T.C. Memo. 1998-352
UNITED STATES TAX COURT
THEODORE EDWARD HAGADONE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 6022-97. Filed October 5, 1998.
Theodore Edward Hagadone, pro se.
Anne W. Durning, for respondent.
MEMORANDUM OPINION
DINAN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7443A(b)(3) and Rules 180, 181, and
182.1
1
Unless otherwise indicated, all section references are
to the Internal Revenue Code in effect for the taxable year in
issue. All Rule references are to the Tax Court Rules of
Practice and Procedure.
- 2 -
In a statutory notice of deficiency dated February 27, 1997,
respondent determined a deficiency in petitioner's Federal income
tax for 1994 in the amount of $3,934.
The issues for decision are: (1) Whether respondent is
bound by the contents of a report issued by his Problem
Resolution Officer subsequent to the issuance of the statutory
notice of deficiency; and (2) whether this Court has jurisdiction
to consider petitioner's claim for an abatement of interest.
Some of the facts have been stipulated and are so found.
The stipulations of fact and attached exhibits are incorporated
herein by this reference. Petitioner resided in Hereford,
Arizona, on the date the petition was filed in this case.
Petitioner timely filed his Federal income tax return for
1994 on which he correctly reported his filing status as single.
In the statutory notice of deficiency in this case
respondent determined that petitioner received but failed to
report on his 1994 return the following amounts of income:
Pensions and annuities $2,359
IRA distributions 3,216
Taxable Social Security benefits 7,188
Gambling income 26
With respect to the unreported pension and annuity income
which petitioner received from the Office of Personnel Management
Retirement Programs (the OPM Retirement Program), respondent
concedes that petitioner is entitled to exclude from his gross
income any portion of the amount received which is attributable
- 3 -
to his original investment.2 As a result of the increase in
petitioner's adjusted gross income, respondent also made a
computational adjustment to petitioner's allowable casualty loss
deduction. In the statutory notice of deficiency, respondent
determined petitioner's Federal income tax liability for 1994 to
be $10,238.
After the statutory notice of deficiency was issued on
February 25, 1997, petitioner communicated with respondent's
Ogden Service Center by letter of February 27, 1997, and by
telephone on April 1, 1997, to discuss the adjustments determined
in the statutory notice.
In a letter to petitioner dated April 9, 1997 (the letter),
from a member of respondent's Problem Resolution Staff, which
enclosed a report that purportedly supplemented the February 25,
1997, notice of deficiency, the letter explained to petitioner
the reasons for the adjustments made in the statutory notice. It
further informed petitioner that it was determined that he was
entitled to an additional gambling loss in the amount of $126.
In recalculating petitioner's 1994 Federal income tax liability,
2
Petitioner received annuity payments from the OPM
Retirement Program in the total amount of $2,359 during 1994.
Petitioner's original contributions to the OPM Retirement Program
amounted to $2,511. At trial, respondent's counsel stated to the
Court that respondent would be able to calculate the excludable
portion of the annuity payments from petitioner's responses to
her line of questioning with respect to this matter. We
therefore direct respondent to take into account the excludable
amount of the annuity payments in the Rule 155 computation.
- 4 -
the letter erroneously determined the amount of the tax to be
$9,202, by applying the tax rate schedule for "head of
household", as opposed to petitioner's tax liability as
determined in the statutory notice which used the "single" tax
rate schedule.
Petitioner stipulated that he received the unreported
amounts of income determined by respondent. Respondent concedes
that petitioner is entitled to the additional Schedule A gambling
loss deduction in the amount of $126 allowed in the April 9,
1997, letter. Respondent maintains, however, that petitioner's
proper filing status is single and that as a result of the
increased gambling loss deduction the amount of the "revised
deficiency" is $3,906, based on a Federal income tax liability
for 1994 in the amount of $10,210.3
The first issue for decision is whether respondent is bound
by the report issued on April 9, 1997. Petitioner argues that
the Court should hold that he is liable only for the tax
liability determined in the report. He contends that the report
constitutes a contract between himself and respondent. We
disagree. It is well established that as a general rule the
Commissioner is finally and conclusively bound by an agreement
with a taxpayer only if the parties enter into a closing
3
This amount does not take into account respondent's
forthcoming adjustment to the taxable amount of the annuity
payments received by petitioner during 1994. See supra note 2.
- 5 -
agreement under the provisions of section 7121.4 Holland v.
Commissioner, 70 T.C. 1046, 1048-1049 (1978), affd. 622 F.2d 95
(4th Cir. 1980); Hudock v. Commissioner, 65 T.C. 351, 362 (1975).
The statutory procedure is ordinarily the exclusive method by
which the Commissioner may be finally and conclusively bound.
Botany Worsted Mills v. United States, 278 U.S. 282, 288 (1929);
Estate of Meyer v. Commissioner, 58 T.C. 69, 70-71 (1972). "The
very fact that Congress has provided a way in which the Internal
Revenue Department may bind itself, precludes the possibility of
its being bound by some other procedure." Knapp-Monarch Co. v.
Commissioner, 139 F.2d 863, 864 (8th Cir. 1944), affg. 1 T.C. 59
(1942).
It is also well established that the Commissioner is not
bound by the unauthorized and erroneous actions of his employees
where the law dictates a different result. See Keystone Auto.
Club Cas. Co. v. Commissioner, 40 B.T.A. 291 (1939), as
supplemented 42 B.T.A. 356 (1940), affd. 122 F.2d 886 (3d Cir.
1941); see also Bagnell v. Commissioner, T.C. Memo. 1993-378 (and
cases cited therein). We have reviewed the April 9, 1997, report
and find that it erroneously used "head of household" filing
status to compute petitioner's tax liability.
4
Sec. 7121(b) provides an exception to this rule upon a
showing of fraud, or malfeasance or misrepresentation of a
material fact.
- 6 -
Accordingly, we hold that respondent is not bound by the
determinations made in the report, except to the extent that
respondent's counsel conceded in her trial memorandum the
additional allowance for gambling losses in the amount of $126.
The second issue for decision is whether this Court has
jurisdiction to consider petitioner's claim seeking abatement of
interest.
Section 6404(g), as enacted by the Taxpayer Bill of Rights 2
(TBOR 2), Pub. L. 104-168, sec. 302(a), 110 Stat. 1452, 1457
(1996), authorizes us to review denials by the Commissioner of
requests for abatement of interest under section 6404. White v.
Commissioner, 109 T.C. 96 (1997); Banat v. Commissioner, 109 T.C.
92 (1997); Goettee v. Commissioner, T.C. Memo. 1997-454. Section
6404(g) provides, in pertinent part, as follows:
(g) 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.
TBOR 2 section 302(b), 110 Stat. 1458, provides that section
6404(g) applies “to requests for abatement after the date of the
enactment of this Act." TBOR 2 was enacted on July 30, 1996.
- 7 -
In this case, the record does not show that a formal request
for abatement of interest was made to respondent or that a notice
of final determination not to abate interest pursuant to section
6404(e) was mailed to petitioner. In a case seeking the review
of the failure to abate interest, jurisdiction in this Court
depends, in part, upon the issuance of a valid notice of final
determination not to abate interest. Sec. 6404(g)(1); Rule
280(b)(1). Because no notice of final determination denying a
request for abatement of interest has been issued to petitioner,
we hold that we lack jurisdiction to consider petitioner's claim
seeking abatement of interest.5 Banat v. Commissioner, supra at
95.
To reflect the foregoing,
Decision will be entered
under Rule 155.
5
Petitioner is still free to formally request an
abatement of interest from respondent pursuant to sec. 6404(e).
If his request is denied, he may then file a "Petition for Review
of Failure to Abate Interest under Code Section 6404" with this
Court. Rule 281.