# Sotiropoulos v. Commissioner

> United States Tax Court · May 5, 2014 · 142 T.C. 269

URL: https://www.frixlaw.com/law-library/cases/4339746

## Case

- **Full name:** Panagiota Pam Sotiropoulos, Petitioner v. Commissioner of Internal Revenue, Respondent
- **Court:** United States Tax Court
- **Decided:** May 5, 2014
- **Citations:** 142 T.C. 269; 142 T.C. No. 15; 2014 U.S. Tax Ct. LEXIS 16
- **Precedential status:** Published
- **Opinion:** Opinion by Lauber
- **Judges:** Lauber
- **Cited by:** 3 later opinions in the Frix Law Library

## Citator (automated)

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- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/4339746

## Opinion text

PANAGIOTA PAM SOTIROPOULOS, PETITIONER v.
COMMISSIONER OF INTERNAL REVENUE,
RESPONDENT
Docket No. 19884–12. Filed May 5, 2014.

I.R.C. sec. 901(a) permits a U.S. citizen or resident to claim
a credit against her Federal income tax liability for income
taxes paid to a foreign country. If such taxes are ‘‘refunded in
whole or in part,’’ the taxpayer is required to notify the Sec-
retary, who is authorized to redetermine the U.S. tax. I.R.C.
sec. 905(c)(1). Any tax due as a result of the Secretary’s
redetermination is due on notice and demand. I.R.C. sec.
905(c)(3). P is a U.S. citizen who lived and worked in the U.K.
during 2003–05. On her U.S. returns for these years P
claimed foreign tax credits in amounts corresponding to the
U.K. tax withheld by her employer. P subsequently filed U.K.
income tax returns showing overpayments and applied for
refunds of U.K. tax. P received payments from U.K. taxing
authorities but contends that the payments were not
‘‘refunds’’ within the meaning of I.R.C. sec. 905(c)(1)(C)
because her entitlement to refunds remains under investiga-
tion in the U.K. P did not notify the Secretary of these pay-
ments pursuant to I.R.C. sec. 905(c)(1). Following examination
of P’s returns, R mailed P a notice of deficiency for 2003–05
determining that the U.K. taxes had been ‘‘refunded’’ and dis-
allowing the claimed foreign tax credits. P petitioned the
Court. Approximately a year after filing his answer, R moved
to dismiss the case for lack of jurisdiction. R contends that he
erred in issuing the notice of deficiency and that I.R.C. sec.
905(c) authorizes him to redetermine P’s 2003–05 tax and col-
lect it upon notice and demand. Held: This Court has jurisdic-
tion to determine, at a minimum, whether the statutory provi-
sion alleged to divest it of jurisdiction applies, that is,
whether the U.K. taxes paid by petitioner have been
‘‘refunded in whole or in part’’ within the meaning of I.R.C.
sec. 905(c)(1)(C).

Jeffrey L. Gould, for petitioner.
Scott A. Hovey, for respondent.

OPINION

LAUBER, Judge: Currently before this Court is respondent’s
motion to dismiss for lack of jurisdiction. The Internal Rev-
enue Service (IRS or respondent) issued petitioner a notice of
deficiency for tax years 2003–05, and petitioner timely peti-
tioned the Court for redetermination of the deficiencies.
269

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270 142 UNITED STATES TAX COURT REPORTS (269)

Respondent now argues that he erred in issuing the notice
and that the Court, by virtue of sections 905 and 6213, 1
lacks subject matter jurisdiction over the substantive tax
issue presented by the petition.

Background
Petitioner is a U.S. citizen who lived and worked in
London, England, during 2003–05 and at the time she peti-
tioned this Court. She was employed by the London office of
Goldman Sachs during 2003–05. She received employee com-
pensation from Goldman Sachs, which withheld United
Kingdom (U.K.) income tax from her wages. She filed U.S.
and U.K. income tax returns for each year at issue. On a
timely filed U.S. return for each year, she claimed a foreign
tax credit in a dollar amount equivalent to the U.K. tax with-
held by Goldman Sachs.
On her U.K. tax return for each year, petitioner claimed
substantial deductions attributable to investments in U.K.
film partnerships. She claimed these deductions under U.K.
tax provisions that allowed investors in film partnerships to
deduct highly leveraged investment costs against their
earned income. In reliance on these deductions, petitioner
applied for refunds on her U.K. returns of the tax that her
employer had withheld and paid over to U.K. taxing authori-
ties.
Section 905(c)(1) provides that, if a taxpayer has claimed
a credit for a foreign tax that is later ‘‘refunded in whole or
in part,’’ the taxpayer ‘‘shall notify the Secretary.’’ The IRS
is then authorized to redetermine the tax for that year and
collect, upon notice and demand, any additional tax due. See
sec. 905(c)(3).
Petitioner received payments from the U.K. taxing authori-
ties resulting from the submission of her 2003–05 U.K.
returns. However, she contends that these payments were
not ‘‘refunds’’ within the meaning of section 905(c)(1)(C) both
because her entitlement to refunds remains under investiga-
tion by U.K. taxing authorities and because the application
1 All
statutory references are to the Internal Revenue Code in effect for
the tax years in issue, and all Rule references are to the Tax Court Rules
of Practice and Procedure. All dollar amounts are rounded to the nearest
dollar.

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of section 905(c) is allegedly affected by provisions of the
U.S./U.K. income tax treaty. As a result, petitioner did not
file amended U.S. returns for 2003–05 reporting reduced for-
eign tax credits, nor did she otherwise notify the IRS pursu-
ant to section 905(c)(1).
The IRS commenced an examination of petitioner’s 2003–
05 returns. Before or during the audit, the IRS was informed
by U.K. taxing authorities that petitioner had invested in
film partnerships; had claimed substantial deductions attrib-
utable thereto; and had filed U.K. returns requesting
refunds. The IRS determined that petitioner had received
U.K. income tax refunds of $413,126 in 2003, $292,663 in
2004, and $239,202 in 2005. It therefore disallowed cor-
responding amounts of foreign tax credits that petitioner
claimed on her U.S. returns.
Rather than invoking section 905(c)(3) as authority for col-
lecting the redetermined tax upon notice and demand, the
IRS sent petitioner a notice of deficiency for 2003–05. This
notice showed tax increases flowing from the credit adjust-
ments and determined section 6662(a) accuracy-related pen-
alties. The reductions to petitioner’s foreign tax credits were
the only adjustments the IRS made to her returns for these
years.
Petitioner timely petitioned this Court challenging
respondent’s determinations. Approximately a year after
filing his answer, respondent moved to dismiss the case for
lack of jurisdiction insofar as it concerns the adjustments to
petitioner’s foreign tax credits. Respondent contends that he
erred in issuing the notice of deficiency; that section 905(c)
authorizes him to redetermine petitioner’s 2003–05 tax and
collect it upon notice and demand; and that foreign tax credit
adjustments of the sort involved here ‘‘are expressly removed
from deficiency procedures’’ by a cross-reference from section
6213(h)(2)(A) to section 905(c). Respondent acknowledges
that the accuracy-related penalties determined in the notice
of deficiency ‘‘properly fall under the jurisdiction of this
Court.’’ However, respondent expresses his intention to con-
cede these penalties if the Court grants his motion to dismiss
as to the foreign tax credit adjustments.

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272 142 UNITED STATES TAX COURT REPORTS (269)

Discussion
This Court always has jurisdiction to determine whether it
has jurisdiction. Cooper v. Commissioner, 135 T.C. 70, 73
(2010). The Tax Court is a court of limited jurisdiction, and
we must ascertain whether the case before us is one that
Congress has authorized us to consider. See sec. 7442; Estate
of Young v. Commissioner, 81 T.C. 879, 881 (1983). In deter-
mining whether we have jurisdiction over a given matter,
this Court and the Courts of Appeals have given our jurisdic-
tional provisions a broad, practical construction rather than
a narrow, technical one. Lewy v. Commissioner, 68 T.C. 779,
781 (1977). When a statutory provision is capable of two
interpretations, ‘‘we are inclined to adopt a construction
which will permit us to retain jurisdiction without doing
violence to the statutory language.’’ Traxler v. Commissioner,
61 T.C. 97, 100 (1973).
I. Statutory Framework
A. The Tax Court as a Prepayment Forum
The primary function of this Court is to act as a convenient
prepayment forum in which taxpayers can challenge IRS
deficiency determinations without paying the tax first. See
sec. 6213(a); Lewy v. Commissioner, 68 T.C. at 781; Boris I.
Bittker & Lawrence Lokken, Federal Taxation of Income,
Estates, and Gifts, para. 115.2.2, at 115–13 (2d ed. 2012).
Section 6211 defines a ‘‘deficiency,’’ and section 6212 author-
izes the IRS to send a ‘‘notice of deficiency’’ if it determines
a deficiency with respect to a taxpayer’s tax. Upon receipt of
a notice of deficiency, the taxpayer may petition this Court
for redetermination of the deficiency. Sec. 6213(a). The peti-
tion must be filed within 90 days if the notice is mailed to
a U.S. address or within 150 days if, as was true here, ‘‘the
notice is addressed to a [taxpayer] outside the United
States.’’ Ibid.
Section 6213 also places important restrictions on the IRS’
ability to assess a deficiency and begin collecting the tax. As
a rule, the IRS may not assess an income tax deficiency until
it has mailed a notice of deficiency and the relevant period
(90 or 150 days, as applicable) has elapsed. Sec. 6213(a). If
the applicable time window closes and the taxpayer does not

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petition this Court, the IRS may proceed with assessment
and collection. If a taxpayer timely petitions this Court, the
IRS may not assess the tax or proceed to collect it ‘‘until the
decision of the Tax Court has become final.’’ Ibid.
In certain circumstances, the restrictions on assessment
found in section 6213 do not apply. For example, section
6201(a)(1) authorizes the IRS to assess (and begin collection
of ) taxes determined by a taxpayer and shown on his or her
return. Section 6213(b)(1) authorizes the IRS to assess (and
begin collection of ) additional tax arising from a mathe-
matical or clerical error apparent on the face of a return. The
usual restrictions on assessment likewise do not apply to
assessable penalties, see secs. 6671–6725, or in emergency
situations, such as termination and jeopardy assessments,
see secs. 6851, 6852, 6861.
B. Section 905(c)
Section 905(c) includes another, quite specialized, excep-
tion to the restrictions on assessment set forth in section
6213. Subject to certain limitations, a U.S. citizen may elect
to take a foreign tax credit against her U.S. income tax
liability for income taxes paid or accrued to a foreign country
or U.S. possession. Sec. 901(a). Congress anticipated the dif-
ficulty of ascertaining, at the time the U.S. return is filed,
the exact amount of foreign tax that will ultimately be allow-
able as a credit. It accordingly provided, in what is now sec-
tion 905(c), a special procedure for adjusting the credit when
the taxpayer’s ultimate liability varies from the amount
claimed. Section 905(c)(1) specifies three situations in which
a U.S. taxpayer’s foreign tax credit must be adjusted:
(A) accrued taxes when paid differ from the amounts claimed as
credits by the taxpayer,
(B) accrued taxes are not paid before the date 2 years after the close
of the taxable year to which such taxes relate, or
(C) any tax paid is refunded in whole or in part.

The regulations describe these three situations as
involving a ‘‘foreign tax redetermination.’’ Sec. 1.905–3T(c),
Temporary Income Tax Regs., 53 Fed. Reg. 23614 (June 23,
1988). 2 If a ‘‘foreign tax redetermination’’ as thus defined
2 The provisions of the temporary regulations discussed in the text, secs.
Continued

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274 142 UNITED STATES TAX COURT REPORTS (269)

occurs, section 905(c)(1) provides that ‘‘the taxpayer shall
notify the Secretary, who shall redetermine the amount of
the tax for the year or years affected.’’ Because the IRS,
absent notice from the taxpayer, generally will not know of
revisions to the taxpayer’s foreign tax liabilities, the Internal
Revenue Code has long required self-reporting of such
changes. See generally Pac. Metals Corp. v. Commissioner, 1
T.C. 1028, 1029 (1943) (discussing section 131(c) of the Rev-
enue Act of 1936, a predecessor of section 905(c)). Section
6689 provides a strong incentive for taxpayers to comply with
their self-reporting obligations under section 905(c)(1),
imposing a penalty up to 25% of the deficiency for failure to
provide the notice required by section 905(c)(1) unless it is
shown that such failure is due to reasonable cause and not
due to willful neglect.
With exceptions not relevant here, the taxpayer is sup-
posed to notify the Secretary by filing an amended return.
Sec. 1.905–4T(b)(1), Temporary Income Tax Regs., 53 Fed.
Reg. 23617 (June 23, 1988). An individual taxpayer is
instructed to include with her amended return a revised
Form 1116, Foreign Tax Credit, and information sufficient to
enable the IRS to redetermine her U.S. tax liability. See sec.
1.905–4T(b)(1), (3), Temporary Income Tax Regs.
Once the IRS redetermines the taxpayer’s liability in
accordance with section 905(c)(1), ‘‘[t]he amount of tax (if
any) due * * * shall be paid by the taxpayer on notice and
demand by the Secretary, and the amount of tax overpaid (if
any) shall be credited or refunded to the taxpayer.’’ Sec.
905(c)(3). A cross-reference from section 6213 confirms that
the usual restrictions on assessment do not apply to section
905(c) adjustments made by the IRS. See sec. 6213(h)(2)
(‘‘For assessments without regard to restrictions imposed by
this section in the case of—(A) Recovery of foreign income

1.905–3T and 1.905–4T, Temporary Income Tax Regs., 53 Fed. Reg. 23613,
23617 (June 23, 1988), were promulgated in 1988, T.D. 8210, 1988–2 C.B.
248, and were in effect through November 6, 2007. They were amended by
T.D. 9362, 2007–48 I.R.B. 1050, in November 2007, but the provisions dis-
cussed herein remained substantially the same after that amendment. The
applicability of these provisions was set to expire on November 5, 2010.
See secs. 1.905–3T(f ), 1.905–4T(f )(3), Temporary Income Tax Regs., 72
Fed. Reg. 62784, 62787 (Nov. 7, 2007). The provisions discussed in the text
were in effect at all times relevant to this case.

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taxes, see section 905(c).’’); sec. 1.905–4T(b)(1), Temporary
Income Tax Regs. (‘‘Subchapter B of chapter 63 of the Code
(relating to deficiency procedures) shall not apply with
respect to the assessment of the amount due upon such
redetermination.’’).
II. Analysis
The IRS determined deficiencies in petitioner’s income tax
for 2003–05 based on its contention that she had received
refunds of U.K. taxes claimed as credits on her U.S. returns
for those years. The IRS issued her a notice of deficiency and
she timely petitioned this Court. Respondent contends that
we nevertheless lack jurisdiction because the increased tax
determined in the notice of deficiency constitutes a ‘‘section
905(c) adjustment.’’
Respondent contends that petitioner received U.K. tax
refunds, which triggered his duty to redetermine her U.S. tax
under section 905(c)(1). This duty arises, respondent con-
tends, regardless whether the Commissioner has received
notification from the taxpayer and regardless whether the
taxpayer disputes the predicate for that section’s application.
Because the IRS has allegedly adjusted petitioner’s foreign
tax credits under section 905(c)(1), respondent argues that
the redetermined tax is due on notice and demand under sec-
tion 905(c)(3) and hence that this Court lacks deficiency
jurisdiction by virtue of the cross-reference to section 905(c)
from section 6213(h)(2)(A). The fact that the IRS sent peti-
tioner a notice of deficiency is irrelevant, according to
respondent, since the mailing and receipt of a notice do not
automatically confer jurisdiction.
As a preliminary matter, we agree with respondent that
the Internal Revenue Code, not merely the issuance of a
notice of deficiency, confers jurisdiction on this Court. See
Thompson v. Commissioner, 137 T.C. 220, 225–226 (2011),
rev’d on other grounds, 729 F.3d 869 (8th Cir. 2013). While
the Thompson decision was reversed and remanded on other
grounds, the Court of Appeals did not disturb this portion of
the holding, and we see no reason to do so now. However, we
do not agree with the other steps of respondent’s argument.
In urging that we lack jurisdiction, respondent cites no
caselaw but rather relies on what he regards as the plain

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276 142 UNITED STATES TAX COURT REPORTS (269)

language of the statute. The problem with respondent’s posi-
tion is that a plain reading of section 905(c) describes a cir-
cumstance that did not necessarily occur here. Section
905(c)(3) empowers the Commissioner to collect on notice and
demand only in the case of a ‘‘redetermination under para-
graph (1).’’ Paragraph 1 is structured as a conditional state-
ment. As relevant here, it provides that if a foreign tax paid
is refunded, then the taxpayer is required to notify the Sec-
retary, who shall then redetermine the tax. Here, petitioner
disputes that she received a ‘‘refund’’ of U.K. tax. She con-
tends that the payments she received from U.K. taxing
authorities were not ‘‘refunds’’ within the meaning of section
905(c)(1)(C), both because her entitlement to refunds remains
under investigation in the U.K. and because the application
of section 905(c) is allegedly affected by provisions of the
U.S./U.K. income tax treaty. 3 And because she allegedly
received no ‘‘refunds,’’ she did not notify—and she contends
that she had no obligation to notify—the Secretary under
section 905(c)(1).
In short, this is not a case where the taxpayer has con-
ceded receipt of a foreign tax refund by notifying the Sec-
retary, filing an amended return, and self-reporting an
increased tax liability. Section 905(c)(1)(C) applies only ‘‘[i]f
* * * any tax paid is refunded in whole or in part,’’ and peti-
tioner contends that this condition has not been satisfied. We
necessarily have jurisdiction to determine whether section
905(c)(1)(C)—the statutory provision alleged to divest us of
jurisdiction—applies.
The Court confronted analogous facts in Comprehensive
Designers Int’l, Ltd. v. Commissioner, 66 T.C. 348 (1976). The
taxpayer there claimed on its U.S. return a foreign tax credit
for an accrued U.K. tax. The taxpayer determined this credit
by translating its accrued liability in British pounds into dol-
lars at the exchange rate prevailing at the end of its fiscal
year, namely, £1.00 = $2.80. The taxpayer’s U.K. tax liability,
when subsequently paid, was the same as its accrued
liability in terms of British pounds. In dollar terms, however,
3 We make no findings at this stage of the case concerning the merits

of petitioner’s arguments. The only issue before us is the legal question
whether we have subject matter jurisdiction to adjudicate her claims. See
Tigers Eye Trading, LLC v. Commissioner, 138 T.C. 67, 75 (2012) (citing
Taylor v. Voss, 271 U.S. 176, 186 (1926)).

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its U.K. tax liability when paid was significantly lower than
when accrued, because the pound had depreciated and was
then convertible into dollars at a rate of £1.00 = $2.40. Id.
at 350.
On audit, the taxpayer contended that no adjustment to its
foreign tax credit was required because its U.K. tax liability,
in British pounds, was the same when paid as when accrued.
The IRS disagreed, contending that, because of the exchange
rate differential, the ‘‘accrued taxes when paid differ[ed] from
the amounts claimed as credits by the taxpayer’’ within the
meaning of section 905(c) of the 1954 Code. 4 The IRS sent
the taxpayer a notice of deficiency based on a redetermina-
tion of its foreign tax credit, and the taxpayer timely sought
review in this Court.
The Court in Comprehensive Designers did not address the
jurisdictional issue currently before us, evidently because the
parties had not raised it. Rather, the Court proceeded to the
merits and ruled in favor of the IRS. See 66 T.C. at 354–356.
As Judge Tannenwald framed the question, ‘‘We must decide
whether the amount of [petitioner’s foreign tax] credit should
be adjusted pursuant to section 905(c).’’ Id. at 354.
Like the taxpayer in Comprehensive Designers, petitioner
disputes that a foreign tax redetermination has occurred.
Just as the taxpayer in Comprehensive Designers disagreed
that its ‘‘accrued taxes when paid differ[ed] from the
amounts claimed as credits,’’ petitioner disagrees that her
U.K. tax ‘‘has been refunded in whole or in part.’’ In each
case, the taxpayer did not file an amended return or other-
wise notify the Secretary pursuant to section 905(c)(1); the
IRS determined a deficiency stemming from partial disallow-
ance of the foreign tax credit; the IRS sent the taxpayer a
4 Section
905(c) of the 1954 Code, which was similar in substance to the
current statute, provided: ‘‘If accrued taxes when paid differ from the
amounts claimed as credits by the taxpayer, or if any tax paid is refunded
in whole or in part, the taxpayer shall notify the Secretary [or his dele-
gate], who shall redetermine the amount of the tax for the year or years
affected.’’ The original version of the statute, enacted in 1918, read simi-
larly: ‘‘If accrued taxes when paid differ from the amounts claimed as cred-
its by the taxpayer, or if any tax paid is refunded in whole or in part, the
taxpayer shall notify the Commissioner who shall redetermine the amount
of the tax due * * * and the amount of tax due upon such redetermina-
tion, if any, shall be paid by the taxpayer upon notice and demand.’’ Rev-
enue Act of 1918, Pub. L. No. 65–254, sec. 222(b), 40 Stat. at 1073.

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278 142 UNITED STATES TAX COURT REPORTS (269)

notice of deficiency; and the taxpayer timely sought redeter-
mination of that deficiency in our Court. In Comprehensive
Designers and on other occasions, we decided the merits of
questions concerning foreign tax credit adjustments described
in section 905(c) and its predecessors, in each case without
addressing the jurisdictional issue that respondent raises
now. 5
The statutory scheme that Congress has created generally
affords taxpayers a prepayment forum to contest disputed
taxes. The Code provides limited exceptions to this rule,
allowing the Commissioner to assess the tax summarily (for
example) where the taxpayer has reported a tax on her
return or made obvious mathematical errors in computing
her tax. See secs. 6201(a)(1), 6213(b). The common thread in
these non-emergency situations is that the assessment is
uncontroverted and does not need independent review, since
the taxpayer does not dispute that the tax is owing. This
statutory scheme supports the outcome in Comprehensive
Designers and the other precedents we have cited, which
afforded taxpayers a prepayment forum for contesting the
application of section 905(c)(1), and its predecessors. 6
At this point, we need not decide whether we have subject
matter jurisdiction over all aspects of this controversy. At the
5 See
Steel Improvement & Forge Co. v. Commissioner, 36 T.C. 265, 280–
282 (1961) (discussing sec. 131(c) of 1939 Code), rev’d on another issue, 314
F.2d 96 (6th Cir. 1963); H.H. Robertson Co. v. Commissioner, 8 T.C. 1333,
1340 (1947) (rejecting contention that amounts received from U.K. taxing
authorities ‘‘were not ‘refunded’ within the meaning of that word as used
in’’ sec. 131(c) of the 1939 Code), aff ’d, 176 F.2d 704 (3d Cir. 1949); Pac.
Metals Corp. v. Commissioner, 1 T.C. 1028, 1030 (1943) (determining for-
eign tax credit adjustment when IRS issued notice of deficiency after tax-
payer ‘‘failed to comply with the mandate of section 131(c) by failing to no-
tify the Commissioner in 1939 that it had received a refund of part of the
1936 foreign tax’’).
6 Even in the case of mathematical errors, Congress has determined to

afford taxpayers a prepayment forum by providing that ‘‘the deficiency pro-
cedures prescribed by this subchapter’’ shall apply if the IRS reassesses
the tax after the taxpayer timely requests that the assessment be abated.
See sec. 6213(b)(2)(A). The ability to cure before assessment of some as-
sessable penalties is additional evidence of a system intended to provide
taxpayers meaningful opportunities to remedy the problem before assess-
ment. See, e.g., sec. 6702 (frivolous return penalty does not apply if tax-
payer withdraws frivolous submission within 30 days of receiving notice
from the IRS).

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very least, we have jurisdiction to determine our jurisdiction.
We thus have jurisdiction to decide whether the statutory
provision alleged to divest us of jurisdiction applies, i.e.,
whether the U.K. taxes paid by petitioner have been
‘‘refunded in whole or in part’’ within the meaning of section
905(c)(1)(C). This will afford petitioner a prepayment forum
for resolving the central issue that she raises on the merits,
namely, that the amounts she received from U.K. taxing
authorities during 2003–05 were not ‘‘refunds.’’
To reflect the foregoing,
An order will be issued denying respond-
ent’s motion to dismiss for lack of jurisdic-
tion.

f

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/4339746. Public record. Not legal advice.