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Tax Court Had Jurisdiction to Review Denial of Interest Suspension.
(Parker Tax Publishing February 2014)

Letters 3477 sent by the IRS to a married couple denying their claim for suspension of interest on accruing tax liabilities were subject to review by the Tax Court, even though the couple's concurrent claims for abatement of interest attributable to unreasonable errors and delays by the IRS were still pending. Corbalis v. Comm'r., 142 T.C. No. 2 (1/27/14).

Following an audit of Charles and Linda Corbalis for the years 1999 through 2004, the IRS disallowed a loss carried back from 2001which resulted in the assessment of tax deficiencies. The couple requested an abatement of the interest accruing on those liabilities due to unreasonable errors and delays by the IRS. The IRS sent the couple four separate Letters 2289, Full Disallowance on Interest Abatement Claims, disallowing their claims because the claims did not apply to the liability reported on their returns. The IRS also sent separate Letters 3477, Letter to Address any IRC 6404(g) Interest Suspension Provisions, stating that interest suspension did not apply to the tax years in issue, the Corbalises did not have appeal rights, and they could not petition the Tax Court for judicial review regarding the letters. Charles and Linda subsequently filed a petition seeking judicial review of the Letters 3477.

Code Sec. 6404(e) provides for the abatement of interest attributable to unreasonable errors and delays by the IRS. Code Sec. 6404(g), which is effective for tax years ending after July 22, 1998, suspends the accrual of certain penalties and interest after a defined period after the filing of the tax return if the IRS has not sent the taxpayer a notice specifically stating the taxpayer's liability and the basis for the liability within the specified period. If certain requirements are met, Code Sec. 6404(h) provides for the review of a final determination by the IRS regarding the denial of an interest abatement request.

Besides the claim under Code Sec. 6404(g), the Corbalises also filed a claim for interest abatement under Code Sec. 6404(e) and no determination had been made by the IRS with respect to that claim.

The IRS argued that Code Sec. 6404(h) did not apply to the Corbalises' claims under Code Sec. 6404(g) because their claim involved the suspension of interest and not the abatement of interest. The Tax Court did not have jurisdiction to review the denial of an interest suspension claim, the IRS said. The IRS also argued that, because the Corbalises still had a claim for abatement under Code Sec. 6404(e) outstanding, Tax Court review was premature.

Charles and Linda argued that Code Sec. 6404 deals with abatement, of which suspension is a category and a claim that interest should have been suspended for a period was the equivalent to a claim for abatement of interest that had been assessed for that period. Thus, the denial was subject to review by the Tax Court.

The Tax Court held that the Charles and Linda were entitled to judicial review of their claims for interest suspension. In rejecting the IRS argument that the court only had jurisdiction over abatement of interest claims, the court explained that relief provisions of Code Sec. 6404 were for taxpayers who were affected by errors or omissions of the IRS, and the grant of jurisdiction to the Tax Court covered the suspension of interest.

The court also found that the Letters 3477, which denied the couple's claim to interest suspension and disallowed the right to judicial review, were final determinations for jurisdictional purposes. The court said that the IRS denial of the Corbalises' interest suspension claim and disavowal of judicial review, if upheld, would leave the couple with no further recourse, which is a final determination. Although the contemporaneous Letters 2289 anticipated further proceedings with respect to the claim for abatement for unreasonable errors and delay by the IRS, the claim was severable, the court noted.

For a discussion of the abatement of interest, see Parker Tax ΒΆ261,570. (Staff Contributor Parker Tax Publishing)

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