part35-39

A determination against the successor or merged corporations for tax
due by the separate corporations prior to the merger is not a true transferee
case. Such matters should generally be handled as a deficiency case. The stipulation,
Rule 155, and decision documents in these cases should specifically state
that the liability at issue is not the petitioner’s own liability, but
is its liability as successor to the merged corporations. If the statutory
notice was incorrectly issued to the successor of merged corporations as a
transferee liability, a new statutory notice should be issued to the successor
corporation as primary obligor. Should the issuance of a new statutory notice
be barred by the statute of limitations, it is advisable to process and handle
the case as a transferee case, even though a transferee notice was incorrectly
issued to the successor corporation. The successor of merged corporations
may obtain an overpayment of tax paid by its predecessor. This is so because
the successor corporation is in law a continuation of the taxpayer, and therefore,
as a matter of law, there is no assignment of the claim. Thus, the overpayment
to the successor is not prohibited by the Federal Assignment of Claims Act,
31 U.S.C. §  203. There may be other instances when an overpayment
may be legally made to a petitioner who is not the taxpayer who paid the original
tax. The courts have held that the Federal Assignment of Claims Act does not
apply to an assignee by operation of law. When there is any question as to
whether the petitioner in the Tax Court is entitled to an overpayment, the
attorney must determine all necessary facts and thoroughly research the applicable
law before preparing the stipulation, Rule 155, and decision documents. Furthermore,
any question concerning these matters should be submitted to P&A for consideration
prior to the Field attorney making a final commitment.

The processing of a merged corporation case as a transferee case is
for procedural purposes only. The substantive transferee liability law is
not applicable to a merged corporation case which is not in fact a true transferee
case. In determining the deficiency in this instance, the same substantive
law is applicable as is applicable in any other deficiency case.

The executor or administrator of a decedent’s estate is the personal
representative of the decedent and stands in his/her place. Therefore, the
Federal Assignment of Claims Act, 31 U.S.C. § 203, does not prohibit
an overpayment of tax to the executor or administrator of an estate.

Refund suits usually may be maintained only by the party who paid the
tax. The successor of merged corporations is considered to have paid the tax
of the merged corporations for this purpose, and consequently may maintain
a refund suit. Otherwise, voluntary assignments of a right to a refund are
generally null and void as to the government. Federal Assignment of Claims
Act, 31 U.S.C. § 203. Therefore, refund suits initiated by an assignee
are generally subject to dismissal for lack of a proper party.
See CCDM 35.5.2.

These instructions address the special problems that must be considered
to secure a proper decision in cases involving: net operating loss or credit
carrybacks and carryovers; special limitation periods on overpayments; and
restrictive interest computations. These instructions are applicable to deficiencies,
overpayments, or transferee cases. The term “carryback,”
as
used herein, includes carryovers or carryforwards of net operating losses
or credits, together with any of the other types of adjustments in this special
category, as applicable to the specific case.

A special period of limitations may permit an overpayment to be determined
by the Tax Court which would otherwise be barred by the general statute of
limitations. See section 6512(b)(2). Such special limitations
periods may arise with respect to a net operating or capital loss carryback,
a credit carryback, a foreign tax credit, bad debts and worthless securities,
reduction of policyholders surplus account of life insurance companies, amounts
included in income subsequently recaptured under qualified plan termination,
or partnership items of federally registered partnerships. Sections 6511(d)
and 6511(g). In these cases the stipulation or Rule 155 computation must include
all facts necessary to support the overpayment and to show it may be properly
determined by the court.

For settled cases of the type referred to above, or in any other case
in which the restrictive interest provisions of the internal revenue laws
are applicable, there should be filed with the court a separate stipulation
document. In these cases the combined stipulation and decision document should
not be used, even though a deficiency is to be determined by the court. For
decided cases, the Rule 155 computation will provide for all of the essential
elements that are required for a settlement stipulation. The stipulation or
the Rule 155 computation must contain all of the basic facts upon which the
restrictive interest provisions can be applied to either a deficiency or overpayment.
For example, if a case involves a net operating loss carryback, the agreement
extending the statute for the year the net operating loss occurred must be
shown if such agreement is necessary to support the timely filing of the refund
claim upon which the overpayment is to be based. This example is not all-inclusive,
and the attorney must thoroughly research the applicable provisions of the
statutes and regulations in cases coming within the purview of these instructions.

For cases in which there is a deficiency, without considering the net
operating loss carryback or other special adjustment, the stipulation or Rule
155 computation must show such deficiency. If the carryback results in a net
overpayment, the document must show the deficiency prior to the carryback
loss or credit and the overpayment after allowance of the carryback loss or
credit. If there is a net deficiency, the document must show the deficiency,
without considering the carryback loss or credit, and the deficiency after
allowance of the carryback loss or credit. These requirements are necessary
to permit the Service to make a proper adjustment for the deficiency and to
apply the applicable restrictive interest provisions to the deficiency and
to the overpayment.

Many of the carryback loss cases involve a previous allowance of so-called “quickie”
or tentative refunds under section 6411. In some of
these cases an issue is raised as to the amount of the “quickie
”
refund. In other cases the issues before the court are other adjustments
that do not disturb the amount of the “quickie”
refund
allowed in the statutory notice. In both situations, the settlement stipulation
or the Rule 155 computation must provide for the gross deficiency prior to
the carryback and the net deficiency or overpayment after the carryback, or
for the overpayment both before and after the carryback. This is necessary
to establish a proper basis for applying the restrictive interest provisions
and to foreclose questions arising at a later date as to the proper computation
of interest.

If the overpayment, in whole or in part, or if the adjustment to the
deficiency is based upon the allowance on the merits of a carryback loss or
credit, the carryback loss or credit must be placed in issue by the petition
or amended petition or by stipulation of the parties. The court cannot base
an overpayment of tax or an adjustment of a gross deficiency on the merits
of a carryback loss or credit unless such loss or credit is before the court.
Such adjustment must be placed in issue prior to or simultaneous with the
filing of the settlement stipulation. In decided cases the Rule 155 computation
would not make the carryback adjustments unless an issue had been raised with
respect thereto prior to the trial of the case. If an operating loss has been
placed in issue by a petition or an amended petition, the settlement stipulation
or Rule 155 computation and the court’s decision must dispose of the
issue. These requirements are also applicable to any of the other special
limitation provisions of the Code. Once a carryback adjustment has been properly
placed in issue in a Tax Court case, it is very questionable whether it can
be removed from the case by an amended petition or even by agreement of the
parties. Similarly, a stipulation in a Rule 155 document to defer consideration
of the validity and consequences of a carryback or carryforward loss or credit
to an audit or to litigation covering the year to which the loss or credit
is carried may be ineffective. Further consideration of the issue might be
barred by section 6512 and/or res judicata. Thus, where the carryback
adjustment has been properly placed in issue and the taxpayer attempts or
seeks to withdraw it from the case, he or she should be informed that no assurance
can be given that a carryback adjustment is thereafter allowable or will be
allowed, unless disposed of by the decision in the instant case. That is,
after the Tax Court’s decision becomes final, it would appear that no
further adjustment could be made to the tax liability for the year or years
before the court by reason of a carryback loss or credit which was at any
time an issue in the case. This would not apply to cases in which the carryback
loss or credit was not properly an issue before the Tax Court. In such cases
the decision documents should explicitly state that the deficiency or overpayment
determined is without regard to the carryback adjustments, which were not
at issue in the case. Legal advice on the preparation of decision documents
involving tentative or claimed carryback adjustments is available from APJP,
Branch 3. See Exhibits 35.11.1–162 through 35.11.1–168
for guidance on preparation of decision documents concerning these issues.

For transferee cases in which an operating loss carryback or credit
is used in the determination of the transferor’s tax liability, care
must be exercised to include in the transferee liability the amount of interest
on the portion of the deficiency which is reduced by the carryback.

Except as herein provided, the general provisions governing stipulations
and Rule 155 computations in income tax cases are also applicable to estate
and gift tax cases. The instructions as to transferee liability, interim assessments,
prior unpaid assessments, or jeopardy assessments, etc., in income tax cases
are also applicable here. The income tax forms in the exhibits for these special
circumstances, with appropriate modifications, may be used for these estate
and gift taxes.

In estate tax cases, no year is indicated in the stipulation, Rule 155
computation or decision. For gift tax cases, the calendar quarter or calendar
year is used and not the taxable year or fiscal year.

In estate tax cases, additional deductions for expenses of administration
incurred after the filing of the petition may be included in the stipulation,
Rule 155 computation, or decision. Administration expense deductions incurred
at or after trial may also be claimed in a Rule 155 computation.

To support a claim for a credit under section 2011 for the payment
of state estate, inheritance, legacy, or succession taxes, the petitioner
must furnish proof of actual payment. Therefore, in the settlement of estate
tax cases, the gross deficiency or gross overpayment is usually stipulated
because the petitioner is unable to furnish the required proof of payment
necessary to compute the net deficiency or net overpayment when the settlement
stipulation is prepared. Under section 2011(c), the petitioner may obtain
credit for state death taxes after the decision is entered in the Tax Court
if the claim therefore is submitted to the Service within the statutory period.
If an extension has been granted under sections 6161 or 6166, the petitioner
may use the longer of the periods provided in section 2011(c)(1)(2) and (c)(2).
For the same reason, the gross deficiency or gross overpayment is usually
determined in Rule 155 cases. Any dispute in a Rule 155 case over the allowance
of the state inheritance tax credit should be resolved by giving the taxpayer
assurance that under section 2011(c) the petitioner may obtain such credit
if a claim is timely filed after the entry of the decision. Therefore, it
is desirable to include in the stipulation, the stipulation portion of the
combined decision document, the Rule 155 computation statement, or the stipulation
portion of the Rule 155 decision a “credit paragraph.”
This
paragraph must never be included in the court’s decision as distinguished
from the stipulation portion of a combined stipulation and decision document.
If the net deficiency or net overpayment of estate tax is stipulated or provided
for in the Rule 155 computation, the “credit paragraph”
must
be omitted from these documents.

When payment of an estate tax liability has been deferred under sections
6161or 6166, the amount of interest to be incurred on federal and state estate
tax liabilities may be deducted only as that interest accrues.

In cases where an estate tax liability has been deferred under section 6166,
a final decision should be entered. Pursuant to section 7481(d) and T.C.
Rule 262, the petitioner may file a motion to modify the decision for allowance
of interest expenses paid during the extended payment period once all the
payments have been made. Only one Rule 262 motion may be filed at the end
of the extended payment period in each case, but the estate may administratively
file supplemental Forms 706 to periodically recompute the estate tax liability
and thus reduce the amount of the installment payments due over the extended
payment period. See Rev. Proc. 81–27, 1981–2
C.B. 548. In cases decided by the Tax Court, a Rule 262 motion is necessary
to obtain a refund or credit of taxes overpaid during the installment period.
As soon as the decision is filed, the petitioner should be reminded to file
a motion under Rule 157 to have the Tax Court retain the official case file
pending a Rule 262 motion. Field Counsel should also retain the legal file.
If a Rule 262 motion for allowance of interest costs is filed, it should be
reviewed for reasonableness. Field Counsel should ordinarily have no objection
to the motion. If there is an objection, reasons and support therefor should
be filed with the court.

In cases where an estate tax liability has been deferred under section 6161,
no final decision should be entered until the final installment of the deferred
tax is due or paid, whichever occurs earlier. Because section 7481(d) does
not apply to interest on payments deferred under section 6161, the procedures
implemented by the Tax Court prior to the enactment of section 7481(d) should
be followed. In such a case, the parties should stipulate that the time for
payment of the estate tax liability is extended and that the sole purpose
for leaving the case open is to allow petitioner the right to claim the amounts
of interest accruing on the installment payments as an expense of administration
under section 2053. See Exhibit 35.11.1–169. A
joint motion to stay proceedings for this purpose until the final installment
of the estate tax liability is due or paid should also be filed.
See Exhibit 35.11.1–170. The provisions of Rev. Proc. 81–27,
1981–2 C.B. 548, as discussed above, also apply to installment payments
under section 6161.

In cases where it is determined that a petitioner has made an overpayment
of estate tax, the stipulation or Rule 155 computation and the court’s
decision should include an apportionment of the overpayment between the overpayment
of the estate tax liability and any overpayment of interest. The dates on
which the overpayments arose should be specified. If there is no overpayment
of interest, the stipulation or Rule 155 document should so state. Both portions
of the overpayment are subject to Tax Court jurisdiction and may be refunded
under section 6512(b).

When a single statutory notice is issued to a husband and wife for their
joint and several liability, and each files a separate petition with the Tax
Court, difficulties may be encountered in the disposition of the cases. When
possible, a motion should be filed to consolidate the two cases. Upon settlement
or other disposition of the single liability due from the petitioners, a transferee
duplication form of stipulation may be filed showing that the deficiency to
be determined by the court in each case is a duplication of the deficiency
in the other case.

Section 3401 of the Internal Revenue Service Restructuring and Reform
Act of 1998 (RRA), Pub. L. No. 105–206, 112 Stat. 685 (1998), codified
at sections 6230 and 6330, created what is referred to as Collection
Due Process cases. Section 6320 provides, in part, that the Service must notify
in writing the taxpayer against whom a Notice of Federal Tax Lien has been
filed and provide the taxpayer an opportunity for a CDP hearing before an
impartial appeals officer. A taxpayer may judicially appeal a determination
resulting from a CDP hearing, and thus can become subject to the Tax Court’s
jurisdiction. Similarly, section 6330 provides, in part, that no levy
may be made on any property or right to property of any taxpayer unless the
Service sends the taxpayer a CDP Notice at least 30 days before the levy is
made which provides the taxpayer with an opportunity for a CDP hearing. A
taxpayer may judicially appeal a determination resulting form a CDP hearing,
and thus can become subject to the Tax Court’s jurisdiction. Jurisdiction
under section 6330 for either the Tax Court or a district court depends upon
a timely petition for review and the issuance of a valid notice of determination
by Appeals after the CDP hearing. Note that if the Tax Court normally has
jurisdiction over the type of tax in issue (e.g., income
taxes and estate taxes), the Tax Court will be the court to address any judicial
appeal. If the tax is a type over which the Tax Court usually does not have
jurisdiction, the district court will be the court to address any judicial
appeal.

Although petitioners should not generally be able to raise new nonliability
matters subsequent to the issuance of a notice of determination and have those
matters decided by the court, situations may arise where respondent and petitioner
agree to enter into a collection alternative (such as an installment agreement
or offer in compromise) after issuance of a notice of determination. To accomplish
this, the parties submit a stipulated decision to the court. A decision document
for a CDP case generally incorporates the disposition of the matter (e.g., offer in compromise, installment agreement) into the
decision. See Exhibit 35.11.1–171.

Preparation of decision and stipulation documents for docketed CDP cases
require pre-review by the Associate Chief Counsel (P&A). These documents
must be referred to the Technical Services Support Branch for assignment and
pre-review. Primary responsibility for all judicial matters arising in CDP
cases has been assigned to the Assistant Chief Counsel (CBS), Branch 1. Field
attorneys seeking informal advice regarding CDP may contact CBS, Branch 1.

Section 6651(g) provides for the application of section 6651(a)(2) “failure to pay”
addition to tax to returns prepared pursuant
to section 6020(b). Where the Tax Court has jurisdiction to redetermine the
underlying tax deficiency, it may also have jurisdiction over the section
6651(a)(2) addition to tax imposed pursuant to section 6020(b) returns. See CCDM 35.2.2.11.

The preparation of decision documents for cases involving additions
under section 6651(a)(2) will vary depending on the particular circumstances: e.g., whether the years in issue predate the enactment of
section 6651(g); whether or not the addition to tax is continuing to accrue;
whether the petitioner conceded the case in full; whether the case was settled
for a reduced deficiency; whether the petitioner filed a delinquent return;
whether the statutory notice of deficiency set forth the addition to tax in
a sum certain; and where section 6651(a)(2) is not applicable. Sample decision
document paragraphs addressing these scenarios are set forth in Exhibit 35.11.1–172.
Questions concerning preparation of decision documents involving failure to
pay addition to tax for returns prepared under section 6020(b) should be referred
to APJP, Branch 2.

 If the court consolidates a group of cases for trial and the entire
group is settled at any time before the court issues an opinion, the stipulated
decision documents for all the cases must be filed at one time. If only some
of the cases in the group are settled, a motion to sever the settled cases
from the remaining cases should be filed concurrently with the stipulated
decision documents.

 If the court consolidates a group of cases for trial and states
in its opinion that the decisions will be entered under Rule 155, the Rule
155 computations and proposed decisions for all the cases in the group must
be filed at one time. If the computations are agreed for some cases and unagreed
for other cases, it is still necessary to file all the computations at one
time. If it becomes necessary to file any agreed computations prior to filing
computations for the remaining cases in the group, an appropriate motion to
sever should be filed concurrently with the agreed computations and proposed
decision. In most situations, the court prefers that decisions in consolidated
cases decided by an opinion of the court be entered on the same day, so that
all appeal periods of the consolidated petitioners run concurrently.

Section 3201 of the Internal Revenue Service Restructuring and Reform
Act of 1998 (RRA98), Pub. L. No. 105–206, expanded relief from joint
and several liability by repealing section 6013(e) and enacting section
6015. Section 6015 provides three avenues of relief from joint and several
liability under section 6015(b), (c), and (f). Section 6015(b) allows
taxpayers who have filed joint income tax returns relief from joint and several
liability under certain circumstances. Section 6015(c) provides taxpayers
who meet certain threshold marital requirements the opportunity to limit their
liability by electing to allocate the deficiency. Section 6015(f) allows
the Secretary to grant relief when, taking into account all of the facts and
circumstances, it is inequitable to hold the individual liable and relief
is unavailable under section 6015(b) or (c). See also
Rev. Proc. 2000–15, 2000–1 C.B. 447, and the superseding
Rev. Proc. 2003-61, 2003-2 C.B. 296. Section 6015(e) confers jurisdiction
upon the Tax Court to review the Secretary’s determinations under section
6015. The Tax Court reviews the Secretary’s determinations under section 6015(b)
and (c) de novo and determinations under section 6015(f)
for an abuse of discretion. Section 6015 is effective for liabilities arising
after July 22, 1998, and liabilities arising before July 22, 1998, that were
unpaid as of that date. Former section 6013(e) still applies to liabilities
arising before July 22, 1998, that were paid as of that date.

The preparation of decision documents for cases involving claims for
relief from joint and several liability under section 6015 will vary depending
on the particular circumstances of the case: e.g., whether
the petitioner petitioned from a final determination letter under section 6015(e)
or from a notice of deficiency under section 6213(a), whether relief is denied
or granted in full/in part; or whether the granting of relief results in an
overpayment. Sample decision documents are found in the accompanying exhibits.
(See Exhibits 35.11.1–173 through 35.11.1–181).
Questions concerning preparation of decision documents in cases involving
relief from joint and several liability should be referred to APJP, Branch
2.

Section 6404(h) provides the Tax Court with jurisdiction to determine
whether the Service’s failure to abate interest was an abuse of discretion.
Abatement of interest cases are different from traditional Tax Court cases
in a number of fundamental ways. Decision documents in abatement cases are
reviewed by APJP, Branch 3.

Section 6110(f)(2) provides the Tax Court with jurisdiction to review
determinations by the Service with respect to whether and to what extent written
determinations and background file documents may be disclosed to the public.
This type of action may involve a trial, though almost all such actions are
disposed of without trial. Questions concerning preparation of decision documents
in such matters should be coordinated with the Assistant Chief Counsel (Disclosure
and Privacy Law).

Under section 7436(a), the Tax Court has jurisdiction to (1) review
the Service’s determination that one or more individuals performing
services for the taxpayer are employees; (2) review the Service’s determination
that the taxpayer is not entitled to treatment under section 530(a) of the
Revenue Act of 1978 with respect to those individuals; and (3) determine the
proper amount of employment tax under the above determinations. A decision
document in a section 7436 case will address all three of these issues.

The employment taxes imposed by subtitle C of the Code are Federal Insurance
Contributions Act taxes (under sections 3101–3128), the Railroad Retirement
Tax Act taxes (under sections 3201–3232), the Federal Unemployment Tax
Act taxes (under sections 3301–3311), the Railroad Unemployment Repayment
Tax taxes (under sections 3321–3322), and the collection of income tax
at source on wages (under sections 3401–3406). “Employment
tax”
under the statutory language includes the additions to tax, additional
amounts, and penalties provided by chapter 68A of the Code (sections 6651–6665).
Thus, the Tax Court has jurisdiction to determine the proper amount of the
additions to tax, additional amounts, and penalties that relate to the employment
tax imposed by subtitle C with respect to determinations of worker classification
and section 530 treatment. A decision document in a section 7436 case will
set out these amounts for each tax period (quarter or year) in tabular form. See Exhibits 35.11.1–182 through 35.11.1–184.

Section 7436(a) does not provide the Tax Court with jurisdiction to
review any employment tax determinations other than the three listed in the
statute. Thus, a decision document in a section 7436 case will address only
the three issues under the court’s jurisdiction. For example, a decision
document in a section 7436 case will not address worker classification issues
not arising under Subtitle C, such as the classification of individuals for
purposes of pension plan coverage or the proper treatment of individual income
tax deductions. Nor will a decision document in a section 7436 case address
employment tax issues not listed in the statute, such as whether deductions
are made under an accountable plan under section 62(c). A section 7436 decision
document will not address income tax.

Section 7436(d)(1) provides that various restrictions on assessment
in section 6213 apply in the same manner as if a notice of deficiency had
been issued (only the principles of subsections (a), (b), (c), (d), and (f)
of section 6213 apply to the worker classification proceedings under section
7436). Thus, after the Notice of Determination is mailed, the Service is precluded
from assessing the taxes identified in the Notice of Determination prior to
expiration of the 90-day period during which the taxpayer may file a timely
Tax Court petition. The Service may immediately assess proposed employment
tax amounts that do not arise as a result of a determination by the Service
that an individual is an employee of the taxpayer. To the extent the employment
taxes relate to individuals the taxpayer was already treating as employees,
those tax amounts would not be included in the Notice of Determination and
thus, assessment of those taxes would not be restricted by section 6213(a).

The decision document in an agreed section 7436 case should contain
a waiver paragraph as follows:

In every section 7436 case in which a proper amount of employment tax
greater than zero is stipulated, the separate stipulation document or the
stipulation part of the combined stipulation and decision document should
contain the following paragraph:

In section 7436 worker classification cases involving a penalty, as
opposed to an addition to tax, the penalty is referred to as a penalty. Also,
employment tax cases under section 7436 do not involve a deficiency (as defined
in section 6211); thus, the decision document will not state the amount of
the deficiency, but rather the proper amount of employment tax.

As a general rule, decisions in section 7436 cases are reviewed and
approved by the Division Counsel/Associate Chief Counsel (TEGE).

This sub-section discusses decisions in declaratory judgment cases

Stipulated agreements as to fraud in civil tax cases do not generally
have preclusive effect for dischargeability purposes in subsequent bankruptcy
proceedings. When intended by the parties, however, Field attorneys should
attempt to draft stipulated Tax Court decisions involving the fraud penalty
in such a way as to avoid having to relitigate the issue of fraud in a subsequent
bankruptcy proceeding.

A stipulated decision will not ordinarily result in any preclusive effect
in determining dischargeability in bankruptcy proceedings. This is also true,
of course, where a court has entered a default judgment against one of the
parties. The parties may, however, be able to stipulate to the applicability
of collateral estoppel by carefully drafting the stipulated decision to state
such an intention. The following language can be used in stipulations in either
Tax Court or refund litigation to establish the intent that collateral estoppel
should apply as to fraud, but only in cases where the Service has asserted
a positive monetary fraud penalty against the taxpayer:

In addition, the following language should be included in stipulated
decisions themselves:

Conversely, field attorneys should carefully review any stipulation
in cases where a determination has been made to forego assertion of the fraud
penalty in Tax Court or refund litigation to ensure that it does not unintentionally
preclude future litigation in bankruptcy proceedings as to the existence of
fraud.

It is not intended that such provisions always be inserted in stipulated
decisions when a fraud penalty is at issue in the case. Rather, only when
the circumstances strongly indicate that the taxpayer will unfairly attempt
to discharge his tax liabilities after agreeing to those taxes should this
procedural tactic be considered. In either situation, review or drafting of
the stipulations is not routine and should be coordinated with CBS, Branch
2.