 1999, 2001, 2002, 2003, and 2004.
Petitioners assert that the amounts in issue for 1996, 1997,
1998, and 1999 resulted from disallowance of a loss carried
back from 2001 and that, therefore, 2001 is also a year in
issue and is the year of the relevant tax return for deter-
mining whether section 6404(g) applies. Petitioners allege
jurisdiction under section 6404(h) and Rule 280. In addition,
petitioners allege that they meet the requirements of section
7430(c)(4)(A)(ii) and that a final determination has been
made not to abate interest under section 6404.
Each of the Letters 3477 sent to petitioners states: ‘‘The
judicial review provisions of IRC section 6404(h) do not apply
to IRC section 6404(g). Therefore, you do not have appeal
rights, nor may you petition the Tax Court for judicial review
regarding this letter.’’
Also on October 11, 2012, the IRS sent to petitioners two
separate Letters 2289 disallowing in full petitioners’ claim
for abatement of interest for taxable years 1996, 1997, 1998,
and 1999 under section 6404(e). Each of these Letters 2289
states: ‘‘This is not the IRS’s final determination’’. On
November 9, 2012, petitioners filed a protest to the deter-
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48 142 UNITED STATES TAX COURT REPORTS (46)
minations set forth in the Letters 3477 and 2289 dated
October 11, 2012.
Deferred Disputes
Respondent asserts that petitioners have not shown that
they meet the net worth requirements of section
7430(c)(4)(A)(ii) that are incorporated into section 6404(h).
Exhibits concerning petitioners’ net worth were identified in
the response to respondent’s motion but were inadvertently
omitted from the filed response. The exhibits were made part
of the record by a supplemental filing by petitioners. The
exhibits consist of separate affidavits and net worth state-
ments for each petitioner compiled by their accountant and
based upon acquisition costs of assets that petitioners pro-
vided to the accountant. Although we comment on that dis-
pute below, we do not resolve it at this time.
Respondent’s motion to dismiss presents those documents
and arguments on which we decide whether the Court has
jurisdiction in this case. For further understanding of the
context, however, and to indicate which arguments will nec-
essarily be addressed if we conclude that the Court has juris-
diction, we mention here additional contentions of the parties
that appear from the Letters 3477 that the IRS sent to peti-
tioners.
The amounts in dispute for 1996, 1997, 1998, and 1999
apparently arise from settlement of disallowed carrybacks to
those years of losses claimed for 2001. The IRS letters state,
among other things, that section 6404(g) does not apply to
years before 1998 and that interest suspension does not
apply with respect to any tax liability reported on a return.
The record here is inadequate to decide how section 6404(g)
applies to petitioners’ loss carrybacks, and the parties have
not addressed that issue in their filings. We therefore do not
opine on that dispute in this Opinion.
Petitioners have asserted before the IRS various grounds
for abatement of interest under section 6404(e) and continue
to pursue those claims administratively. They do not dispute
that the denial of their section 6404(e) claims was not a final
determination. Their petition, however, deals only with
interest suspension under section 6404(g).
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(46) CORBALIS v. COMMISSIONER 49
Discussion
Statutory Terms
Section 6404(a), (b), (e), and (f) provides:
SEC. 6404. ABATEMENTS.
(a) GENERAL RULE.—The Secretary is authorized to abate the unpaid
portion of the assessment of any tax or any liability in respect thereof,
which—
(1) is excessive in amount, or
(2) is assessed after the expiration of the period of limitations prop-
erly applicable thereto, or
(3) is erroneously or illegally assessed.
(b) NO CLAIM FOR ABATEMENT OF INCOME, ESTATE, AND GIFT TAXES.—
No claim for abatement shall be filed by a taxpayer in respect of an
assessment of any tax imposed under subtitle A or B.
* * * * * * *
(e) ABATEMENT OF INTEREST ATTRIBUTABLE TO UNREASONABLE ERRORS
AND DELAYS BY INTERNAL REVENUE SERVICE.—
(1) IN GENERAL.—In the case of any assessment of interest on—
(A) any deficiency attributable in whole or in part to any
unreasonable error or delay by an officer or employee of the Internal
Revenue Service (acting in his official capacity) in performing a min-
isterial or managerial act, or
(B) any payment of any tax described in section 6212(a) to the
extent that any unreasonable error or delay in such payment is
attributable to such officer or employee being erroneous or dilatory
in performing a ministerial or managerial act,
the Secretary may abate the assessment of all or any part of such
interest for any period. For purposes of the preceding sentence, an
error or delay shall be taken into account only if no significant aspect
of such error or delay can be attributed to the taxpayer involved, and
after the Internal Revenue Service has contacted the taxpayer in
writing with respect to such deficiency or payment.
(2) INTEREST ABATED WITH RESPECT TO ERRONEOUS REFUND CHECK.—
The Secretary shall abate the assessment of all interest on any erro-
neous refund under section 6602 until the date demand for repayment
is made, unless—
(A) the taxpayer (or a related party) has in any way caused such
erroneous refund, or
(B) such erroneous refund exceeds $50,000.
(f) ABATEMENT OF ANY PENALTY OR ADDITION TO TAX ATTRIBUTABLE
TO ERRONEOUS WRITTEN ADVICE BY THE INTERNAL REVENUE SERVICE.—
(1) IN GENERAL.—The Secretary shall abate any portion of any pen-
alty or addition to tax attributable to erroneous advice furnished to
the taxpayer in writing by an officer or employee of the Internal Rev-
enue Service, acting in such officer’s or employee’s official capacity.
(2) LIMITATIONS.—Paragraph (1) shall apply only if—
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50 142 UNITED STATES TAX COURT REPORTS (46)
(A) the written advice was reasonably relied upon by the taxpayer
and was in response to a specific written request of the taxpayer,
and
(B) the portion of the penalty or addition to tax did not result from
a failure by the taxpayer to provide adequate or accurate informa-
tion.
(3) INITIAL REGULATIONS.—Within 180 days after the date of the
enactment of this subsection, the Secretary shall prescribe such initial
regulations as may be necessary to carry out this subsection.
Section 6404(g) was added by the Internal Revenue Service
Restructuring and Reform Act of 1998 (RRA 1998), Pub. L.
No. 105–206, sec. 3305(a), 112 Stat. at 743, effective for tax
years ending after July 22, 1998. Section 6404(g) provides:
SEC. 6404(g). SUSPENSION OF INTEREST AND CERTAIN PENALTIES
WHERE SECRETARY FAILS TO CONTACT TAXPAYER.—
(1) SUSPENSION.—
(A) IN GENERAL.—In the case of an individual who files a return
of tax imposed by subtitle A for a taxable year on or before the due
date for the return (including extensions), if the Secretary does not
provide a notice to the taxpayer specifically stating the taxpayer’s
liability and the basis for the liability before the close of the 36-
month period beginning on the later of—
(i) the date on which the return is filed; or
(ii) the due date of the return without regard to extensions,
the Secretary shall suspend the imposition of any interest, penalty,
addition to tax, or additional amount with respect to any failure
relating to the return which is computed by reference to the period
of time the failure continues to exist and which is properly allocable
to the suspension period.
(B) SEPARATE APPLICATION.—This paragraph shall be applied
separately with respect to each item or adjustment.
If, after the return for a taxable year is filed, the taxpayer provides
to the Secretary 1 or more signed written documents showing that the
taxpayer owes an additional amount of tax for the taxable year, clause
(i) shall be applied by substituting the date the last of the documents
was provided for the date on which the return is filed.
(2) EXCEPTIONS.—Paragraph (1) shall not apply to—
(A) any penalty imposed by section 6651;
(B) any interest, penalty, addition to tax, or additional amount in a
case involving fraud;
(C) any interest, penalty, addition to tax, or additional amount with
respect to any tax liability shown on the return;
(D) any interest, penalty, addition to tax, or additional amount with
respect to any gross misstatement;
(E) any interest, penalty, addition to tax, or additional amount with
respect to any reportable transaction with respect to which the
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(46) CORBALIS v. COMMISSIONER 51
requirement of section 6664(d)(2)(A) is not met and any listed trans-
action (as defined in 6707A(c)); or
(F) any criminal penalty.
(3) SUSPENSION PERIOD.—For purposes of this subsection, the term
‘‘suspension period’’ means the period—
(A) beginning on the day after the close of the 36-month period
under paragraph (1); and
(B) ending on the date which is 21 days after the date on which
notice described in paragraph (1)(A) is provided by the Secretary.
The provision for Tax Court review of interest abatement
requests was first adopted as part of the RRA 1998. The rel-
evant subsection now provides:
SEC. 6404(h). REVIEW OF DENIAL OF REQUEST FOR ABATEMENT OF
INTEREST.—
(1) IN GENERAL.—The Tax Court shall have jurisdiction over any
action brought by a taxpayer who meets the requirements referred to
in section 7430(c)(4)(A)(ii) to determine whether the Secretary’s failure
to abate interest under this section was an abuse of discretion, and
may order an abatement, if such action is brought within 180 days
after the date of the mailing of the Secretary’s final determination not
to abate such interest.
(2) SPECIAL RULES.—
(A) DATE OF MAILING.—Rules similar to the rules of section 6213
shall apply for purposes ofdetermining the date of the mailing
referred to in paragraph (1).
(B) RELIEF.—Rules similar to the rules of section 6512(b) shall
apply for purposes of this subsection.
(C) REVIEW.—An order of the Tax Court under this subsection
shall be reviewable in the same manner as a decision of the Tax
Court, but only with respect to the matters determined in such
order.
When enacted in 1996 as part of the Taxpayer Bill of
Rights 2 (TBOR 2), Pub. L. No. 104–168, sec. 302(a), 110
Stat. at 1457–1458 (1996) (as amended by TBOR 2 sec.
701(a) and (c)(3), 110 Stat. at 1463, 1464), then section
6404(g), now section 6404(h), for the first time gave this
Court jurisdiction to review requests for abatement of
interest in the case of proceedings commenced after July 30,
1996. Before the enactment of that provision, the Court gen-
erally lacked jurisdiction over issues involving interest. See
Yuen v. Commissioner, 112 T.C. 123, 126–127 (1999); 508
Clinton St. Corp. v. Commissioner, 89 T.C. 352, 354–355
(1987).
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52 142 UNITED STATES TAX COURT REPORTS (46)
Respondent relies on the historic limitations on our juris-
diction over interest and the use of the terms ‘‘suspension’’
and ‘‘shall’’ in section 6404(g) rather than ‘‘abatement’’ and
‘‘may’’ in sections such as 6404(e) in arguing that section
6404(h) does not apply to petitioners’ claims under section
6404(g). Petitioners respond that ‘‘abatement’’ in the title and
context of section 6404 includes ‘‘suspension’’ and that
‘‘decisions under Section 6404(g) are not in the absolute
discretion of Respondent and are more susceptible to Tax
Court review than decisions under Section 6404(e)(1).’’ The
parties agree only that the legislative history of section
6404(g) is silent on the subject of this dispute.
Respondent also cites Rev. Proc. 2005–38, sec. 2.05, 2005–
2 C.B. 81, 81, without quoting the applicable text. That text,
and the related section 3.03, are as follows:
SECTION 2. BACKGROUND
* * * * * * *
.05 Section 6404(h) provides the United States Tax Court with juris-
diction over any action brought by a taxpayer who meets the require-
ments of section 7430(c)(4)(A)(ii) to determine whether the Secretary’s
failure to abate interest was an abuse of discretion, and to order an
abatement. The action must be brought within 180 days after the date
of mailing of the Secretary’s final determination not to abate interest.
The judicial review provisions of section 6404(h) apply where the
Service has abused its discretion by failing to abate interest as provided
by section 6404. These provisions do not apply where the Service has
failed to suspend interest under section 6404(g), except as provided in
paragraph 3.03 below.
SECTION 3. ADMINISTRATIVE REVIEW PROCEDURE
* * * * * * *
.03 If a taxpayer asserts that the Service failed to suspend interest
under section 6404(g) as a result of an unreasonable error or delay in
performing a ministerial or managerial act within the meaning of section
6404(e), the taxpayer may submit a claim for abatement on Form 843.
The Service will consider the claim and issue a notice of final determina-
tion. If the Service denies the taxpayer’s claim in whole or in part, tax-
payers who meet the requirements referred to in section 7430(c)(4)(A)(ii)
may petition the Tax Court under section 6404(h) to determine whether
the denial was an abuse of discretion. Pursuant to section 6404(b), a
claim may not be submitted under this section 3.03 asserting only that
interest was assessed for periods during which interest should have been
suspended under section 6404(g).
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(46) CORBALIS v. COMMISSIONER 53
Petitioners argue that Rev. Proc. 2005–38, sec. 2.05, states
an exception to a general rule in section 3.03. Respondent
replies that petitioners have ignored the last sentence of the
revenue procedure and that
[a] more intuitive interpretation of the revenue procedure, which is pre-
sented in the Motion at paragraphs 31–32, is that paragraph 3.03 pro-
vides guidance for circumstances where the elements of both I.R.C.
§ 6404(e) and I.R.C. § 6404(g) are met. In that special case, taxpayers
may file a claim for abatement under I.R.C. § 6404(e) of interest that
rightfully should have been suspended under I.R.C. § 6404(g), but for
unreasonable error or delay on behalf of an officer or employee of
respondent in the performance of a managerial or ministerial function.
Respondent does not argue that the revenue procedure is
entitled to deference or provide an explanation of the rea-
soning behind it. There is no explanation of why section
6404(b) precludes section 6404(h) judicial review of section
6404(g) determinations while not conflicting with judicial
review of section 6404(e) determinations. The apparent pur-
pose of the subsections of section 6404 is to lay out specific
exceptions to and extensions of the general rule in section
6404(a). Otherwise section 6404(b) would seem to contradict
section 6404(e) and (f) to the same extent that respondent
suggests that it restricts section 6404(g).
In many cases, we have discussed the deference due to
pronouncements of the IRS. See, e.g., Taproot Admin. Servs.,
Inc. v. Commissioner, 133 T.C. 202, 208–210 (2009) (dealing
with a disputed revenue ruling), aff ’d, 679 F.3d 1109 (9th
Cir. 2012). Revenue rulings are ‘‘an official interpretation by
the Service’’. Sec. 601.601(d)(2)(i)(a), Statement of Procedural
Rules. By contrast, section 601.601(d)(2)(i)(b), Statement of
Procedural Rules, states that ‘‘[a] ‘Revenue Procedure’ is a
statement of procedure that affects the rights or duties of
taxpayers or other members of the public under the Code and
related statutes or information that, although not necessarily
affecting the rights and duties of the public, should be a
matter of public knowledge.’’ A statement of procedure does
not purport to be an official interpretation, and respondent
does not argue here that the procedure is entitled to def-
erence as an interpretation of section 6404. The revenue
procedure, in respondent’s terms, ‘‘provides guidance for cir-
cumstances’’ in which taxpayers may file a claim for abate-
ment of interest that should have been suspended.
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54 142 UNITED STATES TAX COURT REPORTS (46)
Respondent argues only ‘‘an intuitive interpretation’’ of the
procedural guidance.
There is no reasoning in support of the conclusion stated
in the revenue procedure, and we discern none for distin-
guishing between section 6404(e) requests and section
6404(g) requests. Thus, the revenue procedure is not entitled
to deference. See Exxon Mobil Corp. v. Commissioner, 689
F.3d 191, 200 (2d Cir. 2012), aff ’g 136 T.C. 99, 117 (2011).
A procedural pronouncement cannot restrict or revise section
6404(h). See Commissioner v. Schleier, 515 U.S. 323, 336 n.8
(1995); Estate of Kunze v. Commissioner, 233 F.3d 948, 952
(7th Cir. 2000), aff ’g T.C. Memo. 1999–344. The wording and
context of the statute, supplemented by more general legal
principles, control.
First, we agree with petitioners that all of section 6404
deals with abatement, of which suspension is a category. A
claim that interest should have been suspended for a period
is the logical equivalent of a claim for abatement of interest
that has been assessed for that period. As petitioners
explain:
Under Section 6404(g), interest begins to accrue on a liability from the
due date of the return until Respondent issues a notice stating a liability
and the basis for that liability within 18-months [currently 36-months]
of the later of due date of the return or the date the return was filed.
See IRC § 6404(g). If Respondent fails to issue the notice by the time
prescribed, the interest accrued on the liability during the suspension
period is abated. If Respondent issues the notice within the time period
prescribed, the accrued interest remains assessed. That the Code pro-
vides for the specific term ‘‘suspension period’’ does not mean that the
later elimination of interest for that period is not in fact an abatement.
We agree with petitioners’ explanation. Although the factual
record is incomplete, it appears from the Letters 3477 that
the interest in dispute has been assessed. If the assessment
is erroneous because part of the interest should have been
suspended, abatement would be the remedy.
The Court has stated, without limitation, that ‘‘section
6404(h) authorizes the Court to review for an abuse of discre-
tion the Commissioner’s refusal to abate interest under sec-
tion 6404.’’ Urbano v. Commissioner, 122 T.C. 384, 390
(2004) (citing Woodral v. Commissioner, 112 T.C. 19, 22–23
(1999)). We see no persuasive reason why, as suggested by
respondent, petitioners should have to seek recourse on their
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(46) CORBALIS v. COMMISSIONER 55
suspension of interest claim in another court. See Hinck v.
United States, 550 U.S. 501, 506–508 (2007) (discussing
congressional intent to provide exclusive jurisdiction to the
Tax Court in interest abatement cases).
We see no persuasive reason why interest suspension,
when enacted in the RRA 1998, was to be treated separately
from interest abatement for purposes of judicial review.
When the interest suspension provision was adopted in 1998,
the judicial review provision was redesignated by the RRA
1998 from section 6404(g) to section 6404(i); it was changed
to section 6404(h) in 2002 by the Victims of Terrorism Tax
Relief Act of 2001, Pub. L. No. 107–134, sec. 112(d)(1), 115
Stat. at 2434. In each version of the statute, the provision for
judicial review follows the types of determinations subject to
review. We are cognizant of section 7806(b), which provides
in part that ‘‘[n]o inference, implication, or presumption of
legislative construction shall be drawn or made by reason of
the location or grouping of any particular section or provision
or portion of this title’’. However, we can consider the simi-
larity of terms and provisions within the Code as an aid to
interpretation. See Pen Coal Corp. v. Commissioner, 107 T.C.
249, 256, 258 (1996). What subsections (e), (f), and (g) of sec-
tion 6404 have in common is that they are relief provisions
for taxpayers affected by errors or omissions of the IRS. We
see no reason to characterize differently the effect of the
grant of jurisdiction to review denials of abatement under
these subsections.
Second, we agree with petitioners that nondiscretionary
acts, suggested by the use of ‘‘shall’’ in a statute, are more
susceptible of judicial review than discretionary acts. Histori-
cally, clear indications of congressional intent to subject
discretionary administrative action to judicial review have
been required. See Citizens to Preserve Overton Park, Inc. v.
Volpe, 401 U.S. 402, 410 (1971) (interpreting 5 U.S.C. sec.
701(a)(2), which exempts discretionary administrative action
from judicial review), abrogated on other grounds by Califano
v. Sanders, 430 U.S. 99 (1977); Argabright v. United States,
35 F.3d 472, 475 (9th Cir. 1994); Selman v. United States,
941 F.2d 1060, 1064 (10th Cir. 1991); Horton Homes, Inc. v.
United States, 936 F.2d 548, 551–552 (11th Cir. 1991). The
enactment of section 6404(h), initially as section 6404(g), ren-
dered obsolete cases such as Argabright, Selman, and Horton
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56 142 UNITED STATES TAX COURT REPORTS (46)
Homes, which denied judicial review of IRS discretionary
denials of abatement of interest. See Miller v. Commissioner,
310 F.3d 640, 643 (9th Cir. 2002), aff ’g T.C. Memo. 2000–
196. Cases mentioning but not applying the interest suspen-
sion provisions of section 6404(g) were deficiency cases that
did not involve a final determination not to suspend interest
that had been assessed or involved years before the effective
date of section 6404(h). None held that we lack jurisdiction
under section 6404(g). See, e.g., Fields v. Commissioner, T.C.
Memo. 2008–207, slip op. at 10 n.4; Matthews v. Commis-
sioner, T.C. Memo. 2008–126; Goode v. Commissioner, T.C.
Memo. 2006–48. Comments in factually distinguishable
situations are not controlling and, in any event, could be
interpreted as implying that section 6404(h) applied to
claims for suspension of interest in other circumstances, i.e.,
where the interest had been assessed and for years after the
effective date. To the extent that respondent relies on his-
tory, we conclude that the history relied on has been under-
mined by the enactment of judicial review provisions now
found in section 6404(h). See Miller v. Commissioner, 310
F.3d at 643.
We see no merit in respondent’s reliance on the use of
‘‘shall’’ in section 6404(g) to argue against reviewability of
the IRS decision with respect to suspension of interest. The
use of ‘‘shall’’ in section 6404(e)(2), for example, does not pre-
clude review in this Court of administrative decisions under
that section. See Allcorn v. Commissioner, 139 T.C. 53, 66
(2012); Pettyjohn v. Commissioner, T.C. Memo. 2001–227.
Third, respondent’s position ignores a strong presumption
that the actions of an administrative agency are subject to
judicial review. See United States v. Winthrop Towers, 628
F.2d 1028, 1032, 1035 (7th Cir. 1980); Roski v. Commis-
sioner, 128 T.C. 113, 122 (2007); Estate of Gardner v.
Commissioner, 82 T.C. 989, 994 (1984).
In Estate of Gardner, we held that the Court has jurisdic-
tion to review denial of an extension of time for filing an
estate tax return under section 6081(a). We first looked to
the overall statutory scheme to see whether it disclosed any
basis for inferring ‘‘nonreviewability’’. Estate of Gardner v.
Commissioner, 82 T.C. at 996. We see no such basis in sec-
tion 6404. Second, we concluded that there were ascertain-
able standards upon which to base our review. Id. at 997.
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(46) CORBALIS v. COMMISSIONER 57
Section 6404(g) sets out specific guidelines for suspension of
interest. The Court is well equipped to make the factual
determinations required under that provision. Next, in Estate
of Gardner, we concluded that the action of the IRS with
respect to requests for extensions of time for filing were a
suitable subject for judicial review because ‘‘[t]here is nothing
to suggest that respondent’s exercise of discretion * * *
involves any agency expertise beyond the competence of
courts.’’ Id. at 997–998. We see no special factors with
respect to suspension of interest distinguishing it from other
issues over which this Court has jurisdiction. Finally, we
commented that our review of an IRS action denying the
request of the taxpayer would not impair the Commissioner’s
ability to carry out congressionally assigned duties. Id. at
998. The same comment applies in this case.
For the foregoing reasons, we hold that denials of interest
suspension under section 6404(g) are not excluded from
judicial review in this Court under section 6404(h).
Final Determination
Respondent’s moving papers refer to the statements in Let-
ters 2289 that the letters were not the IRS’ final determina-
tion and that the administrative proceedings involving peti-
tioners’ claim for abatement under section 6404(e) are
ongoing. Thus, respondent argues petitioners’ petition is pre-
mature.
Petitioners cite Gray v. Commissioner, 138 T.C. 295 (2012),
aff ’d, 723 F.3d 790 (7th Cir. 2013), for the holding that a
final determination need not be made by a formal letter
stating that it is a final determination. The Court dismissed
as meritless respondent’s suggestion that there was no final
determination ‘‘because it did not occur in connection with a
stand-alone request for interest abatement under section
6404 or because it was not made on a Letter 3180, Final
Determination Letter for Fully Disallowing an Interest
Abatement Claim’’. Id. at 304; see also Cooper v. Commis-
sioner, 135 T.C. 70, 75 (2010) (holding that jurisdiction is
established when the Commissioner issues a written notice
embodying a determination without regard to the name or
label of the document).
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58 142 UNITED STATES TAX COURT REPORTS (46)
The Letters 3477 sent to petitioners denied their claim to
interest suspension and took the position that petitioners
could not petition this Court for judicial review. Thus, if
upheld by the Court, the IRS denial of interest suspension
and disavowal of the right to judicial review under section
6404(h) would leave petitioners with no further recourse,
which is a final determination. Although the contempora-
neous Letters 2289 anticipated further proceedings with
respect to the claim for abatement under section 6404(e) for
unreasonable errors and delays by the IRS, the claim based
on section 6404(g) is severable to the extent that it relies
only on the periods established for the IRS to contact the tax-
payer with regard to a tax liability. See Gray v. Commis-
sioner, 138 T.C. at 305. If petitioners had delayed filing a
petition under section 6404(g), respondent might argue that
the petition was untimely under section 6404(h)(1) because it
was not brought within 180 days of the letters rejecting their
claim for interest suspension. See sec. 6404(h)(l). We conclude
that the Letters 3477 were final determinations for jurisdic-
tional purposes under section 6404(h).
Section 7430(c)(4)(A)(ii)
Respondent’s motion argues that there is ‘‘no evidence’’ to
support petitioners’ allegations that they meet the net worth
requirements of section 7430(c)(4)(A)(ii) or that they are a
‘‘prevailing party’’ entitled to bring an action under section
6404(h). Respondent thus asserts that the petition is pre-
mature.
Respondent’s reference to ‘‘prevailing party’’ is anomalous
in this context, because there would be no interest accruing
on a tax liability to the extent that taxpayers prevail on an
underlying issue. We infer, therefore, that the incorporation
into section 6404(h) of section 7430(c) requirements refers
only to net worth requirements set forth in 28 U.S.C. sec.
2412(d). See Estate of Kunze v. Commissioner, T.C. Memo.
1999–344.
Respondent also contends that we should disregard the
affidavits and net worth statements of petitioners as unreli-
able. Respondent acknowledges that in the case of a husband
and wife, the net worth test is applied to each separately. See
Hong v. Commissioner, 100 T.C. 88, 91 (1993). Respondent
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(46) CORBALIS v. COMMISSIONER 59
also ‘‘acknowledges that the current state of the law is to use
acquisition cost, adjusted for depreciation, rather than fair
market value to compute net worth.’’ See Swanson v.
Commissioner, 106 T.C. 76, 94–97 (1996). However,
respondent asserts that fair market value is the better
standard to use rather than acquisition cost, citing Powers v.
Commissioner, 100 T.C. 457, 483–484 (1993) (accepting fair
market values which had declined significantly from acquisi-
tion costs), aff ’d in part, rev’d in part, 43 F.3d 172 (5th Cir.
1995), and section 301.7430–5(g)(1), Proposed Income Tax
Regs., 74 Fed. Reg. 61589–01, 61595–61596 (Nov. 25, 2009).
Neither Powers, a case decided before Swanson, nor a pro-
posed regulation changes the existing law on this subject. We
decline to do so in a case in which the relevant facts have
not been determined.
The petition alleges that petitioners meet the requirements
of section 7430(c)(4)(A)(ii). Such an allegation is required in
the petition and is inherently subject to proof, but ‘‘evidence’’
is not appropriately included in a petition. See Rule 281(b)(5).
Petitioners’ net worth and other qualifications to maintain an
action under section 6404 are better decided in subsequent
proceedings in which evidence may be taken. See Gray v.
Commissioner, 138 T.C. at 306. We decline to disregard the
pleading and affidavits on the present record.
Although petitioners’ entitlement to bring this action and
to suspension of interest may be subject to further obstacles,
we conclude that the Court has jurisdiction under section
6404(h) to review denials of interest suspension under sec-
tion 6404(g) and that the IRS Letters 3477 contained final
determinations sufficient to give the Court jurisdiction in
this case.
An order denying respondent’s motion to
dismiss will be issued.
f
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