T.C. Memo. 1999-344
UNITED STATES TAX COURT
ESTATE OF EDWARD J. KUNZE, DECEASED, CAROL ANN HAUSE, EXECUTOR,
Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 16583-98. Filed October 18, 1999.
Robert J. Tootelian, Jr., for petitioner.
John Q. Walsh, for respondent.
MEMORANDUM OPINION
GALE, Judge: This matter is before the Court on
respondent’s motion to dismiss for lack of jurisdiction, on the
ground that the petition was not filed by a taxpayer meeting the
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requirements of section 7430(c)(4)(A)(ii).1 The issue for
decision is whether section 7430(c)(4)(D) applies in determining
the net worth requirements for an estate seeking review under
section 6404(i) of a failure to abate interest.
After respondent issued a final determination denying
petitioner’s request to abate interest, a timely petition for
review under section 6404 was filed with this Court. Respondent
thereafter filed a motion to dismiss for lack of jurisdiction,
with exhibits, to which petitioner filed an objection, with
exhibits. The Court held a hearing on the motion, received an
additional exhibit, and granted leave for the parties to file
briefs supporting their positions. We decide the motion based on
the hearing record, respondent’s motion, petitioner’s objection,
the exhibits, and the briefs.
Background
Edward J. Kunze (decedent) died on December 18, 1992. Carol
Ann Hause is the independent executor for the estate of decedent
(estate). The executor resided in East Lansing, Michigan, at the
time the petition was filed. Decedent was domiciled in Cook
County, Illinois, on the date of death, and his estate was
probated in Cook County, Illinois. The value of the gross estate
as of December 18, 1992 (decedent’s date of death), as agreed to
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code.
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by the parties, was $4,722,350.67; the taxable estate equaled
$4,284,417.36; the allowable credit for State death taxes was
$311,454.74; and the net estate tax payable was $1,492,974.81.
By subtracting the credit for State death taxes and the net
estate tax payable from the taxable estate, respondent estimated
a net worth for the estate as of decedent’s date of death of at
least $2,479,987.81.2
Discussion
This Court is a court of limited jurisdiction and may
exercise jurisdiction only to the extent expressly provided by
statute. See Breman v. Commissioner, 66 T.C. 61, 66 (1976); see
also sec. 7442. Section 6404(i) grants the Tax Court
jurisdiction to review the Treasury Secretary’s failure to abate
interest in any timely action “brought by a taxpayer who meets
the requirements referred to in section 7430(c)(4)(A)(ii)”. In
his motion to dismiss for lack of jurisdiction, respondent argues
that petitioner has not shown that it meets the net worth
requirements referred to in section 7430(c)(4)(A)(ii). We agree.
The requirements referred to in section 7430(c)(4)(A)(ii)
include “the requirements of section 2412(d)(2)(B) of * * * title
28 [as in effect on October 22, 1986]”. Section 2412(d)(2)(B) of
2
Respondent notes in connection with this estimate that
certain items deductible in computing the taxable estate would
not be equivalent to liabilities for purposes of calculating net
worth, with the result that actual net worth would be higher than
the figure estimated using the taxable estate.
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title 28 of the United States Code provides that a “party” for
purposes of the award of fees and other expenses means:
(i) an individual whose net worth did not exceed $2,000,000
at the time the civil action was filed, or (ii) any owner of
an unincorporated business, or any partnership, corporation,
association, unit of local government, or organization, the
net worth of which did not exceed $7,000,000 at the time the
civil action was filed, and which had not more than 500
employees at the time the civil action was filed * * *
The foregoing section does not refer to an estate. However,
section 7430(c)(4)(D) states as follows:
(D) Special rules for applying net worth requirement.--
In applying the requirements of section 2412(d)(2)(B) of
title 28, United States Code, for purposes of subparagraph
(A)(ii) of this paragraph--
(i) the net worth limitation in clause (i) of such
section shall apply to—-
(I) an estate but shall be determined as
of the date of the decedent’s death * * *
Thus, in the case of an estate, the applicable net worth
requirement referred to in section 7430(c)(4)(A)(ii) is a
limitation of $2,000,000, determined as of the decedent’s date of
death.
Petitioner has not alleged, or otherwise sought to prove,
that its net worth as of the decedent’s date of death did not
exceed $2,000,000. Instead, as discussed more fully below,
petitioner contends that its net worth should be measured as of
some other date, apparently either the date of filing of the
petition or the date on which its right to seek review “began to
accrue”. In line with this reasoning, petitioner merely alleges
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in the petition that “The only asset of the Estate of Edward J.
Kunze is the cause of action in this case; therefore, the estate
has net worth that does not exceed two million dollars.”
Notwithstanding respondent’s contention that petitioner has a net
worth of at least $2,479,987.81 on the decedent’s date of death,
and the fact that the parties entered an agreement specifying
that the decedent’s gross and taxable estate exceeded $4,000,000,
petitioner has offered no proof of its net worth as of the
decedent’s date of death. Accordingly, we conclude that
petitioner did not meet the requirements referred to in section
7430(c)(4)(A)(ii), and we do not have jurisdiction.
Petitioner’s arguments to the contrary are unavailing.
Petitioner first argues that section 7430(c)(4)(D) does not apply
in the case of actions for review of denials of requests for
abatement of interest. According to petitioner, the “statutory
scheme for abatement does not incorporate IRC section
7430(c)(4)(D)” and cannot be “logically [connected]” to it.
Petitioner’s position appears to be that since section
7430(c)(4)(D) appears in a section entitled “Awarding of costs
and certain fees” which itself incorporates provisions of another
section, 28 U.S.C. sec. 2412 (1994) (as in effect on Oct. 22,
1986), entitled “Costs and fees”, section 7430(c)(4)(D) has no
connection with, and is not incorporated by, the provisions
governing our review of abatements.
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The statute clearly provides otherwise. Section 6404(i)
grants Tax Court jurisdiction over abatement review actions
brought by taxpayers meeting “the requirements referred to in
section 7430(c)(4)(A)(ii)”. One such requirement referred to in
section 7430(c)(4)(A)(ii) is section 2412(d)(2)(B) of title 28 of
the United States Code. Section 7430(c)(4)(D) provides “special
rules” for applying the requirements of section 2412(d)(2)(B) of
title 28 “for purposes of” section 7430(c)(4)(A)(ii). (Emphasis
added.) Nothing in the language of section 7430(c)(4)(D) limits
its application to awards of costs and fees. Indeed, without
incorporation of section 7430(c)(4)(D) by section 6404(i), there
would be no express statutory basis for Tax Court jurisdiction
over an action for review of abatement brought by an estate.2a
2a
Since 28 U.S.C. sec. 2412(d)(2)(B) (1994) (as in effect
on Oct. 22, 1986) by its terms applies only to “an individual * *
* or * * * any owner of an unincorporated business, or any
partnership, corporation, association, unit of local government,
or organization, * * * or a cooperative association”, that
section standing alone does not provide a clear basis to discern
whether or how an estate might meet its requirements. Cf. Estate
of Hubberd v. Commissioner, 99 T.C. 335 (1992). However, prior
to enactment of sec. 7430(c)(4)(D), this Court and others held
that 28 U.S.C. sec. 2412(d)(2)(B) as used in sec.
7430(c)(4)(A)(ii) should be construed to entitle estates to seek
an award of litigation costs. See, e.g., Estate of Woll v.
United States, 44 F.3d 464, 467-468 (7th Cir. 1994); Estate of
Hubberd v. Commissioner, supra. Recognizing the statutory
ambiguities addressed in those and similar cases, Congress added
sec. 7430(c)(4)(D) with the specific intent of clarifying the net
worth limitations applicable to estates, trusts, and individuals
filing jointly, thereby rendering those cases moot. See H. Rept.
105-148 at 638-639 (1997) (“Although the net worth requirements
are explicit for individuals, corporations, and partnerships, it
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Petitioner also argues that its interpretation of the
statute is consistent with an interpretation expressed by
respondent in a final determination letter sent to petitioner in
which its claim for abatement of interest was disallowed. The
letter states:
The eligibility requirements [for Tax Court review] are:
For individual and estate taxpayers - your net worth
must not exceed $2 million as of the filing date of your
petition for review. * * *
While respondent’s letter is in error regarding the
jurisdictional requirements for an estate, any such error does
not operate to confer jurisdiction on this Court. See Yuen v.
Commissioner, 112 T.C. 123, 130 (1999); Romann v. Commissioner,
111 T.C. 273, 280-281 (1998). The subject matter jurisdiction of
this Court is prescribed by statute and cannot be enlarged by the
actions of the parties. See Freedman v. Commissioner, 71 T.C.
is not clear which net worth requirement is to apply to other
potential litigants. * * * Clarifying these rules will provide
certainty for potential claimants and will decrease needless
litigation over procedural issues.”).
Moreover, if petitioner were correct that there is no
logical connection between the 28 U.S.C. sec. 2412(d)(2)(B) net
worth requirements as used in connection with the award of costs
and fees and as used with respect to review of interest
abatements, then it would follow that Estate of Hubberd v.
Commissioner, supra, which construed the net worth requirements
applicable to estates in cases involving awards of litigation
costs, could have no application in the interest abatement area.
Nevertheless, petitioner cites Estate of Hubberd in support of
its position herein.
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564, 568 (1979).
Petitioner next argues that at the time its cause of action
for review of respondent’s denial of interest abatement “began to
accrue”, which in petitioner’s view was April 27, 1998, the date
of the final determination letter, section 7430(c)(4)(D)
contained an erroneous cross-reference to a nonexistent
subparagraph of subsection 7430(c)(4)(A). Because of this
erroneous cross-reference, petitioner contends, section
7430(c)(4)(D) did not apply to section 6404(g) (the predecessor
of section 6404(i)), or could not have been read by a taxpayer to
apply, on the date petitioner’s cause of action began to accrue.
Petitioner is correct that section 7430(c)(4) as originally
enacted contained an erroneous cross-reference. As originally
enacted on August 5, 1997, section 7430(c)(4)(D) read as follows:
(D) Special rules for applying net worth requirement. In
applying the requirements of section 2412(d)(2)(B) of title
28, United States Code, for purposes of subparagraph
(A)(iii) of this paragraph * * * [Taxpayer Relief Act of
1997, Pub. L. 105-34, sec. 1453, 111 Stat. 788, 1055;
emphasis added.]
On August 5, 1997, paragraph (c)(4) of section 7430 contained no
such “subparagraph (A)(iii)”. An earlier version of paragraph
(c)(4) of section 7430, prior to its amendment on July 30, 1996,
did contain such a reference, reading as follows:
(c) Definitions.
For purposes of this section--
* * * * * * *
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(4) Prevailing party.
(A) In general. The term “prevailing party” means any
party in any proceeding to which subsection (a) applies
(other than the United States or any creditor of the
taxpayer involved)--
(i) which establishes that the position of the
United States in the proceeding was not
substantially justified,
(ii) which--
(I) has substantially prevailed with respect
to the amount in controversy, or
(II) has substantially prevailed with respect
to the most significant issue or set of
issues presented, and
(iii) which meets the requirements of the 1st
sentence of section 2412(d)(1)(B) of title 28,
United States Code (as in effect on October 22,
1986) except to the extent differing procedures
are established by rule of court and meets the
requirements of section 2412(d)(2)(B) of such
title 28 (as so in effect).
On July 30, 1996, the version of paragraph (c)(4) of section 7430
quoted above was amended by striking subparagraph (A)(i) and
renumbering subparagraphs (A)(ii) and (iii) as (A)(i) and (ii),
respectively.3 See Taxpayer Bill of Rights 2, Pub. L. 104-168,
sec. 701(a), 110 Stat. 1452, 1463 (1996). Notwithstanding the
1996 elimination of subparagraph (A)(iii) and renumbering of its
contents as subparagraph (A)(ii), when section 7430(c)(4)(D) was
enacted on August 5, 1997, it erroneously referred to
subparagraph (A)(iii). See Taxpayer Relief Act of 1997, Pub. L.
3
The same legislation enacted sec. 6404(g)(now sec.
6404(i)) and that section correctly cross-referenced subparagraph
(A)(ii) of paragraph (c)(4) of sec. 7430 when referring to the
eligibility requirements for a taxpayer seeking Tax Court review
of a failure to abate interest. See Taxpayer Bill of Rights 2,
Pub. L. 104-168, secs. 302(a), 701(c)(3), 110 Stat. 1452, 1457,
1464 (1996).
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105-34, sec. 1453, 111 Stat. 788, 1055. The erroneous reference
was corrected by Congress in the IRS Restructuring and Reform Act
of 1998, Pub. L. 105-206, sec. 6014(e), 112 Stat. 685, 820,
enacted on July 22, 1998, which amended the reference to
“subparagraph (A)(iii)” to read “subparagraph (A)(ii)” in
section 7430(c)(4)(D).
With respect to the consequences that petitioner would
ascribe to this drafting error, the short answer is that Congress
made the corrective amendment retroactive, i.e., effective for
proceedings commenced after August 5, 1997, the date of original
enactment of section 7430(c)(4)(D). See IRS Restructuring and
Reform Act of 1998, Pub. L. 105-206, secs. 6014, 6024, 112 Stat.
685, 826. The corrected version “[takes] effect as if included
in the [provision] of the Taxpayer Relief Act of 1997 to which
[it] relate[s].” Id. Thus, the corrected version of section
7430(c)(4)(D) applies to this proceeding.
Moreover, the corrective amendment was enacted on July 22,
1998, well before petitioner commenced this proceeding on October
13, 1998. In addition, we think the nature of the error, and the
actual intent of the uncorrected version of section
7430(c)(4)(D), were at all times reasonably clear. The
legislative history reveals that section 7430(c)(4)(D) was always
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intended to modify section 7430(c)(4)(A)(ii).4 Also, the
incorporation of the latter provision by section 6404(g) (and its
successor, section 6404(i)) has always been explicit. A careful
examination of the statute would have alerted petitioner to the
foregoing, in our view.
Petitioner further argues that the amendment to section
7430(c)(4)(D) correcting the erroneous reference to subparagraph
“(A)(iii)” gave insufficient notice that section 6404 was being
changed, thereby denying petitioner due process. Petitioner
first asserts that the retroactive application of the corrective
amendment would deny petitioner’s due process rights. Because
retroactive tax statutes have long been upheld, this argument
lacks merit. See United States v. Carlton, 512 U.S. 26, 30-31
(1994); Cohan v. Commissioner, 39 F.2d 540, 545 (2d Cir. 1930).
The retroactive application of a statute does not deny due
process so long as it is “supported by a legitimate legislative
purpose furthered by rational means”. United States v. Carlton,
supra at 30-31. Clearly, the retroactive correction of section
7430(c)(4)(D) is justified by a rational legislative purpose in
that Congress merely acted to correct the obviously mistaken
reference to “subparagraph (A)(iii)” in the original version of
4
See H. Rept. 105-148 at 639 (1997). In its explanation of
sec. 7430(c)(4)(D), the House Committee on the Budget report
states that the “bill provides that the net worth limitations
currently applicable to individuals also apply to estates and
trusts.” Id.
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section 7430(c)(4)(D). Moreover, the retroactive application of
a tax statute is not suspect “where it involves a mere change in
rate or a technical amendment.” Howell v. Commissioner, 77 T.C.
916, 921 (1981). Finally, the fact that Congress acted promptly
to correct the error and established only a modest period of
retroactivity supports the conclusion that petitioner’s due
process rights have not been violated. See United States v.
Carlton, supra at 34. For these reasons, the retroactive
application of the technical correction to section 7430(c)(4)(D)
does not violate due process.
Petitioner appears to fashion a second due process claim
based on the contention that the statutory scheme for
jurisdiction in interest abatement cases, involving “three
statutes contained in two different titles of the U.S. Code”,
provides inadequate notice of the requirements for Tax Court
review and thereby offends due process. More specifically,
petitioner contends that, given their subject matter differences,
an amendment to section 7430(c)(4)(D) gives no indication of a
change in section 6404. In support of this argument, petitioner
cites Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306
(1950), and quotes from Walthall v. United States, 131 F.3d 1289,
1294 (9th Cir. 1997).5 However, both of these cases address the
5
Although petitioner attributes the quotation to United
States v. Jose, 131 F.3d 1325 (9th Cir. 1997), its source is
Walthall v. United States, 131 F.3d 1289, 1294 (9th Cir. 1997).
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sufficiency of statutorily prescribed notice provided in
connection with pending judicial proceedings, and not
constructive notice of new legislation, where due process
considerations are different. Cf. Chamberlin v. United States,
664 F. Supp. 663, 664 (N.D.N.Y. 1987); Texaco, Inc. v. Short, 454
U.S. 516, 537-536 n.33 (1982). They accordingly have no
relevance here. In any event, the central premise of
petitioner’s argument--that the numerous cross-references
delineating the statutory basis for Tax Court jurisdiction in
interest abatement cases are unduly opaque--is not well founded.
Section 6404(i) expressly incorporates section 7430(c)(4)(A)(ii),
which in turn is specifically referenced in (current) section
7430(c)(4)(D). Such cross-referencing and incorporation are not
unusual in the Internal Revenue Code and hardly raise due process
notice concerns. For the foregoing reasons, we find that the
jurisdictional requirements for abatement of interest cases do
not offend due process.
Finally, petitioner argues that imposing a net worth
limitation on a party’s right to Tax Court review of denials of
interest abatement is a violation of the Equal Protection Clause
of the U.S. Constitution because there is no rational basis for
establishing a net worth threshold in a suit challenging the
respondent’s failure to abate interest.
However, “In areas of social and economic policy, a
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statutory classification that neither proceeds along suspect
lines nor infringes fundamental constitutional rights must be
upheld against equal protection challenge if there is any
reasonably conceivable state of facts that could provide a
rational basis for the classification.” FCC v. Beach
Communications, Inc., 508 U.S. 307, 313 (1993). One reasonably
conceivable explanation for the classification embodied in the
net worth limitation is that Congress believed taxpayers with net
worths exceeding the limitation were less vulnerable to
unjustified interest charges because such taxpayers were better
able to make an advance payment of tax or to post a cash bond,
thereby limiting the accrual of interest during a dispute with
the Commissioner. Cf. Rev. Proc. 84-58, 1984-2 C.B. 501
(establishing procedures for making an advance payment or posting
a cash bond). We believe a rational basis exists for the net
worth limitations of section 6404(i); consequently, the provision
does not violate the Equal Protection Clause.
Because petitioner’s net worth, determined as required by
section 7430(c)(4)(D)(i)(I), does not meet the requirements of
section 7430(c)(4)(A)(ii), this Court does not have
jurisdiction.6
6
In light of this conclusion, we find it unnecessary to
address respondent’s alternative argument that, even if
petitioner’s net worth is to be determined as of the date of
filing the petition, such net worth must include all assets in
the estate, including assets already distributed. See Estate of
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For the foregoing reasons,
An order granting respondent’s
motion to dismiss for lack of
jurisdiction will be entered.
Woll v. United States, 44 F.3d 464, 471 (7th Cir. 1994).