CCA 9937004: IRS should concede failure-to-pay addition for nonfiler

Plain-English summary

An IRS office proposed seeking dismissal of a case involving a failure-to-pay addition under section 6651(a)(2). The taxpayer had filed no return, and the IRS had prepared no substitute return under section 6020. Chief Counsel agreed the addition was improper without either return and recommended conceding it by stipulation. It disagreed with the proposed jurisdictional dismissal, explaining that a statutory change had superseded the older case on which the motion relied. The memo thus addressed both the validity of the addition and the Tax Court's ability to decide it.

Ruling snapshot

• Question: How should the IRS handle a section 6651(a)(2) addition when neither a return nor substitute return was filed?
• Outcome: Advice given: concede the addition; do not seek dismissal for lack of jurisdiction.
• Key authorities: IRC §§ 6651(a)(2), 6020, 6214(a)

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
I N T E R N AL R E V E N U E S E R V I C E WASHINGTON, D.C. 20224
May 26, 1999

UIL: 9999.98-00
Number: 199937004
Release Date: 9/17/1999

MEMORANDUM FOR

FROM: Peter K. Reilly
CC:DOM:FS:PROC

SUBJECT:

We are writing in response to your proposed motion in the above case.

You noted that the
is sending Notices of
Deficiency to non-filers asserting a penalty under I.R.C. § 6651(a)(2). The service center is not preparing substitutes for returns pursuant to I.R.C. § 6020. You correctly concluded that the penalty under I.R.C. § 6651(a)(2) cannot be asserted if no return or substitute for return is filed. See Rev. Rul. 76-562, 1976-2 C.B. 430; Johnson v. Commissioner, T.C. Memo. 1983-398, 46 T.C.M. (CCH) 694. But we do not agree with your motion to dismiss for lack of jurisdiction or the response in paragraph three of your answer.

In support of your motion to dismiss for lack of jurisdiction you cited Estate of Young v. Commissioner, 81 T.C. 879 (1983) (holding that, where an estate tax return was filed, the court did not have jurisdiction over the penalty under I.R.C. § 6651(a)(2) because it was not attributable to a deficiency). This case is no longer valid as it was specifically overruled in 1986 when the language in I.R.C. § 6214(a) was changed from “an addition to tax” to “any addition to the tax.” See S.R. No. 99- 313 at 200, 1976-3 C.B. (Vol. 3) 200 (“The committee believes that it is appropriate for the Tax Court to have jurisdiction over this addition to tax [under I.R.C. § 6651(a)(2) it if already has jurisdiction with respect to that tax return.”); Estate of Nemerov v. Commissioner, T.C. Memo. 1998-186 (holding that the Tax Court does have jurisdiction to determine the addition to tax under I.R.C. § 6651(a)(2)). Furthermore, Estate of Young stated “[n]or do we hold that this Court lacks such jurisdiction [over the penalty under I.R.C. § 6651(a)(2)] if no return is filed,” Estate of Young, 81 T.C. at 888, and a prior decision determined that no addition under I.R.C. § 6651(a)(2) was due in a case where a valid return was not filed. Johnson, 46 T.C.M. (CCH) at 697.
2

Though we do not agree with your motion we do agree that the addition to tax under I.R.C. § 6651(a)(2) is not proper. We agree with your admission in paragraph 4(c) of the answer. Further, we recommend that you enter into a stipulation with the taxpayer reflecting our concession of the addition to tax under I.R.C. § 6651(a)(2).

If you have any questions regarding this memo, please contact Todd Ludeke at (202) 622-8108.