Estate of Algerine Allen Smith, James Allen Smith v. Commissioner

123 T.C. No. 2

UNITED STATES TAX COURT

ESTATE OF ALGERINE ALLEN SMITH, DECEASED, JAMES ALLEN SMITH,
EXECUTOR, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 19200-94. Filed July 13, 2004.

On Jan. 24, 2002, the Court entered a decision
that there was an overpayment of $238,847.24 regarding
E’s estate tax liability, which amount was paid after
the mailing of the notice of deficiency. That decision
is now final. R issued refunds to E which were less
than the overpayment amount and interest thereon. R
alleges that the refund was less than the $238,847.24
overpayment and interest thereon because, after our
decision became final, and pursuant to sec. 6402(a),
I.R.C., he applied $85,336.83 of the $238,847.24
overpayment to assessed but unpaid interest that had
accrued on E’s estate tax deficiency prior to the date
of payment (underpayment interest). E filed a motion
to enforce our overpayment determination pursuant to
sec. 6512(b)(2), I.R.C., and Rule 260, Tax Court Rules
of Practice and Procedure.

Held: An overpayment means any payment of tax in
excess of the tax which is properly due. For purposes
of determining the amount of an overpayment, the term
“tax” includes any underpayment interest due thereon.
 - 2 -

Thus, an overpayment by definition is the amount by
which payments exceed the tax and interest for the
period of underpayment.

Held, further, the amount of the refund should not
have been reduced for underpayment interest because
that interest was part of the tax amount that was
required to be considered in determining the amount of
the overpayment. Our final decision that there was a
$238,847.24 overpayment precludes any remaining unpaid
underpayment interest to which R could apply the
overpayment. Held, further, sec. 6512(b)(4), I.R.C.,
which provides that this Court does not have
jurisdiction to restrain or review the Commissioner’s
application of an overpayment pursuant to sec. 6402,
I.R.C., to outstanding tax liabilities of the taxpayer
who overpaid, does not apply where our final decision
in the same case precludes the existence of the
liabilities to which the Commissioner applied the
overpayment. E is entitled to a refund of the
$238,847.24 overpayment amount, plus interest thereon,
less any refunds already made with respect to the
overpayment.

Harold A. Chamberlain and Michael C. Riddle, for petitioner.

R. Scott Shieldes, for respondent.

OPINION

RUWE, Judge: This matter is before the Court pursuant to

the estate’s Motion for Proceeding To Enforce Overpayment

Determination pursuant to Rule 260.1 Our jurisdiction to grant

such relief is conferred by section 6512(b)(2).

1
Unless otherwise indicated, all Rule references are to the
Tax Court Rules of Practice and Procedure, and all section
references are to the Internal Revenue Code.
 - 3 -

Background

In 1994, respondent issued a notice of deficiency

determining an estate tax deficiency of $663,785 and an accuracy-

related penalty under section 6662(a) of $132,785. The estate

filed its petition with this Court seeking redetermination of the

deficiency. In March 1998, after our first opinion and decision

that there was a deficiency of $564,429.87, the estate paid

$646,325.76 with respect to its estate tax. Our first decision

was appealed and never became final. After many years of

litigation,2 we entered a decision on January 24, 2002, that is

now final. In our decision, we determined that the estate was

due an “overpayment in estate tax in the amount of $238,847.24,

which amount was paid after the mailing of the notice of

deficiency”.

Pertinent Dates and Information

Decedent died on November 16, 1990. The estate filed the

estate tax return on July 12, 1991, and included with it a

payment of $60,164.54, which was the tax liability reported on

the return. On March 31, 1998, after our initial decision that

there was a deficiency in the amount of $564,429.87, the estate

2
See Estate of Smith v. Commissioner, 108 T.C. 412 (1997);
Estate of Smith v. Commissioner, 110 T.C. 12 (1998); Estate of
Smith v. Commissioner, 198 F.3d 515, 526 (5th Cir. 1999); Estate
of Smith v. Commissioner, 115 T.C. 342, 348-49 (2000); Estate of
Smith v. Commissioner, T.C. Memo. 2001-303; Estate of Smith v.
Commissioner, 54 Fed. Appx. 413 (5th Cir. 2002).
 - 4 -

remitted a $646,325.76 payment (advance payment). Respondent

also credited the estate’s estate tax liability with a 1992

income tax overpayment of $63,052. On May 12, 1998, respondent

made a “quick assessment” of estate tax of $564,429.87 and

deficiency interest thereon of $410,848.76.

On January 18, 2002, after our most recent opinion in this

case, respondent filed respondent’s computation for entry of

decision (respondent’s computation) along with a proposed

decision. Counsel for both parties acknowledged that

respondent’s computation was in accordance with our opinion in

Estate of Smith v. Commissioner, T.C. Memo. 2001-303, affd. 54

Fed. Appx. 413 (5th Cir. 2002). Based on that computation, the

parties stipulated that we should enter a decision “that there is

an overpayment in estate tax in the amount of $238,847.24, which

amount was paid after the mailing of the notice of deficiency”.3

3
The agreed computations were prepared pursuant to Rule
155(a), which states:

Where the Court has filed or stated its opinion
determining the issues in a case, it may withhold entry
of its decision for the purpose of permitting the
parties to submit computations pursuant to the Court’s
determination of the issues, showing the correct amount
of the deficiency, liability, or overpayment to be
entered as the decision. If the parties are in
agreement as to the amount of the deficiency or
overpayment to be entered as the decision pursuant to
the findings and conclusions of the Court, then they,
or either of them, shall file promptly with the Court
an original and two copies of a computation showing the
amount of the deficiency, liability, or overpayment and
(continued...)
 - 5 -

On January 24, 2002, we entered our decision that there was

a $238,847.24 overpayment of estate tax paid after the mailing of

the notice of deficiency and that there was no penalty due from

the estate under section 6662(a). That decision was appealed and

affirmed and is now final. Sec. 7481(a).

Respondent’s computation contained the following documents:

(1) Respondent’s computation statement, the pertinent

information of which is listed as follows:

Tax assessed and paid $624,594.41
Payments:
July 12, 1991 $60,164.54
April 15, 1993 63,052.00
March 31, 1998 501,377.87
Total payments 624,594.41

Tax liability pursuant to mandate 385,747.17
Overpayment 238,847.24
Penalty sec. 6662(a) None

(2) Form 3614-A, Estate Tax, which recomputed in detail the

estate’s estate tax liability;

(3) Form 6180, Line Adjustment--Estate Tax, which recomputed

in detail decedent’s taxable estate;

3
(...continued)
that there is no disagreement that the figures shown
are in accordance with the findings and conclusions of
the Court. In the case of an overpayment, the
computation shall also include the amount and date of
each payment made by the petitioner. The Court will
then enter its decision.
 - 6 -

(4) a detailed interest calculation which determined the

estate’s total Federal deficiency interest deduction as

$209,943.54; and

(5) Form 3623, Statement of Account. For simplicity, the

following table is an extraction of the information therein

contained:

Tax Interest

Revised liability $385,747.17 --
Assessment (tax on return) 60,164.54 --
Tax Court assessment (5/12/98) 564,429.87 $410,848.76
Total assessments 624,594.41 --
(Decrease) in assessment (238,847.24)
Revised liability 385,747.17
Payments
Payment with return (7/12/91) 60,164.54

Credit transfer 1992 (4/15/93) 63,052.00
Advance payment1 (3/31/98) 501,377.87 144,947.89

Total payments 624,594.41
(Overpayment) (238,847.24)

1
Advance payment totaling $646,325.76 received on Mar. 31,
1998. Of the total payment, $501,377.87 was applied towards
the additional tax assessment, and $144,947.89 was applied
towards the additional interest assessment made on May 12,
1998.

The interest referred to in this document is interest on the

underpayment of tax that accrued prior to the estate’s payment of

$646,325.76 on March 31, 1998. Hereafter, we refer to interest

accrued during that period as “underpayment interest”. See

Sunoco, Inc. & Subs. v. Commissioner, 122 T.C. 88 (2004).

On May 6, 2002, after our final decision, respondent abated

$180,564.04 of the previously assessed underpayment interest and
 - 7 -

$238,847.24 of the previously assessed estate tax. On May 13,

2002, respondent issued to the estate a refund check of

$210,467.35, consisting of a $153,510.41 refund for overpayment

of estate tax and $56,956.94 in interest on that refunded amount.

Respondent computed the $153,510.41 portion of the refund by

subtracting $85,336.83 from the $238,847.24 overpayment amount in

our final decision. According to respondent, the $85,336.83 was

the amount of assessed but unpaid underpayment interest. On

October 6, 2003, respondent abated $20,341.20 in underpayment

interest. On October 6, 2003, respondent refunded $30,108.47 to

the estate.4

Discussion

In its motion, the estate argues that the amount refunded by

respondent, $210,467.35 ($153,510.41 in overpaid estate taxes and

$56,956.94 in interest on that amount) was incorrect. It is the

4
Respondent alleges that this represented a $20,341.20
underpayment interest abatement and $9,767.27 in interest
thereon. According to respondent, he initially applied the 1992
income tax overpayment to the estate’s estate tax deficiency as
of Mar. 15, 1996, but the correct date was Apr. 15, 1993. In his
response to the estate’s motion, respondent explains:

This amount was abated as a result of applying the
$63,052 income tax overpayment credit to the correct
date (April 15, 1993). This amount, plus interest of
$9,767.27, was refunded to petitioner on October 6,
2003.

* * * * * * *

Until October 6, 2003, the credit was incorrectly
applied effective March 15, 1996.
 - 8 -

estate’s position that since this Court entered a decision that

there was a $238,847.24 overpayment, it is this amount, plus

interest thereon, which should be refunded to the estate.

Accordingly, the estate seeks $85,336.83, the difference between

$238,847.24 and $153,510.41, plus interest thereon.5 We ordered

respondent to respond to the motion.

In response, respondent argues that at the time the Court’s

decision became final, the estate owed assessed and unpaid

underpayment interest of $85,336.83. Respondent acknowledges

that the estate’s total payments exceed both the tax and interest

regarding the estate tax liability but bases his argument on the

allocations of the payments that respondent made between tax and

interest. Respondent argues that he had originally, before the

final decision, assessed underpayment interest in the amount of

$410,848.76 and allocated $144,947.89 (from the $646,325.76,

March 31, 1998, advance payment) to that underpayment interest.

On the basis of the final decision, respondent explains that he

abated $180,564.04 in underpayment interest. Thus, after all

respondent’s allocations and abatements, respondent alleges that

$85,336.83 in underpayment interest remained unpaid. Respondent

states that he subtracted this amount from the $238,847.24

overpayment that we determined, and he applied the $85,336.83 to

5
In its motion, the estate refers to $85,337.83. However,
it is clear that the estate made a mathematical error, and the
correct figure is $85,336.83.
 - 9 -

assessed but unpaid interest pursuant to section 6402. This

resulted in the May 13, 2002, refund of $210,467.35, which

consisted of $153,510.41 ($238,847.24 minus $85,336.83) plus

interest on the $153,510.41. Respondent argues that pursuant to

section 6402(a) he is entitled to credit part of the $238,847.24

overpayment against interest that accrued on the unpaid estate

tax for the period before the estate’s $646,325.76 payment on

March 31, 1998. Neither party cites any caselaw to support their

respective positions. Both parties have submitted written

arguments in support of their positions, and both state that they

do not request a hearing on this matter.

The parties stipulated that our decision, that the estate

had an overpayment of $238,847.24, was in accordance with our

opinion in Estate of Smith v. Commissioner, T.C. Memo. 2001-303.

The decision was affirmed by the Court of Appeals for the Fifth

Circuit. See Estate of Smith v. Commissioner, 54 Fed. Appx. 413

(5th Cir. 2002). Both parties agree that our opinion and

decision are now final. Respondent, nevertheless, argues that he

was entitled to refund less than the $238,847.24 overpayment

amount, by applying $85,336.83 of that overpayment amount to

assessed and unpaid underpayment interest which apparently he did

not factor into his computation of the overpayment amount that is

in our final decision. We must first decide whether the amount

of an “overpayment” must include consideration of any
 - 10 -

underpayment interest owed by a taxpayer at the time of the

overpayment calculation. Stated differently, can there be an

“overpayment” in an amount that has not been reduced by unpaid

underpayment interest?

1. What Constitutes an Overpayment?

The Code does not have an all-inclusive definition of an

“overpayment”. Section 6401 provides examples of certain types

of overpayments. For instance, the term “overpayment” includes

“that part of the amount of the payment of any * * * tax which is

assessed or collected after the expiration of the period of

limitation properly applicable thereto.” Sec. 6401(a). On the

other hand, section 6401(c) provides that an “amount paid as tax

shall not be considered not to constitute an overpayment solely

by reason of the fact that there was no tax liability in respect

of which such amount was paid.” However, these specific

provisions do not provide a general definition of the term. The

Supreme Court in Jones v. Liberty Glass Co., 332 U.S. 524, 531

(1947), has defined an overpayment as follows:

we read the word “overpayment” in its usual sense, as
meaning any payment in excess of that which is properly
due. Such an excess payment may be traced to an error
in mathematics or in judgment or in interpretation of
facts or law. And the error may be committed by the
taxpayer or by the revenue agents. Whatever the
reason, the payment of more than is rightfully due is
what characterizes an overpayment.

See also United States v. Dalm, 494 U.S. 596, 609 n.6 (1990)

(“The commonsense interpretation is that a tax is overpaid when a
 - 11 -

taxpayer pays more than is owed, for whatever reason or no reason

at all.”); Sunoco, Inc. & Subs. v. Commissioner, 122 T.C. 88

(2004); Bachner v. Commissioner, 109 T.C. 125 (1997), affd.

without published opinion 172 F.3d 859 (3d Cir. 1998); Estate of

Baumgardner v. Commissioner, 85 T.C. 445, 450 (1985). Obviously,

as we have previously observed: “In order to determine the

existence of an overpayment, there must first be a determination

of the amount of tax properly due.” Winn-Dixie Stores, Inc. &

Subs. v. Commissioner, 110 T.C. 291, 295 n.5 (1998) (citing

Girard Trust Bank v. United States, 226 Ct. Cl. 366, 369, 643

F.2d 725, 727 (1981)). This leads to the question of the meaning

of the term “tax”.

The Code generally treats underpayment interest as tax.

Section 6601(e)(1) provides:

SEC. 6601(e). Applicable Rules.–-Except as
otherwise provided in this title--

(1) Interest treated as tax.–-Interest prescribed
under this section on any tax shall be paid upon notice
and demand, and shall be assessed, collected, and paid
in the same manner as taxes. Any reference in this
title (except subchapter B of chapter 63, relating to
deficiency procedures) to any tax imposed by this title
shall be deemed also to refer to interest imposed by
this section on such tax. [Emphasis added.]
 - 12 -

Section 6512(b)(1)6 confers our overpayment jurisdiction in cases

that are properly before the Court pursuant to our deficiency

jurisdiction.7 The pertinent part of section 6512(b)(1) provides

6
Sec. 6512(b)(1) provides:

SEC. 6512(b). Overpayment Determined by Tax
Court.--

(1) Jurisdiction to determine.--Except as provided
by paragraph (3) and by section 7463, if the Tax Court
finds that there is no deficiency and further finds
that the taxpayer has made an overpayment of income tax
for the same taxable year, of gift tax for the same
calendar year or calendar quarter, of estate tax in
respect of the taxable estate of the same decedent, or
of tax imposed by chapter 41, 42, 43, or 44 with
respect to any act (or failure to act) to which such
petition relates for the same taxable period, in
respect of which the Secretary determined the
deficiency, or finds that there is a deficiency but
that the taxpayer has made an overpayment of such tax,
the Tax Court shall have jurisdiction to determine the
amount of such overpayment, and such amount shall, when
the decision of the Tax Court has become final, be
credited or refunded to the taxpayer. If a notice of
appeal in respect of the decision of the Tax Court is
filed under section 7483, the Secretary is authorized
to refund or credit the overpayment determined by the
Tax Court to the extent the overpayment is not
contested on appeal.
7
As we have previously stated:

Overpayment jurisdiction depends on whether we have
jurisdiction to find that “there is no deficiency” or
“that there is a deficiency.” Barton v. Commissioner,
97 T.C. 548, 552 (1991). Respondent has issued a
notice of deficiency containing a determination that
petitioner is liable for deficiencies in income tax for
1988 through 1991. Petitioner filed a timely petition.
Therefore, we have jurisdiction and are required to
find that there either is or is not a deficiency for
each of the years 1988 through 1991. Estate of
(continued...)
 - 13 -

that if the Tax Court “finds that the taxpayer has made an

overpayment * * * of estate tax * * * the Tax Court shall have

jurisdiction to determine the amount of such overpayment”.

(Emphasis added.) Section 6512(b) is not part of the deficiency

procedures in subchapter B of chapter 63.8 Therefore, the

reference to tax in section 6512(b) must, pursuant to section

6601(e), include interest on tax. As we stated in Barton v.

Commissioner, 97 T.C. 548, 552 (1991):

section 6601(e) states that interest shall be treated
as tax and that any reference in title 26 to the term
“tax” “shall be deemed also to refer to interest.” The
lone exception to this statutory rule relates to
subchapter B of chapter 63 containing both the
definition of “deficiency” and this Court’s
jurisdictional authority to redetermine a “deficiency”.
Section 6512, which gives this Court jurisdiction to
determine overpayments, is not within subchapter B of
chapter 63, and the literal terms of section 6601(e)(1)
provide that interest is to be treated as tax for all
other purposes in title 26, including section 6512(b).
* * *[9]

7
(...continued)
Baumgardner v. Commissioner, 85 T.C. 445, 448 (1985).
It follows that we also have jurisdiction to determine
whether petitioner has made overpayments of income tax
for the same years. Sec. 6512(b); Barton v.
Commissioner, supra at 552. [Winn-Dixie Stores, Inc. &
Subs. v. Commissioner, 110 T.C. 291, 295 (1998).]
8
The only reference to “overpayment” in subch. B of ch. 63
is in sec. 6214(e) which provides: “For provision giving Tax
Court jurisdiction to order a refund of an overpayment and to
award sanctions, see section 6512(b)(2).”
9
In Estate of Baumgardner v. Commissioner, 85 T.C. 445, 452
(1985), we stated: “Interest may be part of an overpayment if
the interest accrued and was paid prior to the time the
overpayment was claimed or arose.”
 - 14 -

See Winn-Dixie Stores, Inc. & Subs. v. Commissioner, supra at 295

(“An ‘overpayment’ of tax can include interest. Section

6601(e)(1) provides that interest shall be treated as tax and

that any reference in title 26 to the term ‘tax’ shall be deemed

also to refer to ‘interest’. The lone exception to this rule is

that interest is not considered a tax for purposes of determining

a ‘deficiency’”.).10 As we recognized in Lincir v. Commissioner,

10
The Chief Counsel’s National Office has acknowledged in
field service advice that:

As explained in Winn-Dixie Stores, Inc. v.
Commissioner, 110 T.C. 291 (1998), the Tax Court has
jurisdiction to determine overpayments of income tax.
I.R.C. § 6512(b). Because I.R.C. § 6601(e)(1) provides
that interest shall be treated as a tax, an overpayment
of tax includes any interest that is part of such
overpayment. The statutory exception in I.R.C. §
6601(a) [sic] that excludes interest as a tax for
purposes of determining a deficiency under I.R.C. §
6211(a) does not apply to overpayments. As long as the
Service has determined a deficiency in tax for the
years at issue, the Tax Court has jurisdiction to
determine an overpayment of tax, including interest,
for those years. Estate of Baumgardner, 85 T.C. 445
(1986). [Field Serv. Adv. 1999-24017 (June 18, 1999).]

In Field Service Advice 2000-01003 (Jan. 7, 2000), the Chief
Counsel’s National Office explained:

Code section 6512(b) defines the Tax Court’s
jurisdiction to determine overpayments. In general,
the court has jurisdiction to determine the amount of
an overpayment in income tax for a taxable year where
it finds “that there is no deficiency and further finds
that the taxpayer has made an overpayment of income tax
for the same taxable year,” or where the court finds
“there is a deficiency but that the taxpayer has made
an overpayment of such tax.” Id., §6512(b)(1).
Further, in determining whether X Corp has overpaid its
(continued...)
 - 15 -

115 T.C. 293, 298 (2000), affd. 32 Fed. Appx. 278 (9th Cir.

2002):

Consistent with section 6601(e), the Court does
have jurisdiction to redetermine statutory interest
where a taxpayer has properly invoked the Court’s
overpayment jurisdiction pursuant to section 6512. See
Barton v. Commissioner, 97 T.C. 548, 554-555 (1991).
In Winn-Dixie Stores, Inc. & Subs. v. Commissioner, 110
T.C. 291 (1998), we held that the Court had
jurisdiction under section 6512 to review the
taxpayers’ claim that they had overpaid statutory
interest for the years in issue where the Commissioner
had rejected the taxpayers’ request pursuant to section
6402(a) to offset the tax deficiencies (and interest)
for the years before the Court against the taxpayers’
overpayments for earlier years. * * *[11]

See also Sunoco, Inc. & Subs. v. Commissioner, 122 T.C. at 94

(“Respondent concedes that this Court has jurisdiction under

section 6512(b) to determine an overpayment based upon

petitioner’s claim that it overpaid underpayment interest.

10
(...continued)
taxes, the court has jurisdiction to determine whether
X Corp overpaid interest by virtue of its entitlement
to a zero interest rate on underpayments for the years
before the court. Winn-Dixie Stores, Inc. v.
Commissioner, 110 T.C. 291 (1998). * * *
11
See Goettee v. Commissioner, T.C. Memo. 2003-43, where we
observed:

Section 6512(b) provides, inter alia, that if a
taxpayer properly invokes our overpayment jurisdiction
under section 6512(b), then we have jurisdiction to
determine the amount of the taxpayer’s overpayment.
This jurisdiction under section 6512 also permits us to
redetermine a taxpayer’s statutory interest. Lincir v.
Commissioner, 115 T.C. 293, 298 (2000), affd. 32 Fed.
Appx. 278 (9th Cir. 2002); see Zfass v. Commissioner,
118 F.3d 184, 192 n.9 (4th Cir. 1997), affg. T.C. Memo.
1996-167.
 - 16 -

Respondent acknowledges that excess underpayment interest which

has been assessed and paid by petitioner ‘becomes part of the

overpayment, i.e., a payment in excess of that which is properly

due.’”).12

12
The Chief Counsel’s National Office addressed the meaning
of the term “overpayment” and our overpayment jurisdiction to
determine underpayment interest in field service advice:

The [Tax] Court does have jurisdiction to consider
alleged overpayments of underpayment interest as part
of its overpayment jurisdiction. Such excessive
interest, once assessed and paid, becomes part of an
overpayment, i.e., a payment in excess of that which is
properly due. Jones v. Liberty Glass Co., 332 U.S.
524, 531 (1947); Baumgardner v. Commissioner, 85 T.C.
445 (1985). At the time of the overpayment, previous
payments of tax and previous payments of interest merge
to become the refundable amount of the overpayment,
regardless of their previous designation as tax or
interest. Baumgardner, at 457-58; see also section
6601(e)(1); Alexander Proudfoot Co. v. United States,
454 F.2d 1379, 1383 (1972) (“deficiency interest . . .
has been deemed an integral part of the tax”); Barton
v. Commissioner, 97 T.C. 548 (1991) (Tax Court has
jurisdiction to consider overpayment of interest under
former section 6621(c) even though it does not have
jurisdiction over a proposed determination of yet-to-be
assessed and paid underpayment interest).

* * * * * * *

Thus, in Winn-Dixie Stores, Inc. v. Commissioner,
110 T.C. 291 (1998), the court held that it had
jurisdiction to consider the effect of the Service’s
failure to honor the taxpayer’s request that the
Service credit overpayments of tax from other tax years
against the proposed liabilities before the court
because such crediting would have reduced the amount of
underpayment interest due from the taxpayer on the
deficiencies. Critical to the Court’s exercise of
jurisdiction was the taxpayer’s payment of the tax plus
the underpayment interest determined by the Service
(continued...)
 - 17 -

Respondent makes no argument in this case that underpayment

interest is not an appropriate factor to be considered in

determining an overpayment of tax. Indeed, respondent’s own

regulations provide:

there can be no overpayment of tax until the entire tax
liability has been satisfied. Therefore, the dates of
overpayment of any tax are the date of payment of the
first amount which (when added to previous payments) is
in excess of the tax liability (including any interest,
addition to the tax, or additional amount) * * * [Sec.
301.6611-1(b), Proced. & Admin. Regs.; emphasis
added.13]

This regulation provides two examples of assessments, payments,

and resulting overpayments. The second example in subpart (c) of

the regulation involves a situation where a deficiency had been

assessed against a corporate taxpayer and the deficiency and

interest had been paid. Subsequently, it was determined that

there was no deficiency. In delineating the amounts and dates of

overpayments, the regulation provides that “The amount of any

12
(...continued)
before the taxpayer asked the court to determine an
overpayment of tax, including underpayment interest.

Field Serv. Adv. 2000-12049 (Mar. 24, 2000).
13
The estate cites this regulation in its motion. In
respondent’s response to the motion, respondent neither cites to
nor argues against the applicability of this regulation. In
Estate of Baumgardner v. Commissioner, 85 T.C. at 451-452, we
cited the aforementioned regulation in support of our
jurisdiction to consider underpayment interest as part of our
overpayment jurisdiction. In the 19 years following our
Baumgardner opinion, the Commissioner has not modified this
regulatory definition of an “overpayment”.
 - 18 -

interest paid with respect to the deficiency * * * is also an

overpayment.”14 Sec. 301.6611-1(c), Proced. & Admin. Regs.

In order to determine whether or not an overpayment exists,

we must first determine the proper amount of tax.15 In light of

the above-cited cases and section 301.6611-1(b), Proced. & Admin.

Regs., we hold that for purposes of determining an overpayment of

tax pursuant to section 6512(b), the proper tax includes

underpayment interest and that the amount of an overpayment is

14
The Chief Counsel’s National Office echoes this position
in field service advice: “Although payments of underpayment
interest are not considered in determining a deficiency, they can
be weighed in determining whether an overpayment exists.” Field
Serv. Adv. 2000-12049 (Mar. 24, 2000).
15
We have held that in making an overpayment determination,
the tax which is “properly due” is the correct amount of tax,
regardless of whether the correct tax has been or could be
assessed at the time of our decision. See Bachner v.
Commissioner, 109 T.C. 125 (1997), affd. without published
opinion 172 F.3d 859 (3d Cir. 1998), where we found there was no
overpayment of the taxpayer’s proper tax even though the statute
of limitations barred assessment of that tax for the year in
issue. We relied on the holding in Lewis v. Reynolds, 284 U.S.
281, 283 (1932), wherein the Court stated:

An overpayment must appear before refund is authorized.
Although the statute of limitations may have barred the
assessment and collection of any additional sum, it
does not obliterate the right of the United States to
retain payments already received when they do not
exceed the amount which might have been properly
assessed and demanded.

Bachner was decided on remand from the Court of Appeals for the
Third Circuit, which had held that the question of whether there
was an overpayment was an issue that was independent of whether
there was a deficiency. Bachner v. Commissioner, 81 F.3d 1274,
1279 (3d Cir. 1996).
 - 19 -

the amount by which payments exceed the tax, including any

underpayment interest.16

2. Sections 6402(a) and 6512(b)(4)

In his response, respondent explains that the estate’s

refund is less than the $238,847.24 overpayment amount, because

section 6402(a) entitled him to apply part of the $238,847.24 to

assessed but unpaid underpayment interest. Section 6402(a)

provides:

SEC. 6402. AUTHORITY TO MAKE CREDITS OR REFUNDS.

(a) General Rule.--In the case of any overpayment,
the Secretary, within the applicable period of
limitations, may credit the amount of such overpayment,
including any interest allowed thereon, against any
liability in respect of an internal revenue tax on the
part of the person who made the overpayment and shall,
subject to subsections (c), (d), and (e) refund any
balance to such person.

Respondent cites only section 6402 and does not cite or rely

on section 6512(b)(4). However, we address the application of

both sections 6402 and 6512(b)(4). Section 6512(b)(4) provides:

(4) Denial of jurisdiction regarding certain
credits and reductions.--The Tax Court shall have no
jurisdiction under this subsection to restrain or
review any credit or reduction made by the Secretary
under section 6402.

16
In field service advice, the Chief Counsel’s National
Office states:

At the time of the overpayment, previous payments of
tax and previous payments of interest merge to become
the refundable amount of the overpayment, regardless of
their previous designation as tax or interest. [Field
Serv. Adv. 2000-12049 (Mar. 24, 2000).]
 - 20 -

We do not think that sections 6402 and 6512(b)(4)

contemplate the situation presented in this case. A more logical

interpretation of sections 6402 and 6512(b)(4) is that this Court

may not restrain or review the Commissioner’s section 6402(a)

application of an overpayment amount to tax liabilities other

than those which were the subject of the overpayment decision.

See, e.g., Savage v. Commissioner, 112 T.C. 46 (1999). Our

interpretation is buttressed by the language of section 6402(a),

which gives the Secretary the power to “credit the amount of such

overpayment, including any interest allowed thereon, against any

liability in respect of an internal revenue tax on the part of

the person who made the overpayment”. Before section 6402 comes

into play, there must be an overpayment of a specific tax, and

the amount of that overpayment must be calculated by determining

the proper amount of tax and determining the amount by which

payments exceed the proper tax. As we have held above, the

proper amount of tax for purposes of an overpayment includes

underpayment interest.

Section 6512(b)(2), which forms the basis of our

jurisdiction to order the refund of an overpayment provides:

(2) Jurisdiction to enforce.--If, after 120 days
after a decision of the Tax Court has become final, the
Secretary has failed to refund the overpayment
determined by the Tax Court, together with the interest
thereon as provided by subchapter B of chapter 67, then
the Tax Court, upon motion by the taxpayer, shall have
 - 21 -

jurisdiction to order the refund of such overpayment
and interest. * * *

Were we to allow respondent to reduce the refund of an

overpayment by an amount that should have already been factored

into determining the amount of the overpayment, we would, in

effect, be allowing respondent to disregard the amount of the

overpayment in our final decision. That would do violence to the

definition of the term “overpayment” and ignore the binding

nature of our final decision. Our decision was clear: the

estate overpaid its estate tax by $238,847.24. Respondent’s

position that he is reducing the refund of the overpayment by the

amount of assessed but unpaid underpayment interest simply fails

to recognize that underpayment interest is part of the

calculation that must be made in arriving at the amount of an

overpayment.

We hold that we have jurisdiction over the estate’s motion

under section 6512(b)(2) and that sections 6402 and 6512(b)(4) do

not apply where our final decision in the same case precludes the

existence of the tax liabilities to which the Commissioner

attempts to apply the overpayment.17

17
In an opinion issued before the enactment of sec.
6512(b)(4), the Court of Appeals for the Second Circuit observed:

These provisions [regarding our deficiency
jurisdiction], taken together with §6512(b)(1),
authorize the Tax Court definitively to determine the
amount of any deficiency and overpayment for a taxable
year brought before it by a taxpayer petition, and
provide for the court to take into account any prior
(continued...)
 - 22 -

3. Finality

A prerequisite to filing a motion pursuant to section

6512(b)(2) is the finality of the overpayment decision. We

cannot modify our final decision that there was an overpayment of

$238,847.24 solely because of respondent’s allegation that he

failed to include all the underpayment interest in his

calculation of the overpayment amount.

We recently discussed the standards for vacating a final

decision in Cinema ‘84 v. Commissioner, 122 T.C. 264 (2004). In

that opinion, we noted that as a general rule the finality of a

decision is absolute. See Abatti v. Commissioner, 86 T.C. 1319,

1323 (1986), affd. 859 F.2d 115 (9th Cir. 1988). We noted that

we have jurisdiction to set aside a decision where there is a

fraud on the court. See Toscano v. Commissioner, 441 F.2d 930

(9th Cir. 1971); Kenner v. Commissioner, 387 F.2d 689 (7th Cir.

1968); Taub v. Commissioner, 64 T.C. 741, 751 (1975), affd.

without published opinion 538 F.2d 314 (2d Cir. 1976); see also

Senate Realty Corp. v. Commissioner, 511 F.2d 929 (2d Cir.

1975)). We also noted that we vacated a final decision where a

17
(...continued)
§6402(a) application of that overpayment as a credit
envisioned by §6512(b)(1), but militate strongly
against an interpretation that a prior §6402(a)
application of the overpayment divests the Tax Court of
jurisdiction to perform its §6512(b)(1) obligation to
determine the amount of the overpayment. * * * [Belloff
v. Commissioner, 996 F.2d 607, 613 (2d Cir. 1993),
affg. T.C. Memo. 1991-350.]
 - 23 -

clerical error was discovered after the decision had become

final. Michaels v. Commissioner, 144 F.3d 495 (7th Cir. 1998),

affg. T.C. Memo. 1995-294.18 Here, it is clear that there was

neither fraud nor clerical error, but only respondent’s failure

to include the full amount of underpayment interest in his

computation of the overpayment amount. This is not grounds to

give us jurisdiction to modify our final decision.19 In Wapnick

v. Commissioner, 365 F.3d 131, 132 (2d Cir. 2004), the court

explained the finality of Tax Court decisions stating:

section 7481 of the Internal Revenue Code provides that
a decision of the Tax Court becomes final “upon the
expiration of the time allowed for filing a petition
for certiorari, if the decision of the Tax Court has
been affirmed or the appeal dismissed by the United
States Court of Appeals and no petition for certiorari
has been duly filed.” 26 U.S.C. §7481(a)(2)(A). In

18
In Cinema ‘84 v. Commissioner, 122 T.C. 264 (2004), we
noted that the Court of Appeals for the Sixth Circuit had
previously held that a final decision of the Tax Court could be
vacated in situations involving mutual mistake, see Reo Motors,
Inc. v. Commissioner, 219 F.2d 610 (6th Cir. 1955), but that in a
more recent case, Harbold v. Commissioner, 51 F.3d 618, 622 (6th
Cir. 1995), the Court of Appeals for the Sixth Circuit held that
Reo Motors, Inc. was overruled by the Supreme Court in Lasky v.
Commissioner, 352 U.S. 1027 (1957), and that the Court would no
longer follow the rationale of Reo Motors, Inc.
19
In Stamm Intl. Corp. v. Commissioner, 90 T.C. 315 (1988),
the Commissioner sought relief from a settlement agreement
because “the computations for entry of decisions” resulted in
less than the Commissioner expected due to his miscalculations.
Id. at 320. In denying the Commissioner’s motion, we noted that
the considerations involved in whether to grant relief from the
settlement agreement were “akin to those involved in vacating a
judgment entered by consent. In such cases, the parties are held
to their agreement without regard to whether the judgment is
correct on the merits.” Id. at 322.
 - 24 -

considering the predecessor to section 7481, the
Supreme Court ruled that after an order of the Tax
Court has become final the “statute deprives us of
jurisdiction over the case.” R. Simpson & Co. v.
Commissioner, 321 U.S. 225, 230 (1944); see also Lasky
v. Commissioner, 235 F.2d 97, 99 (9th Cir. 1956). The
Court recognized that “the usual rules of law
applicable in court procedure must be changed” to
achieve the finality needed in the realm of tax
decisions. See Simpson, 321 U.S. at 228.

It is suggested that the result of our opinion is

inequitable and hands the estate a windfall. However, the fact

that our overpayment decision in this case was appealed,

affirmed, and has become final, deprives us, and any other court,

of jurisdiction to modify the final decision that there was an

overpayment of $238,847.24.20 This rule of finality can result

20
Sec. 6512(a) generally deprives any other court from
taking jurisdiction to determine an overpayment if the taxpayer
has filed a petition in the Tax Court. The origin of sec.
6512(a), as applied to estate taxes, is sec. 319(a) of the
Revenue Act of 1926, ch. 27, 44 Stat. (Part 2) 84. S. Rept. 52,
69th Cong., 1st Sess. (1926), 1939-1 C.B. (Part 2) 332, 351,
explains the reasons for the enactment of sec. 319(a) of the
Revenue Act of 1926 as follows:

But if he [taxpayer] does elect to file a petition
with the Board his entire tax liability for the year in
question (except in case of fraud) is finally and
completely settled by the decision of the Board when it
has become final, whether the decision is by findings
of fact and opinion, or by dismissal, as in case of
lack of prosecution, insufficiency of evidence to
sustain the petition, or on the taxpayer’s own motion.
The duty of the Commissioner to assess the deficiency
thus determined is mandatory, and no matter how
meritorious a claim for abatement of the assessment or
for refund he can not entertain it, nor can suit be
maintained against the United States or the collector.
Finality is the end sought to be attained by these
(continued...)
 - 25 -

in either the taxpayer’s or the Commissioner’s receiving a

benefit that would not have been available had a mistake been

corrected before a decision became final.21

This Court applies equitable principles in deciding the

amount of a deficiency, see Woods v. Commissioner, 92 T.C. 776,

784 (1989), or the amount of an overpayment. In Bachner v.

Commissioner, 109 T.C. 125, 131 n.7 (1997), we noted:

In a Tax Court proceeding, either party is free to
raise equity-based defenses to the assertions of the
other party, and the Court, insofar as it has
jurisdiction over the main claim, is free to entertain
those defenses. Estate of Mueller v. Commissioner, 101
T.C. 551, 557 (1993). Here, we have jurisdiction to
determine the overpayment under sec. 6512(b)(1) and,
therefore, respondent is free to raise the defense
provided in Lewis v. Reynolds, 284 U.S. 281 (1932).
* * *

However, as previously explained, once the decision in this case

specifying the amount of the overpayment became final, we lost

20
(...continued)
provisions of the bill, and the committee is convinced
that to allow the reopening of the question of the tax
for the year involved either by the taxpayer or by the
Commissioner (save in the sole case of fraud) would be
highly undesirable.

See Estate of Bailly v. Commissioner, 81 T.C. 949, 955 n.10
(1983).
21
For a discussion of the hardships that can result from the
rules governing finality, see Estate of Bailly v. Commissioner,
supra.
 - 26 -

jurisdiction to modify our decision that there was an overpayment

of $238,847.24.22

We have consistently held that we do not have equitable

power to expand our jurisdiction. As we stated in Woods v.

Commissioner, supra at 784:

An historical analysis of our cases discloses
numerous instances where we have applied equitable
principles in deciding issues over which we had
jurisdiction. For example, we have applied the equity-
based principles of waiver, duty of consistency,
estoppel, substantial compliance, abuse of discretion,
laches, and the tax benefit rule. “While we cannot
expand our jurisdiction through equitable principles,
we can apply equitable principles in the disposition of

22
Sec. 7481(c) allows only a taxpayer (not the Commissioner)
to file a motion for the redetermination of interest under
certain circumstances. The estate’s motion before us is based on
sec. 6512(b). Respondent makes no argument that sec. 7481(c) has
any relevance to the estate’s motion. Indeed, the 1997
legislative history regarding sec. 7481(c) specifically states:

In clarifying the Tax Court’s jurisdiction over
interest determinations, the conferees do not intend to
limit any other remedies that taxpayers may currently
have with respect to such determinations, including in
particular refund proceedings relating solely to the
amount of interest due. [H. Conf. Rept. 105-220, at
733 (1997), 1997-4 C.B. (Vol. 2) 1457, 2203.]

A proceeding under sec. 6512(b) is one of the “other remedies”
that taxpayers had. In field service advice, the Chief Counsel’s
National Office has recognized that the Tax Court has
jurisdiction under sec. 6512(b) to consider alleged overpayments
of underpayment interest and that:

the Tax Court has auxiliary jurisdiction under section
7481(c) to determine whether the taxpayer has made an
overpayment of interest or the Service has underpaid
interest based upon a deficiency or overpayment
decision entered by the court * * * [Field Serv. Adv.
2000-12049 (Mar. 24, 2000); emphasis added.]
 - 27 -

cases that come within our jurisdiction.” Berkey v.
Commissioner, 90 T.C. 259, 270 (1988) (Hamblen, J.,
concurring). [Fn. refs. omitted.23]

When a Tax Court decision becomes final and there is no

jurisdiction in any other Federal Court, the Internal Revenue

Service (IRS) does not shy away from arguing that lack of

jurisdiction trumps equity. For example, in United States v.

Dalm, 494 U.S. 596 (1990), the taxpayer who had been the

administratrix of her former employer’s estate received

substantial payments from the deceased employer’s brother. Those

payments were reported on a Federal gift tax return, and the gift

tax was paid by the taxpayer. Subsequently, the IRS examined the

taxpayer’s income tax return for the year in which she received

the payments and determined that the payments were taxable income

rather than a gift. The taxpayer petitioned this Court, and we

decided that the payments were taxable income. Subsequently, the

taxpayer filed a claim for refund of the gift tax. The IRS

denied the claim. In a subsequent litigation over the

erroneously paid gift tax, the United States Supreme Court held

that the statute deprived the District Court of jurisdiction over

the action for refund of the gift tax. The Court distinguished

23
In Commissioner v. McCoy, 484 U.S. 3, 6 (1987), the
Supreme Court held that in an appeal of a Tax Court decision, the
appellate court’s authority was restricted to review those
matters over which the Tax Court had jurisdiction and that the
Court of Appeals could not expand its own jurisdiction because
the Court of Appeals believed it was necessary “in order to
achieve a fair and just result.”
 - 28 -

its prior opinion in Bull v. United States, 295 U.S. 247 (1935),

in which it had applied the doctrine of equitable recoupment by

noting that in Bull equitable recoupment was raised as a defense

to the Government’s claims in a suit over which the Court clearly

had jurisdiction. The Court explained:

A distinction that has jurisdiction as its central
concept is not meaningless. In Bull, the executor
sought equitable recoupment of the estate tax in an
action for refund of income tax, over which it was
undisputed that the Court of Claims had jurisdiction.
See n.4, supra. All that was at issue was whether the
Court of Claims, in the interests of equity, could
adjust the income tax owed to the Government to take
account of an estate tax paid in error but which the
executor could not recover in a separate refund action.
Here, Dalm does not seek to invoke equitable recoupment
in determining her income tax liability; she has
already litigated that liability [in the Tax Court]
without raising a claim of equitable recoupment and is
foreclosed from relitigating it now. See §6512(a).
* * * [United States v. Dalm, supra at 606.]

Here, as in Dalm, our decision has become final. As a result,

neither we nor any other court has jurisdiction to modify the

decision.

We hold that the estate is entitled to a refund of the

$238,847.24 overpayment, plus interest on the overpayment,24 less

any amounts that respondent has previously refunded with respect

24
Interest on “overpayments” is provided for by sec. 6611.
 - 29 -

to the $238,847.24 overpayment. Accordingly, we shall grant the

estate’s motion.

An appropriate order granting

the estate’s motion for proceeding

to enforce overpayment

determination will be entered.

Reviewed by the Court.

COHEN, SWIFT, WELLS, HALPERN, CHIECHI, and VASQUEZ, JJ.,
agree with this majority opinion.

FOLEY and MARVEL, JJ., concur in result only.
 - 30 -

LARO, J., concurring: I disagree with the implication in

this Court’s Opinion that this Court is powerless to relieve a

litigant of a final decision upon a proper showing made in

connection with a motion subject to the principles of rule 60(b)

of the Federal Rules of Civil Procedure (rule 60(b)). As I

concluded in my concurring opinion in Estate of Branson v.

Commissioner, 113 T.C. 6, 41 (1999), affd. 264 F.3d 904 (9th Cir.

2001), I believe that this Court is a court of law that has the

authority to apply the judicial powers of a District Court.

Whereas rule 60(b) authorizes a District Court upon motion by a

litigant to relieve that litigant of a final judgment in certain

extraordinary cases, I believe that this Court in those cases

also has that authority for the reasons that I stated in Estate

of Branson. I do not decide whether the Court in this case

should grant a motion subject to the principles of rule 60(b) in

that such a motion is not before us.

A. Motions in this Court To Vacate or Revise a Decision

Motions in this Court to vacate or revise a decision are

covered by Rule 162, Tax Court Rules of Practice and Procedure

(Rule 162). Pursuant to Rule 162, “Any motion to vacate or

revise a decision, with or without a new or further trial, shall

be filed within 30 days after the decision has been entered,

unless the Court shall otherwise permit.” Rule 162 provides no

guidance as to when this Court will file a motion to vacate more
 - 31 -

than 30 days after a decision is entered, or more importantly,

when this Court will grant a motion to vacate.

Because Rule 162 is silent on this matter, I look for

guidance to that Rule’s counterpart in the Federal Rules of Civil

Procedure. Rule 1(a), Tax Court Rules of Practice and Procedure;

see Dusha v. Commissioner, 82 T.C. 592, 598-599 (1984). That

counterpart, rule 60 of the Federal Rules of Civil Procedure

(rule 60), states:

Rule 60. Relief From Judgment or Order

(a) Clerical Mistakes. Clerical mistakes in
judgments, orders or other parts of the record and
errors therein arising from oversight or omission may
be corrected by the court at any time of its own
initiative or on the motion of any party and after such
notice, if any, as the court orders. During the
pendency of an appeal, such mistakes may be so
corrected before the appeal is docketed in the
appellate court, and thereafter while the appeal is
pending may be so corrected with leave of the appellate
court.

(b) Mistakes; Inadvertence; Excusable Neglect;
Newly Discovered Evidence; Fraud, Etc. On motion and
upon such terms as are just, the court may relieve a
party or a party’s legal representative from a final
judgment, order, or proceeding for the following
reasons: (1) mistake, inadvertence, surprise, or
excusable neglect; (2) newly discovered evidence which
by due diligence could not have been discovered in time
to move for a new trial under Rule 59(b); (3) fraud
(whether heretofore denominated intrinsic or
extrinsic), misrepresentation, or other misconduct of
an adverse party; (4) the judgment is void; (5) the
judgment has been satisfied, released, or discharged,
or a prior judgment upon which it is based has been
reversed or otherwise vacated, or it is no longer
equitable that the judgment should have prospective
application; or (6) any other reason justifying relief
from the operation of the judgment. The motion shall
 - 32 -

be made within a reasonable time, and for reasons (1),
(2), and (3) not more than one year after the judgment,
order, or proceeding was entered or taken. A motion
under this subdivision (b) does not affect the finality
of a judgment or suspend its operation. This rule does
not limit the power of a court to entertain an
independent action to relieve a party from a judgment,
order, or proceeding, or to grant relief to a defendant
not actually personally notified as provided in Title
28, U.S.C., § 1655, or to set aside a judgment for
fraud upon the court. Writs of coram nobis, coram
vobis, audita querela, and bills of review and bills in
the nature of a bill of review, are abolished, and the
procedure for obtaining any relief from a judgment
shall be by motion as prescribed in these rules or by
an independent action.

Although rule 60 is not technically applicable to this Court,

Cinema ‘84 v. Commissioner, 122 T.C. 264, 267-268 (2004); see

also sec. 7453 (“proceedings of the Tax Court * * * shall be

conducted in accordance with such rules of practice and procedure

* * * as the Tax Court may prescribe);1 rule 1 of the Federal

Rules of Civil Procedure (the Federal Rules of Civil Procedure

“govern the procedure in the United States district courts in all

suits of a civil nature”), its principles are instructive as to

the interpretation and application of our Rule 162, see Evans

Publg., Inc. v Commissioner, 119 T.C. 242, 249 (2002); Estate of

Fulmer v. Commissioner, 83 T.C. 302, 309 (1984).

Pursuant to rule 60(b), a District Court may in a civil case

relieve a litigant from a “final judgment” for reasons other than

1
Unless otherwise indicated, section references are to the
applicable versions of the Internal Revenue Code.
 - 33 -

clerical mistake.2 Rule 60(b) allows such relief where the

desire for justice outweighs the value of finality of a judgment

that is unconscionable to execute and that was rendered without

fault or neglect on the part of the litigant seeking to reform

it. W. Va. Oil & Gas Co. v. George E. Breece Lumber Co., 213

F.2d 702, 704 (5th Cir. 1954); see also Marine Ins. Co. v.

Hodgson, 11 U.S. 332, 336 (1813). A litigant may obtain rule

60(b) relief in one of two ways. First, the litigant may move

the court in which the judgment was entered for relief under one

of the six grounds listed in rule 60(b). Banker’s Mortgage Co.

v. United States, 423 F.2d 73, 77-78 (5th Cir. 1970). Second,

the litigant may bring an independent action to obtain relief

from a judgment, order, or proceeding. Id. In either case, a

proceeding as to postjudgment relief under rule 60(b) is simply a

continuation of the original proceeding and does not require that

the court in which the rule 60(b) proceeding is pending have an

independent basis of jurisdiction in order to grant such relief.

United States v. Beggerly, 524 U.S. 38, 45-46 (1998); Banker’s

Mortgage Co. v. United States, supra at 78. A rule 60(b)

proceeding is “ancillary to or a continuation of the original

suit”, Banker’s Mortgage Co. v. United States, supra at 78; see

2
Relief from a judgment because of clerical mistake is
governed by paragraph (a) of rule 60. W. Va. Oil & Gas Co. v.
George E. Breece Lumber Co., 213 F.2d 702, 705 (5th Cir. 1954);
see also Michaels v. Commissioner, 144 F.3d 495 (7th Cir. 1998),
affg. T.C. Memo. 1995-294.
 - 34 -

also United States v. Beggerly, supra at 45-46, and a court has

jurisdiction over that proceeding if it had jurisdiction over the

original suit, Smith v. Widman Trucking & Excavating, Inc., 627

F.2d 792, 799 (7th Cir. 1980); see also Charter Township v. City

of Muskegon, 303 F.3d 755, 760-763 (6th Cir. 2002).

B. This Court’s Predecessors

The roots of this Court, the United States Tax Court, are

traced to the Revenue Act of 1924, ch. 234, sec. 900(a), (k),

43 Stat. 336, 338, wherein Congress established the Board of Tax

Appeals (Board) as “an independent agency in the executive branch

of the Government.” In the Revenue Act of 1942, ch. 619, sec.

504, 56 Stat. 798, 957, Congress changed the name of the Board to

the “Tax Court of the United States” but did not change the

latter tribunal’s designation as an independent agency within the

Executive Branch. That designation was changed in the Tax Reform

Act of 1969 (1969 Act), Pub. L. 91-172, sec. 951, 83 Stat. 487,

730. There, through its enactment of section 7441, Congress

“hereby established, under article I of the Constitution of the

United States, a court of record to be known as the United States

Tax Court.”

The predecessors to this Court were not courts of law, and

they did not possess the judicial powers of a District Court. As

independent agencies in the Executive Branch, this Court’s

predecessors had only those powers which were conferred upon them
 - 35 -

by the Executive Branch, powers which included no incidental

principles of equity. Commissioner v. Gooch Milling & Elevator

Co., 320 U.S. 418 (1943); Old Colony Trust Co. v. Commissioner,

279 U.S. 716, 725 (1929). The fact that these predecessors were

executive agencies and not courts of law made them fundamentally

different from the District Courts. The fact that these

predecessors were executive agencies and not courts of law made

them fundamentally different from this Court.

C. Relevant Jurisprudence Concerning the Authority of This
Court’s Predecessors To Apply Rule 60(b)

Sections 7481 and 7483 generally provide that a decision of

this Court becomes “final” 90 days from the date that the

decision is entered, absent a timely filed notice of appeal. In

the case of an appeal, section 7481 provides similar time periods

as to each possibility related to the resolution of that appeal.

The vast preponderance of judicial jurisprudence compels the

conclusion that this Court’s predecessors had little, if any,

power to vacate a decision that had become “final” under sections

7481 and 7483 (or the predecessors thereof). The gist of this

jurisprudence was that these sections provided set rules on the

finality of a decision, R. Simpson & Co. v. Commissioner, 321

U.S. 225 (1944); Helvering v. N. Coal Co., 293 U.S. 191 (1934);

see also Lasky v. Commissioner, 352 U.S. 1027 (1957) (per curiam

opinion relying entirely upon R. Simpson & Co. v. Commissioner,
 - 36 -

supra, and Helvering v. N. Coal Co., supra),3 and that the

predecessors to this Court were mere administrative agencies that

lacked equitable powers to alter those rules, Lasky v.

Commissioner, 235 F.2d 97 (9th Cir. 1956), affd. per curiam

352 U.S. 1027 (1957). This jurisprudence also reflected the view

of some of the Courts of Appeals that this Court’s predecessors

3
Helvering v. N. Coal Co., 293 U.S. 191 (1934), concerned
four cases which had arisen in the Board. On Oct. 23, 1933, the
Supreme Court had affirmed judgments entered as to those cases
and, on Nov. 20, 1933, had denied petitions for rehearing as to
three of those judgments. Following the Court’s issuance on Nov.
29, 1933, of the mandates as to the four cases, additional
petitions for rehearing were filed on May 21, 1934. In denying
these additional petitions, the Court noted that the applicable
predecessor to sec. 7481(a)(3) provided that “The decision of the
board shall become final * * * Upon the expiration of thirty days
from the date of issuance of the mandate of the Supreme Court, if
such court directs that the decision of the board be affirmed or
the petition for review dismissed.” Id. at 192. The Court held
that the “authoritative and explicit requirement of the statute”
precluded it from rehearing its decision; i.e., the additional
petitions for rehearing were filed after the time limits set
forth in the statute. Id.

R. Simpson & Co. v. Commissioner, 321 U.S. 225 (1944), also
arose in the Board. After the Supreme Court on Nov. 9, 1942, had
denied the taxpayer’s petition for certiorari as to a decision
that had affirmed the Board, and after the 25-day period in the
Court’s rules for the filing of a petition for rehearing of that
denial had expired, the taxpayer petitioned the Court for a
rehearing. The Court dismissed that petition for want of
jurisdiction. The Court noted that the applicable predecessor of
sec. 7481(a)(2)(B) provided that “The decision of the Tax Court
[the predecessor to this Court] shall become final * * * Upon the
denial of a petition for certiorari, if the decision of the Tax
Court has been affirmed”. Id. at 227. The Court held that this
statute deprived it of jurisdiction upon its denial of the
petition for certiorari and that “denial” under the statute
occurred when the Court’s denial of certiorari was final under
its rules; i.e., upon the expiration of the 25-day period allowed
for requesting reconsideration.
 - 37 -

could in certain cases relieve a party of a judgment

notwithstanding its finality under the statute. E.g., Kenner v.

Commissioner, 387 F.2d 689 (7th Cir. 1968) (relief may be allowed

in the case of fraud on the court); Reo Motors, Inc. v.

Commissioner, 219 F.2d 610 (6th Cir. 1955) (relief may be allowed

in the case of a mutual mistake of fact);4 La Floridienne J.

Buttgenbach & Co. v. Commissioner, 63 F.2d 630 (5th Cir. 1933)

(relief may be allowed in the case of a joint stipulation to

vacate). As to the Court of Appeals for the Fifth Circuit, the

circuit to which an appeal of this case lies, that court had

ruled that a final decision resulting from a “redetermination

based on a stipulation may be vacated [by a predecessor to this

Court] at the instance of the parties to the stipulation for good

cause shown.” La Floridienne J. Buttgenbach & Co. v.

Commissioner, supra at 631. The court stated:

Counsel for the Commissioner here stands to the
petition [to vacate the decision] if it can be lawfully
granted, but as in duty bound contends that the Board
after four years cannot vacate its order, especially
since Revenue Act of 1926, § 1005 (26 USCA § 1228),
expressly declares: “The decision of the board shall
become final--(1) Upon the expiration of the time
allowed for filing a petition for review, if no such
petition has been duly filed within such time. * * *”
We appreciate the necessity of prompt decisions
touching taxes, and that they shall stand firm. The

4
In Harbold v. Commissioner, 51 F.3d 618, 622 (6th Cir.
1995), the Court of Appeals for the Sixth Circuit stated that it
would no longer follow Reo Motors, Inc. v. Commissioner, 219 F.2d
610 (6th Cir. 1955), in that, it concluded, that case had been
overruled by Lasky v. Commissioner, 352 U.S. 1027 (1957).
 - 38 -

reviews mentioned in section 1005 no doubt measure the
taxpayer’s right to litigate, and the Board’s decision
is final on exhaustion or neglect of them as against
further appeals. But it does not follow that the
decision may not be further dealt with by the Board
itself in its discretion or that no extraordinary
relief against it can ever be had. Decisions of the
Secretary of the Interior in matters affecting the
public lands were by statute declared to be final, but
that meant only as to further appeals, and did not
exclude the courts from inquiring in extraordinary
cases whether the law had been violated thereby.
Johnson v. Towsley, 13 Wall. 72, 83, 20 L. Ed. 485.
The Secretary himself can sometimes revise his own
decision, as when obtained by fraud, though the statute
declare it final and conclusive. Lane, Secretary v.
United States ex rel. Mickadiet, 241 U. S. 201, 36 S.
Ct. 599, 60 L. Ed. 956. So the Secretary of Labor’s
decisions on deportation proceedings are by statute
final, but on extraordinary occasions they are inquired
into on habeas corpus. Lindsey, U. S. Immigration
Inspector v. Dobra (C. C. A.) 62 F.(2d) 116. [Id. at
630-631.]

Whereas the Courts of Appeals for the Ninth Circuit stated in

Swall v. Commissioner, 122 F.2d 324, 324-325 (9th Cir. 1941),

that La Floridienne J. Buttgenbach & Co. v. Commissioner, supra,

was “in effect overruled by Helvering v. Northern Coal Co.,

supra,” I have not heard the Court of Appeals for the Fifth

Circuit, nor any of the other 11 Courts of Appeals, to have

stated similarly.

D. 1969 Act

The 1969 Act made this Court the functional equivalent of a

District Court. See 1969 Act sec. 951, 83 Stat. 730; see also

Freytag v. Commissioner, 501 U.S. 868, 890-892 (1991). Through

that Act, Congress changed the status of this Court from an
 - 39 -

“independent agency in the Executive Branch” to a “court of

record” “established * * * under Article I of the Constitution”.

See sec. 7441 before and after amendment by the 1969 Act; see

also Freytag v. Commissioner, supra at 890-891. This Court

currently sits as a district courtlike tribunal that “exercises a

portion of the judicial power of the United States * * * to the

exclusion of any other function”. Id. at 891. This Court’s

district courtlike status means that its decisions are subject to

review only by a Federal appellate court. See sec. 7482(a).

E. Freytag v. Commissioner

In Old Colony Trust Co. v. Commissioner, 279 U.S. at 725,

the Supreme Court held that the Board was not a court but was

merely an executive or administrative board. The Supreme Court

also held that proceedings in the Board were administrative

inquiries and not judicial proceedings. Id. In Freytag v.

Commissioner, supra at 885, respondent argued that the 1969 Act

did not change these features as to this Court. The Supreme

Court disagreed. In contrast to its earlier decision as to the

status of the Board, the Supreme Court held that Congress through

the 1969 Act had established this Court as a court of law that

functions much like a District Court in this Court’s exclusive

exercise of a portion of the judicial power of the United States.

Id. at 890-892. The Supreme Court noted that this Court is
 - 40 -

different from other non-Article III tribunals by virtue of this

Court’s “exclusively judicial role”. Id. at 892.

F. This Court Has Equitable Powers That Its
Predecessors Did Not

Following Freytag v. Commissioner, supra, many Courts of

Appeals now agree that this Court has equitable powers that this

Court’s predecessors did not have and that this Court’s powers

are harmonious with the powers of a District Court. In Estate of

Branson v. Commissioner, 264 F.3d at 908, for example, the Court

of Appeals for the Ninth Circuit stated that this Court’s

exercise of judicial powers

includes the authority to apply the full range of
equitable principles generally granted to courts that
possess judicial powers. Even if the Tax Court does
not have far-reaching general equitable powers [a
statement that presumably was made in reply to the
Supreme Court’s dictum in Commissioner v. McCoy,
484 U.S. 3, 7 (1987) that this Court “lacks general
equitable powers”5], it can apply equitable principles

5
That dictum, when taken in context, is not remarkable.
Nor is it inconsistent with my view that this Court has district
courtlike equitable powers. The context of this dictum indicates
that the Supreme Court was merely noting the well-settled rule
that no court of law may ignore the express intent of Congress as
to the imposition of interest and penalties. See Commissioner v.
McCoy, 484 U.S. 3, 7 (1987); see also Flight Attendants Against
UAL Offset v. Commissioner, 165 F.3d 572, 578 (7th Cir. 1999)
(“In context, the Supreme Court’s dictum in Commissioner v.
McCoy, 484 U.S. 3, 7, 98 L. Ed. 2d 2, 108 S. Ct. 217 (1987) (per
curiam), that the Tax Court lacks “general equitable powers”
means only that the Tax Court is not empowered to override
statutory limits on its power by forgiving interest and penalties
that Congress has imposed for nonpayment of taxes--but then no
court is, unless the imposition would be unconstitutional.”). In
fact, the Court made no mention of McCoy when it decided Freytag
(continued...)
 - 41 -

and exercise equitable powers within its own
jurisdictional competence. * * * [Quotation marks
omitted.]

The Court of Appeals for the Seventh Circuit stated similarly in

Flight Attendants Against UAL Offset v. Commissioner, 165 F.3d

572, 578 (7th Cir. 1999). There, the Court of Appeals for the

Seventh Circuit, while suggesting but not deciding that this

Court has the power to apply the equitable doctrines of tolling

and estoppel, stated that the “the predecessor bodies to the Tax

Court, such as the Board of Tax Appeals, were administrative

agencies having more limited powers than a regular court * * *

[b]ut the present Tax Court operates pretty indistinguishably

from a federal district court.” Accord Buchine v. Commissioner,

20 F.3d 173, 176 (5th Cir. 1994) (Court of Appeals for the Fifth

Circuit concluded that this Court is empowered to apply the

equitable principle of reformation to a case over which it

already had jurisdiction), affg. T.C. Memo. 1992-36.

G. Ability of This Court To Apply the Principles of
Rule 60(b)

Here, no one disputes that we had jurisdiction to

redetermine the estate tax deficiency that was at issue. If one

of the parties in this case were now to make a motion subject to

the principles of rule 60(b), the issue as I see it would be

whether we would have authority to give effect to a purported

5
(...continued)
v. Commissioner, 501 U.S. 868 (1991), 4 years later.
 - 42 -

inequitable mistake that was made in the decision underlying that

deficiency. To my mind, if a District Court could have decided

such a motion, then so can we. This Court’s powers are

harmonious with the powers of a District Court. This Court’s

powers are different from the powers held by this Court’s

predecessors.

Although it is true that this Court is a court of limited

jurisdiction, so are all other Federal courts. All Federal

courts possess only that power authorized by Constitution and

statute and may not expand that power by judicial decree.

Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377 (1994);

Ins. Corp. of Ir., Ltd. v. Compagnie des Bauxites de Guinee, 456

U.S. 694, 701-702 (1982). The ability of this and every other

Federal Court to apply rule 60(b) principles to a final decision

flows from a finding that we and they had jurisdiction to render

and enter that decision in the first place. A court need not and

does not apply equitable principles to acquire jurisdiction in a

rule 60(b) proceeding. The court simply applies the principles

of that rule to a case over which it already has jurisdiction.

This Court’s well-established position on its equitable powers is

consistent with this tenet. In accordance with that position,

this Court has held that it may apply equitable principles to

dispose of cases over which the Court already has jurisdiction.
 - 43 -

Woods v. Commissioner, 92 T.C. 776, 784-785 (1989); cf. Buchine

v. Commissioner, supra at 178.

This Court’s application of rule 60(b) is not unprecedented.

In Brannon’s of Shawnee, Inc. v. Commissioner, 69 T.C. 999,

1000-1002 (1978), for example, this Court applied subparagraph

(4) of rule 60(b) to conclude that this Court was empowered to

vacate a final decision that was entered in a case for which this

Court lacked jurisdiction to decide. I also note this Court’s

authority to apply paragraph (a) of rule 60. In Michaels v.

Commissioner, 144 F.3d 495 (7th Cir. 1998), affg. T.C. Memo.

1995-294, the Court of Appeals for the Seventh Circuit held that

this Court may at any time rely upon paragraph (a) to vacate a

final decision to correct a clerical error. The taxpayers in

that case had argued that the fact that their decision was

“final” meant that this Court was not at liberty to alter it. In

rejecting this argument, the Court of Appeals for the Seventh

Circuit stated:

The Michaelses cannot credibly argue that the
error in the 1995 decision was anything other than a
clerical mistake. They are forced, therefore, to argue
that the Tax Court in this case simply should not be
allowed to exercise a power analogous to that afforded
the district courts by Rule 60(a). In attempting to do
so, the Michaelses make several points that would be
relevant only if Rule 60(b) were at issue, such as that
the Commissioner has not shown that the failure to
correct the mistake earlier was the result of
“excusable neglect” or that his motion to correct it
was made “within a reasonable time.” These arguments,
of course, are unavailing, since Rule 60(a) requires no
such showing.
 - 44 -

In addition, the Tax Court’s power to correct
clerical errors does not conflict with the statutory
framework establishing finality for that court’s
decisions. The Michaelses point out that the substance
of a decision becomes final and unappealable once the
statutory period for filing an appeal has expired. But
the same is largely true of district court decisions,
subject to such extraordinary remedies as those
contained in Rule 60(b), and yet the expiration of the
time for filing a notice of appeal does not prevent a
district court from acting under Rule 60(a) to correct
a clerical error in its judgment. See, e.g., American
Fed’n of Grain Millers Local 24 v. Cargill, Inc.,
15 F.3d 726 (7th Cir. 1994). The Michaelses’ arguments
that the Tax Court should be prevented from taking the
same action because it is a creation of Article I
rather than Article III of the Constitution, or because
it is a court of limited jurisdiction, are not
persuasive. [Id. at 497; fn. ref. omitted.]

I am not unmindful of this Court’s opinions in Taub v.

Commissioner, 64 T.C. 741 (1975), affd. without published opinion

538 F.2d 314 (2d Cir. 1976), and Hazim v. Commissioner, 82 T.C.

471 (1984). In Taub v. Commissioner, supra at 751, the Court

stated that “We find nothing in our new status * * * [under

Article I] which expands the narrow exception to the general rule

of finality of decisions carved out” in the case of fraud on the

Court that would give us jurisdiction to vacate a final decision.

In Hazim v. Commissioner, supra at 475, the Court repeated this

statement in concluding that this Court’s jurisdiction to set

aside a final decision is limited. The referenced statement in

these cases conflicts directly with the Supreme Court’s later

finding in Freytag v. Commissioner, 501 U.S. 865 (1991), that

this Court’s status in Article I means that this Court is no
 - 45 -

longer an executive or administrative board, as were this Court’s

predecessors, but is a court of law that exercises a portion of

the judicial power of the United States to the exclusion of any

other function. This Court’s holdings in Taub and Hazim also

fail to take into account the fact that a proceeding under rule

60(b) is a continuation of the original proceeding and does not

require that the court overseeing the proceeding have an

independent basis of jurisdiction upon which to act.

Nor does my opinion change on account of any other case that

was decided before Freytag v. Commissioner, supra. As I see it,

the relevant cases as to the current powers of this Court are

those cases that pertain to this Court’s status as an Article I

court, with the most relevant of those cases being those which

were decided after Freytag. Freytag establishes that this Court

is a court of law with all of the incidental powers which pertain

thereto, rather than an administrative or executive board that

simply decides administrative inquires using limited powers

inclusive of no incidental principles of equity. Accord Flight

Attendants Against UAL Offset v. Commissioner, 165 F.3d 572, 578

(7th Cir. 1999). The cases decided before Freytag do not address

this now well-settled status of this Court as a court of law that

performs exclusively judicial functions in a manner that is

harmonious with that of a District Court. None of these pre-

Freytag cases, therefore, has any bearing on the types of powers
 - 46 -

that this Court is authorized to exercise in performing this

Court’s judicial functions. Congress’s elevation of this Court

to an “exclusively judicial” court means that this Court’s legal

and equitable powers are diametrically different from this

Court’s executive agency predecessors which wielded executive

powers only. Congress’s elevation of this Court to an

“exclusively judicial” court means that this Court possesses all

of the inherent powers of a District Court.6

The Court’s Opinion on pages 23-24 quotes Wapnick v.

Commissioner, 365 F.3d 131 (2d Cir. 2004), as to the need for a

tax decision to be final. The Supreme Court opinion discussed in

6
I note in particular Contl. Equities, Inc. v.
Commissioner, 551 F.2d 74 (5th Cir. 1977), revg. on grounds not
relevant herein T.C. Memo. 1974-189. There, the Court of Appeals
for the Fifth Circuit held that this Court had no authority to
apply the doctrine of equitable recoupment. We recently stated
as to that decision:

more than 2 decades have passed since the 1977 decision
in Continental Equities, Inc. v. Commissioner, 551 F.2d
74 (5th Cir. 1977). In that interval, the concept of
Tax Court jurisdiction has been substantially refined.
Concerning equitable recoupment in particular, the
opinion by the Supreme Court in United States v. Dalm,
494 U.S. 596 (1990), which served as a catalyst for our
own reevaluation of our position, was issued only in
1990. Furthermore, since 1977 the Courts of Appeals
have begun increasingly to acknowledge the difference
between exercising equitable powers to take
jurisdiction and applying equitable principles to
decide matters within the Court’s jurisdiction. For
instance, a series of recent decisions has consistently
affirmed on such basis Tax Court authority to reform
written agreements and to apply equitable
estoppel. * * * [Estate of Orenstein v. Commissioner,
T.C. Memo. 2000-150.]
 - 47 -

the quotation, namely R. Simpson & Co. v. Commissioner, 321 U.S.

225 (1944), dealt with a predecessor to this Court and, more

importantly, did not involve a motion under rule 60(b). (Nor did

Helvering v. Northern Coal Co., 293 U.S. 191 (1934), or Lasky v.

Commissioner, 325 U.S. 1027 (1957), deal with such a motion.7) I

see no reason why a need for finality is any greater for a

decision entered in a tax case heard by this Court as opposed to

a judgment entered in a tax case heard by a District Court. (I

have found nothing that prohibits a District Court from applying

rule 60(b) to relieve a party of a final judgment in a Federal

tax case.) As the Court of Appeals for the Seventh Circuit

stated in Flight Attendants Against UAL Offset v. Commissioner,

supra at 578, with regard to the ability of this Court to apply

the equitable doctrines of tolling and estoppel which are applied

by District Courts: “The overlap between the district courts’

jurisdiction over refund suits and the Tax Court’s jurisdiction

over deficiency suits--both jurisdictions exclusive, but the

taxpayer allowed to choose between them--makes it anomalous and

confusing to multiply distinctions between the doctrines applied

7
The rule drawn from this trilogy of Supreme Court cases is
that a request for review by that Court in a civil case must be
timely filed within an applicable period prescribed by Congress
and that the untimely filing of such a request deprives the Court
of jurisdiction. See FEC v. NRA Political Victory Fund, 513 U.S.
88, 90 (1994); Mo. v. Jenkins, 495 U.S. 33, 45 (1990). The rule,
of course, is different when a Federal trial court applies the
principles of rule 60(b) within the time limits set forth
therein.
 - 48 -

by the two types of court”. As stated by the Court of Appeals

for the Eleventh Circuit in the setting of equitable estoppel:

If the Tax Court lacked authority to entertain a
claim of equitable estoppel, taxpayers with such a
claim would no longer have a choice of fora for their
tax issues. They would effectively be forced to pay
their taxes and sue for a refund, submitting all of
their claims to the district courts. Taxpayers would
then be barred by res judicata from relitigating a
claim in the Tax Court. Thus, taxpayers would
essentially be denied the right to challenge
deficiencies in the Tax Court if they wanted to assert
an equitable estoppel claim. This would be an unfair
choice to pose to taxpayers, and would undermine the
purpose of the Tax Court. We therefore conclude that
the Tax Court did have jurisdiction over the Bokums’
equitable estoppel claim. [Bokum v. Commissioner,
992 F.2d 1136, 1140-1141 (11th Cir. 1993), affg. T.C.
Memo. 1990-21.]

Accord Estate of Branson v. Commissioner, 264 F.3d at 911-912.

Both of these statements apply equally to an application of rule

60(b).

VASQUEZ and GALE, JJ., agree with this concurring opinion.
 - 49 -

THORNTON, J., concurring: The majority opinion holds that

this Court’s previous decision as to the amount of the estate tax

overpayment necessarily incorporated the estate’s liability for

certain underpayment interest that had already been assessed (and

had not been abated). I agree with this holding, as confined to

its facts. Inasmuch as the facts of this case do not present any

issue as to the treatment of unassessed underpayment interest in

the calculation of an overpayment, I do not believe that the

majority opinion should be construed as resolving that issue.

Background

Certain procedural facts, not discussed in the majority

opinion, are important for understanding how the underpayment

interest in question had come to be assessed before this Court

entered its decision as to the overpayment.

On June 4, 1997, we issued our original opinion in the

instant case. See Estate of Smith v. Commissioner, 108 T.C. 412

(1997).1 Pursuant to that opinion, on February 18, 1998, we

entered our original decision determining an estate tax

deficiency of $564,429.87.

1
Pursuant to our original opinion, the parties submitted
separate computations of the estate tax deficiency under Rule
155. On Jan. 12, 1998, we issued a supplemental opinion
resolving a disagreement between the parties with respect to
their computations. See Estate of Smith v. Commissioner, 110
T.C. 12 (1998).
 - 50 -

On March 31, 1998, the estate paid $646,325.76, comprised of

a portion of the estate tax deficiency and an estimate of

underpayment interest.2 On April 10, 1998, the estate filed a

timely notice of appeal with the Court of Appeals for the Fifth

Circuit. The estate did not, however, file bond, as generally

required to stay assessment or collection of the deficiency

during appellate review. See sec. 7485(a). Consequently, on May

12, 1998, respondent assessed an estate tax deficiency of

$564,429.87 plus underpayment interest of $410,848.76.

Respondent gave the estate credit for the March 31, 1998, payment

of $646,325.76 and also gave the estate credit for a 1992 income

tax overpayment of $63,052. After taking these credits into

account, the estate had a balance due of $265,900.87. Collection

of this balance due, however, was administratively stayed during

the pendency of the estate’s appeal.

On December 15, 1999, the Court of Appeals for the Fifth

Circuit reversed, vacated, and remanded our original decision for

further proceedings with respect to the estate tax deficiency.

See Estate of Smith v. Commissioner, 198 F.3d 515 (1999).

2
Respondent’s Appeals Office estimated the amount of
interest on the then “underpayment” of estate tax. In
conjunction with this estimate, respondent allowed a deduction
from the gross estate for estimated interest which would be due
on the deficiency, determined as of a hypothetical payment date
of Mar. 31, 1998.
 - 51 -

On April 3, 2000, the estate filed a motion to restrain

collection, abate assessment, and refund amounts collected by

respondent. In Estate of Smith v. Commissioner, 115 T.C. 342

(2000), we denied the estate’s motion.

On November 21, 2001, pursuant to the remand from the Court

of Appeals for the Fifth Circuit, we issued another opinion in

this case, again sustaining respondent’s determination of an

estate tax deficiency.3 Estate of Smith v. Commissioner, T.C.

Memo. 2001-303. On January 18, 2002, respondent filed

respondent’s computation for entry of decision along with a

proposed decision. The parties acknowledged that respondent’s

computation was in accordance with our last-mentioned opinion and

stipulated that we should enter a decision “that there is an

overpayment in estate tax in the amount of $238,847.24, which

amount was paid after the mailing of the notice of deficiency”.

On January 24, 2002, we entered a decision that there was a

$238,847.24 overpayment of estate tax paid after the mailing of

the notice of deficiency.

On May 6, 2002, respondent abated $180,564.04 of the

previously assessed underpayment interest and $238,847.24 of the

previously assessed estate tax. On May 13, 2002, respondent

3
Ultimately, the parties agreed that the estate tax
liability pursuant to the mandate was $385,747.17. Respondent’s
computations submitted under Rule 155 considered this amount in
calculating the estate’s overpayment.
 - 52 -

issued to the estate a refund check of $210,467.35, consisting of

a $153,510.41 refund for overpayment of estate tax and $56,956.94

in interest on that refunded amount. Respondent computed the

$153,510.41 portion of the refund by subtracting $85,336.83 from

the $238,847.24 overpayment amount in our final decision.4

On November 7, 2002, the Court of Appeals for the Fifth

Circuit affirmed our second decision in Estate of Smith and

entered judgment against the estate. Estate of Smith v.

Commissioner, 54 Fed. Appx. 413 (5th Cir. 2002). The estate did

not file a timely petition for certiorari with the U.S. Supreme

Court, and our second decision thereafter became final. See sec.

7481(a)(2)(A) (providing that Tax Court decisions become final

when petition for certiorari not filed on time); Sup. Ct. R. 13

(providing that petition for certiorari is timely if filed within

90 days of entry of judgment by a U.S. Court of Appeals).

In summary, to make a long story short: when this Court

entered its decision as to the amount of the overpayment in

question, the estate had a liability for assessed and unpaid

underpayment interest. In computing the estate’s overpayment,

respondent omitted this liability. Respondent now argues that he

is entitled to reduce the estate’s overpayment to compensate for

4
According to respondent, the $85,336.83 amount was the
amount of assessed but unpaid underpayment interest. On Oct. 6,
2003, respondent made an additional abatement of $20,341.20 in
underpayment interest and refunded $30,108.47 to the estate.
 - 53 -

this omission. The majority opinion rejects respondent’s

argument and grants the estate’s motion to enforce our

overpayment determination.

Inclusion of Assessed Interest in Overpayment Determination

Insofar as it addresses the treatment of assessed

underpayment interest, the majority opinion is a logical

extension of Estate of Baumgardner v. Commissioner, 85 T.C. 445

(1985), which we have followed consistently for nearly 20 years.

Estate of Baumgardner held that “overpayment”, within the meaning

of section 6512(b)(1), includes assessed and paid interest. In

Estate of Baumgardner, this Court concluded that because the

interest on an estate tax deficiency had been assessed, we could

exercise jurisdiction and decide the correct amount of interest

to arrive at the correct amount of net overpayment. Although

Estate of Baumgardner, unlike the instant case, involved interest

that was paid prior to the overpayment determination, I do not

believe that distinction warrants a different result. It follows

from Estate of Baumgardner and its progeny that an overpayment

should also reflect assessed but unpaid underpayment interest.

It would make no sense to award an overpayment that includes

assessed and paid interest while ignoring interest that has been

assessed but remains unpaid.5

5
For example, assume a simple hypothetical: The taxpayer
makes payments of $100,000, has a tax liability of $80,000
(continued...)
 - 54 -

More fundamentally, the majority opinion is a natural

application of the widely accepted definition of an overpayment

as “any payment in excess of that which is properly due.” Jones

v. Liberty Glass Co., 332 U.S. 524, 531 (1947). There would seem

to be no question that assessed underpayment interest is

“properly due”. There is no question in this case about the

other half of the equation; i.e., the amount of the taxpayer’s

payment. Thus, a straightforward application of the Supreme

Court’s definition of overpayment clearly supports the result in

the majority opinion.

I agree with the majority opinion that sections 6402(a) and

6512(b)(4) do not demand a different result.

Section 6402(a) authorizes the Secretary to credit an

overpayment against “any liability”. I agree with the majority

opinion that once we decide that there is an overpayment of tax,

properly taking into account assessed underpayment interest,

there is no longer any separate liability for the assessed

underpayment interest against which the overpayment might be

credited; rather, any liability for the assessed underpayment

interest must be subsumed in the overpayment, if our final

decision is to be respected and given effect.

5
(...continued)
(exclusive of interest), and owes assessed underpayment interest
of $30,000. I believe this taxpayer has a $10,000 underpayment,
rather than a $20,000 overpayment (as would be indicated if the
assessed interest were omitted from the calculation).
 - 55 -

Moreover, in enforcing our decision of an overpayment under

section 6512(b)(2), we are not restraining or reviewing any

credit or reduction made by respondent under section 6402.

Instead, we are simply enforcing our decision that the estate has

made an overpayment of tax. Because underpayment interest that

is properly due must be considered in determining the amount of

an overpayment, it follows that we have jurisdiction to order a

refund of the overpayment consistent with our decision and not

reduced by underpayment interest that has already been factored

into our decision.

Inasmuch as the underpayment interest in question had

already been computed and assessed when we entered our

overpayment decision, there is no compelling practical reason why

the underpayment interest should not have been included in the

overpayment calculation. Indeed, in computing the estate’s

estate tax liability, respondent had allowed the underpayment

interest as a section 2053 estate tax deduction. To be

consistent, the overpayment computation should include

consideration of this assessed underpayment interest, as the

majority opinion holds.

Confining the Majority Opinion Holding to Its Facts

Properly confined to its procedural and factual context,

then, and notwithstanding some rather open-ended language in the

majority opinion, its holding is that the assessed underpayment
 - 56 -

interest in question should have been taken into account in

calculating the amount of the estate’s overpayment. I do not

believe the majority opinion should be construed as deciding

issues beyond those actually presented by the facts of this case.

In particular, I do not believe the majority opinion should be

construed as deciding the proper treatment of unassessed interest

in the calculation of an overpayment. The resolution of that

more difficult issue should await a case that squarely presents

it.

GERBER, LARO, and GALE, JJ., agree with this concurring
opinion.
 - 57 -

GOEKE, J., dissenting: The opinion adopted today reaches an

unjust result, reasoning that the principle of finality requires

that result. The estate and respondent entered into agreed Rule

155 computations and submitted the computations to this Court

with a suggested decision document. The agreed computations

clearly treat the overpayment of tax as an amount separate from

the interest owed by the estate. In arriving at the overpayment

amount of $238,847.24, the parties simply subtracted the estate’s

tax liability ($385,747.17) from its payments that were applied

to the tax liability ($624,594.41). Indeed, the agreed

computations include a chart that lists tax in one column, and

interest in a separate column. See majority op. p. 6. These

computations reveal the parties’ intent not to include interest

in the overpayment amount.

It is obvious from the computations that the separate

treatment of interest and tax was not an accident. Included in

the parties’ agreed computations is the following information:

Total interest due . . . . . . . . $209,943.541
Interest paid . . . . . . . . . . -$144,947.89
Interest not paid for which the
estate was given a deduction . . $64,995.65
1
The amount of total interest due was determined in
reference to the estate’s tax liability of $385,747.17.

The estate is provided an interest deduction for interest on its

estate tax deficiency in the agreed computations, but the

overpayment computation does not take into account that interest.
 - 58 -

As a result, the Court’s opinion allows the estate to receive a

deduction for the amount of interest due, $209,943.54, having

paid interest of only $144,947.89, and the adopted opinion orders

respondent to forgo offsetting the overpayment refund by the

outstanding interest liability, which as a result will never be

collected. Rather than inadvertence, the overpayment computation

was the result of the parties’ adherence to a longstanding

practice, followed by parties in many of our cases, to submit

agreed computations of overpayments without interest. The

adopted opinion ignores the parties’ agreed overpayment

computations to reach an incorrect and unjust result.

Indeed, the result reached by the adopted opinion is

contrary to both statutory law and our Rules of Practice and

Procedure (Rules). This is the first instance where this Court

has asserted the jurisdiction to overturn the Commissioner’s

offset of an overpayment pursuant to section 6402(a) to satisfy

an interest assessment. This Court does not have this asserted

jurisdiction, but if it did, the estate should be estopped from

successfully avoiding an agreement reached under our Rules that

the agreed computation conformed with the Court’s opinion in

Estate of Smith v. Commissioner, T.C. Memo. 2001-303, affd. 54

Fed. Appx. 413 (5th Cir. 2002), and manipulating the judicial

process by taking inconsistent positions to avoid the enforcement

of its agreement.
 - 59 -

I. Basis of the Adopted Opinion

The foundation of the adopted opinion is that sections

6402(a) and 6512(b)(4) do not apply to the facts in this case.

Section 6402(a) allows the Commissioner to credit the amount of

an overpayment against “any liability in respect of an internal

revenue tax” and to refund only the balance of that liability.

The adopted opinion would establish that there is a flaw in that

statutory language and that the term “any liability” was not

intended to include interest (whether paid or unpaid, whether

assessed or unassessed) when the interest arises from a

deficiency that is also the subject of an overpayment of tax.

Section 6512(b)(4) provides “The Tax Court shall have no

jurisdiction under this subsection to restrain or review any

credit or reduction made by the Secretary under section 6402.”

Despite section 6512(b)(4), the adopted opinion would find that

the Court may prevent the Commissioner from applying section

6402(a) to offset an unpaid interest liability against an

overpayment determined by the Court when that interest liability

arises in the same year before the Court. This is an issue of

first impression and raises the question why this apparent error

in the statute has never arisen before. Because some version of

section 6402(a) has been part of the internal revenue statutory
 - 60 -

scheme since 1949,1 I suggest that one answer to the question is

that there is no flaw in the statutory scheme. The statutory

scheme is intended to permit the offset of overpayments with

interest liabilities even arising in the same statutory year.

The assumed error in the statute is not the result of a

congressional misstep but rather judicial overreach. A

construction of section 6402(a) that restricts interest offsets

is inconsistent with the clear language of section 6512(b)(4),

several other statutory provisions, and the general context of

the Code dealing with Tax Court decisions. The statutory scheme

operates smoothly if interest issues are addressed after

decisions are entered by this Court regarding deficiencies and

overpayments.

The report’s only citation regarding the section 6402(a)

analysis is Belloff v. Commissioner, 996 F.2d 607 (2d Cir. 1993),

affg. T.C. Memo. 1991-350. Reliance on Belloff is misplaced.

1
Sec. 6402(a) was first added to the Internal Revenue Code
of 1939 at sec. 3770(a)(4) by the Tax Administrative Amendments
of 1949, ch. 517, sec. 9(a), Pub. L. 271, and was moved to sec.
6402 by the Internal Revenue Code of 1954, ch. 736, 68 Stat. 730.
It has been amended by the Internal Revenue Service Restructuring
and Reform Act of 1998, Pub. L. 105-206, secs. 3505 and
3711(c)(1), 112 Stat. 771, 781; Balanced Budget Act of 1997, Pub.
L. 105-33, sec. 5514(a)(1), 111 Stat. 620; Personal
Responsibility and Work Opportunity Reconciliation Act of 1996,
Pub. L. 104-193, sec. 110(1)(7)(A), 110 Stat. 2173; Deficit
Reduction Act of 1984, Pub. L. 98-369, sec. 2653(b)(2), 98 Stat.
1155; Omnibus Budget Reconciliation Act of 1981, Pub. L. 97-35,
sec. 2331(c)(1), 95 Stat. 861; and Tax Reform Act of 1976, Pub.
L. 94-455, sec. 1906(b)(13)(A), (K), 90 Stat. 1834.
 - 61 -

The Court of Appeals’s holding in Belloff is that this Court must

respect assessments set off under section 6402(a) if they are

procedurally valid assessments and “will not address the merits

of legal issues underlying the assessment.” Id. at 617. Indeed,

section 6512(b)(4) specifically denies us jurisdiction to

restrain or review “any credit or reduction made by the Secretary

under section 6402" once the assessment is made. On May 12,

1998, the interest assessment was made, and it was procedurally

valid. Our only authority to review this interest assessment is

under section 7481(c) and Rule 261, neither of which is the

subject of the estate’s motion.

The statutory scheme, contrary to the assumptions of the

adopted opinion, is based on a chronology that places the

resolution of unpaid interest on a deficiency after the entry of

decision. “Unpaid” in this context means unaccounted for by the

Commissioner or not treated as paid by the Commissioner. The

period of limitations for the assessment of interest provides an

initial example of the fallacy in the adopted opinion that

sections 6402(a) and 6512(b) do not mean what they say.

II. Statutory Conflicts Generated by the Adopted Opinion

Section 6601(g) allows the Commissioner to assess and

collect interest at any time during the period within which the

tax to which such interest relates may be collected. See also

sec. 301.6601-1(f)(1), Proced. & Admin. Regs. Generally, tax
 - 62 -

must be assessed pursuant to section 6501, but interest may be

assessed anytime during the collection period of the tax. This

period is usually at least 10 years. Sec. 6502(a)(1).

Therefore, the statutory scheme provides a distinct and longer

assessment statute of limitations for interest, and bifurcates

the tax and the interest in this context. In contrast, the

adopted opinion accelerates interest assessment in the context of

overpayment cases, and eliminates any possibility for later

assessment of interest or the correction of a prior interest

assessment. The plain language of the Code would require the

Commissioner to determine interest liabilities after the

determination and assessment of tax, including overpayments of

tax, and offset those liabilities against the overpayment.

The analysis of the adopted opinion is also inconsistent

with the statutory provisions permitting the parties to net

interest obligations where there is an overlapping period when

interest and/or tax has been underpaid and overpaid for different

tax liabilities. Sec. 6621(d). The adopted opinion would

require that all such netting be finalized at the time the

decision document is entered. In other situations in the Code

where subsequent events could alter the impact of a Tax Court

decision, the Code has a specific exception that permits

revisiting the results of the decision because of the subsequent

events; for example, the statutory treatment of net operating
 - 63 -

losses. Sec. 6511(d)(2)(B)(iii). Similar treatment is afforded

for credit carrybacks. Sec. 6511(d)(4)(B). There is no

corresponding provision regarding interest netting, although it

is obvious that subsequent year payments and the result of other

tax years can fundamentally change interest liabilities. This

omission implies Congress did not intend that this Court fix

interest liabilities in its decisions.

If Congress had intended that our overpayment decisions

under section 6512(b) were to include final interest

determinations, there would have been no need to include section

7481(c)(2)(B), and the language of section 7481(c)(3) would be

inaccurate. Section 7481(c)(2)(B) specifically gives this Court

jurisdiction to determine interest overpayments and underpayments

after the Court has determined that there is an overpayment

pursuant to section 6512(b). In addition, section 7481(c)(3)

provides as follows:

If the Tax Court determines under this subsection that
the taxpayer has made an overpayment of interest or
that the Secretary has made an underpayment of
interest, then that determination shall be treated
under section 6512(b)(1) as a determination of an
overpayment of tax. An order of the Tax Court
redetermining interest, when entered upon the records
of the court, shall be reviewable in the same manner as
a decision of the Tax Court.
 - 64 -

Section 7481(c)(2)(B) would be unnecessary if the adopted opinion

were correct, and the reference to the term “overpayment of tax”

in section 7481(c)(3) is inconsistent with the whole rationale of

the report and points out the inherent ambiguity in the term

“overpayment”. It is telling that Congress did not simply say

“overpayment”. In adding interest disputes to this Court’s

jurisdiction, Congress deemed it necessary to include section

6512(b) determinations and to provide that our interest

determinations would be reviewable similar to our “overpayment of

tax” determinations. This congressional action would have been

unnecessary if overpayment decisions included interest liability.

III. Reliance on Baumgardner and Barton

Reliance upon Estate of Baumgardner v. Commissioner, 85 T.C.

445 (1985) and Barton v. Commissioner, 97 T.C. 548 (1991), is not

only misplaced, but misleading. The rationales of Baumgardner

and Barton are premised upon and relate to interest that has been

paid or overpaid prior to the issuance of the notice of

deficiency. Neither case suggests, or leads to the conclusion

that, the Court’s overpayment jurisdiction contemplates assessed,

but unpaid, interest. In an overpayment context, we have no

authority or jurisdiction to order respondent to abate interest

otherwise properly assessed.
 - 65 -

“Interest may be part of an overpayment if the interest

accrued and was paid prior to the time the overpayment was

claimed or arose. This is the type of interest we are

considering in this case.” Estate of Baumgardner v.

Commissioner, supra at 452 (emphasis added). “Our holding that

the term ‘overpayment’ includes assessed and paid interest at the

time of overpayment”. Id. at 460 (emphasis added). “Petitioners

contend that they paid the increased interest under section

6621(c), and that the Court has jurisdiction to determine a

taxpayer’s claim that there has been an overpayment of tax with

respect to a year that is otherwise properly within the Court’s

jurisdiction.” Barton v. Commissioner, supra at 550 (emphasis

added). Neither of these cases, or the subsequent opinions

following them, forced this Court to restrict the Commissioner’s

authority to offset, which is explicitly provided in section

6402(a).

IV. Assessed v. Unassessed Interest

Under the concurring analysis, it is suggested that the

adopted opinion should be limited to assessed interest. My view

is that there is no support in the statutory language for such a

distinction. In the present case, although interest was

assessed, it was interest on the liability before our first

opinion was reversed and remanded ($410,000), not the correct

amount based upon our revised opinion ($209,943.54, less the
 - 66 -

payment of $144,947.89, leaving an unpaid balance of $64,995.65).

The prior interest assessment in this case does not reflect the

actual interest liability due and owing. When it was assessed,

this interest was beyond our jurisdiction because the case was in

a deficiency situation. Our authority to address this unpaid

assessment of interest is now limited to section 7481(c) and Rule

261, neither of which are before us.

V. Rule 155

The present issue originates with this Court’s execution of

the decision document in question. The opinion was based on a

computation which the parties agreed was in conformity with this

Court’s opinion after remand pursuant to Rule 155(a). The Court

executed the decision relying on the parties’ agreement without

reviewing the agreed computation. A review of the computation

would have revealed that the overpayment amount was not reduced

by interest liabilities but that an interest deduction was

permitted for the anticipated payment of Federal interest of

$64,995.65 on the estate tax deficiency.

The estate represented to the Court that the computation

submitted was in conformity with the Court’s opinion and the

estate also represented that the interest in the amount of

$64,995.65 was deductible, explicitly acknowledging that such

interest would be paid by offset against the overpayment of tax

shown in the agreed Rule 155 computation. The Court relied upon
 - 67 -

the estate’s representation in executing the decision without

reviewing or challenging the agreed computation. The Court now

interprets the estate’s position to be that the interest should

not be paid because the overpayment was erroneously overstated.

The estate has never explicitly argued this, but if the adopted

opinion has correctly interpreted the estate’s position,2 the

estate previously made a factual assertion on which the Court

granted the deduction, that the interest payment would be made.

If the adopted opinion’s legal analysis is correct, the estate’s

change of course causes the Court to look foolish for relying on

the estate’s prior representation.

This Court should hold the estate to its stipulation under

Rule 155(a). This is not a question of finality, rather one of

consistency. The inconsistency created by this result threatens

judicial integrity and the integrity of this Court’s Rules. The

estate is rewarded for misleading the Court and avoiding the

agreement reached pursuant to Rule 155(a). This Court has the

authority to construe the Rules to deny this abuse of our process

and to reach a just result.

As Judge Laro explains, this Court has the authority of a

court of law. We can implement that authority to fill in gaps in

our Rules pursuant to Rule 1(a). We also have the inherent

2
There are no briefs on this issue, and the estate’s motion
is unclear at best.
 - 68 -

authority to enforce our own Rules to provide a just result.

Rule 1(b); Goldsmith v. Bd. of Tax Appeals, 270 U.S. 117 (1926).

This includes the authority to enforce agreements reached under

our Rules. Willamette Indus., Inc. v. Commissioner, T.C. Memo.

1995-150. Implicit in the authority to enforce agreements

reached under Rule 155(a) is the understanding that we enter

decisions in conformity with the agreed computation. If the

Court’s interpretation of the decision was not in conformity with

the parties’ agreement and the Court’s Opinion, we had no basis

to enter the decision, and it should be vacated. The alternative

is to enforce the parties’ agreed interpretation of the term

“overpayment”.

I believe we have exceeded our statutory authority today,

but perhaps the most unfortunate aspect of today’s opinion is

that Rule 155(a) now becomes a trap for the parties before our

Court. In this case, the Court did not review the agreed Rule

155 computations submitted by the parties before executing the

decision document. The adopted opinion determines that the Court

is prevented from considering the agreed computations after a

decision is entered, so the computation is ignored before and

after the decision is executed. This effectively renders Rule

155(a) a nullity. The agreed computation becomes irrelevant to

the outcome regarding the meaning and effect of the decision
 - 69 -

document. Given the ambiguity inherent in the term

“overpayment”, we have created a procedural pitfall.

For the stated reasons, I respectfully dissent.

HAINES, WHERRY, KROUPA, and HOLMES, JJ., agree with this
dissenting opinion.
 - 70 -

HOLMES, J., dissenting: I fully agree with the detailed

analysis of Judge Goeke’s lucid dissent. I write separately only

to provide a brief introduction to what has become--unnecessarily

in my view--a very complicated statutory analysis by focusing on

what I see as three fundamental mistakes that the majority makes

today.

The first lies on page 9 of the Court’s opinion, where it

states that what we are deciding is “whether the amount of an

‘overpayment’ must include consideration of any underpayment

interest owed by a taxpayer at the time of the overpayment

calculation.” (Emphasis added.) What follows is the statutory

interpretation that Judge Goeke analyzes. However, I don’t think

this is the right question. What we should be reviewing here is

neither a term used in the Code nor a regulation, but only a term

used in an agreed computation under Rule 155.

Most cases that we partly decide in a taxpayer’s favor

require computing exactly how much is owed by whom for the tax

years in question. This computation is nothing more than a

complicated math problem, and one we leave for the parties them-

selves to figure out. “If the parties are in agreement as to the

amount of the deficiency or overpayment to be entered as the

decision * * *, then they, or either of them, shall file promptly

with the Court * * * a computation showing the amount of the

deficiency, liability, or overpayment and that there is no
 - 71 -

disagreement that the figures shown are in accordance with the

findings and conclusions of the Court.” Rule 155(a), Tax Court

Rules of Practice and Procedure.

That’s what the estate and the Commissioner did here.

Counsel for the estate signed the agreed decision documents based

on the agreed computations, aware that the line item marked

“overpayment” did not reflect unpaid interest. This is not

surprising: Rule 155 governs all post-opinion computations

(including computations of deficiency), and over time the IRS has

developed an almost-unbroken custom of using Rule 155 to reach

agreement on the amount of tax (rather than tax plus interest)

owed. In fact, if interest computations are shown, they are to

be labeled “for information only,” Internal Revenue Manual

8.17.3.2.3 Applying Credits and Payments (2001), which is exactly

what the parties did here. See Form 3623, Statement of Account

Sched. 3. We then typically review any resulting disputes about

the amount of tax owed under Rule 155(b) and disputes about the

interest computations under Rule 261.

In this case, the estate, through counsel, had the

opportunity to review the statement of account that the

Commissioner prepared. This document clearly shows that

interest and tax were to be considered and treated separately,

that “overpayment” meant overpayment of tax only and “interest”

included only interest assessed after the Court’s initial
 - 72 -

deficiency determination. The estate’s counsel agreed to this

terminology and should not now be allowed to prevail on a claim

that the terms as used in this agreement have different meanings.

This Court typically treats closing agreements, stipulations of

fact, and settlements as contracts, holding parties to their

terms. Johnston v. Commissioner, 122 T.C. 124 (2004)

(stipulations); Zaentz v. Commissioner, 90 T.C. 753 (1988)

(closing agreements); Stamm Intl. Corp. v. Commissioner, 90 T.C.

315 (1988) (settlements). I see no reason to deviate from that

practice in this case and would hold that agreements under Rule

155 should be just as binding.1

The majority doesn’t dispute that the parties’ computation

under Rule 155 should be binding on them, but it then chooses to

resolve the dispute over its meaning quite unlike other courts

would. When a legitimate question is raised about the meaning of

an ambiguous term in a contract, courts will usually rely on

evidence of what the parties intended. “If * * * a court refuses

to consider evidence of particular meanings attached by the

contracting parties, the court may discover a contract that

neither party intended.” Murray, Murray on Contracts, 1-5 sec.

86 (2001). That is just what has happened here, with the

1
As Judge Goeke convincingly demonstrates, the parties so
obviously agreed what the term meant that respondent allowed the
estate a deduction for the accrued but unpaid interest that was
shown in the computation.
 - 73 -

majority redefining the term “overpayment” in a way that changes

the parties’ agreement. It answers the question--“Does the

amount of an ‘overpayment’ include any underpayment interest owed

by a taxpayer at the time of the overpayment calculation?” with a

one-size-fits-all answer of “yes.” The right answer should be

“It depends”--with the answer being decided on the particular

facts of the case at hand.

And this points to the second shortcoming in the majority’s

opinion--its focus on section 6512. That section is only a

jurisdictional statute, and we construed the word “overpayment”

in that section, via section 6601(e)’s general definition of

“tax,” to mean that we had jurisdiction over disputes about the

overpayment of a tax plus interest instead of tax alone. Barton

v. Commissioner, 97 T.C. 548, 552 (1991); Estate of Baumgardner

v. Commissioner, 85 T.C. 445, 451-452 (1985). But this is not a

case that turns on jurisdiction--everyone agrees we have

jurisdiction in an appropriate case to order the payment of an

overpayment and any interest due on it. It turns instead on how

we have chosen to exercise our jurisdiction; in cases like this

one, we have chosen to do so according to rule. When we exercise

our jurisdiction under section 6512, we do it by deciding what

was the “overpayment determined by the Court * * *.” Rule 260.

Rule 260, consistently with Rule 155, should lead us to the

agreed decision of the parties, and their intended meaning of
 - 74 -

its terms. I recognize that this means that parties could define

“overpayment” as an overpayment of tax in the context of settling

cases, while construing “overpayment” in section 6512 to mean we

have jurisdiction over both overpayments of tax and interest.

But that sort of context-specific interpretation is recognized

throughout the Code. Section 6601(e) itself begins with “Except

as otherwise provided in this title” and this phrase is a

recognition by Congress that a complex tax code patched together

at many different times for many different purposes should not be

interpreted using something akin to a universal-search-and-

replace function.2 Glossing is almost always necessary to decide

the likeliest meaning of the Code, and the majority creates a

gloss of its own by construing sections 6512(b) and 6402(a) to

not apply to the very tax liabilities at issue in an overpayment

case.

The third and final issue I wish to highlight is the

majority’s seeming indifference to the effects of today’s

decision on a large number of third parties. As Judge Goeke

points out, today’s definition of “overpayment” threatens to

bollix up the procedure for interest calculations by forcing

2
The majority likewise relies on regulation Sec. 301.6611-
1(b), Proced. & Admin. Regs., as additional support for its
conclusion that “overpayment” must mean “the amount by which
payments exceed the tax, including any underpayment interest.”
See majority op. pp. 18-19. But that regulation defines
overpayment for the purpose of computing interest, not drafting
settlement documents.
 - 75 -

parties to calculate interest before submitting their

computations under Rule 155. Resolution of especially complex

cases where interest netting applies will become even harder to

manage with any kind of reasonable speed. Parties now engaged in

Rule 155 computations will have to be very careful that today’s

opinion is reflected in their documents. And we can expect

litigants who have already settled their cases in the last 120

days (for Rule 260 motions) and the last year (for Rule 261

motions) to return to us seeking the same windfall that the Smith

Estate gathers up today.

Because there is no reason to let this happen, I

respectfully dissent.

HAINES, GOEKE, WHERRY, and KROUPA, JJ., agree with this
dissenting opinion.