Yari v. Commissioner

STEVEN YARI, PETITIONER v. COMMISSIONER

OF INTERNAL REVENUE, RESPONDENT

Docket No. 13925–12L. Filed September 15, 2014.

R assessed a penalty under I.R.C. sec. 6707A. R issued a

notice of intent to levy to collect this penalty. P requested a

collection due process hearing, challenging the collection

action. While the hearing was pending Congress retroactively

changed the manner in which I.R.C. sec. 6707A penalties are

calculated. P requested that R recalculate the penalty using

the amount of tax shown on subsequent amended returns. R

decided the penalty should not be changed, and P appealed

this decision. The IRS Appeals Office agreed that the penalty

amount should not be changed, and R issued a notice of deter-

mination sustaining the collection action. P believes that the

appropriate penalty calculation should use the actual tax due,

not the tax shown on the return on which he was obliged but

failed to disclose the reportable transaction. P seeks to change

the penalty from the current amount assessed, $100,000, to

the minimum under the statute, $5,000. Held: We have juris-

diction to consider the penalty. Held, further, the penalty is

calculated by reference to the amount of tax shown on the

return with respect to which the taxpayer had a disclosure

obligation.

Steven R. Mather, for petitioner.

Michael W. Tan, for respondent.

OPINION

WHERRY, Judge: This case is before us on a petition for

review of a Notice of Determination Concerning Collection

157

158 143 UNITED STATES TAX COURT REPORTS (157)

Action(s) Under Section 6320 and/or 6330 (notice of deter-

mination) sustaining a notice of intent to levy with respect

to a penalty assessed for the 2004 tax year. 1 The case pre-

sents an issue of first impression as to whether section

6707A requires respondent to use the tax shown on the

return giving rise to the disclosure obligation or whether

respondent must use the tax as shown on subsequent,

amended returns. We hold that respondent may calculate the

amount of the penalty using the tax shown on the return

giving rise to the violation of the disclosure obligation.

Background

This case was submitted fully stipulated pursuant to Rule

122. The parties’ stipulation of settled issues and stipulation

of facts, with accompanying exhibits, are incorporated herein

by this reference. At the time he filed his petition, petitioner

resided in California.

Petitioner formed Topaz Global Holdings, LLC (Topaz

Global), on December 22, 2000. Under the regulations, Topaz

Global was a disregarded entity for Federal income tax pur-

poses. See sec. 301.7701–3, Proced. & Admin. Regs. On

December 23, 2002, petitioner formed Faryar, Inc., a Nevada

corporation, which elected to be treated as an S corporation

for Federal income tax purposes. Faryar entered into agree-

ments with Topaz Global and other companies to provide

management services. We refer to Faryar’s relationship with

these companies as the management fee transaction.

In 2002 petitioner opened a Roth individual retirement

account (Roth IRA) with an initial contribution of $3,000.

The Roth IRA acquired all of the Faryar stock for $3,000,

making the Roth IRA the sole shareholder of the S corpora-

tion. 2 For the 2002 through 2007 tax years Faryar reported

a total net income of $1,221,778 in management fees and

interest income less deductions. Because Faryar was an S

1 Allsection references are to the Internal Revenue Code (Code) of 1986,

as amended and in effect during the relevant period, and all Rule ref-

erences are to the Tax Court Rules of Practice and Procedure, unless oth-

erwise indicated.

2 Such a structure does not work for Federal income tax purposes be-

cause a Roth IRA generally cannot be an eligible shareholder of an S cor-

poration. Taproot Admin. Servs., Inc. v. Commissioner, 133 T.C. 202, 215

(2009), aff ’d, 679 F.3d 1109 (9th Cir. 2012).

(157) YARI v. COMMISSIONER 159

corporation, this income was not taxed at the corporate level,

and because the shareholder was a nontaxable entity, the

income was not taxed at the shareholder level. The practical

effect of this transaction was twofold: it allowed petitioner to

effectively exceed the Roth IRA contribution limits and

decreased the amount of income petitioner otherwise would

have reported from Topaz Global because Topaz Global

deducted the amounts paid to Faryar as management fees.

The Internal Revenue Service (IRS) has identified trans-

actions such as the one petitioner engaged in as abusive Roth

IRA transactions. Notice 2004–8, 2004–1 C.B. 333. The IRS

has also identified these transactions as listed transactions,

potentially subjecting taxpayers who did not disclose partici-

pation in these transactions on their Federal income tax

returns to penalties.

Petitioner and his wife signed and apparently filed a joint

2004 Federal income tax return on October 17, 2005. This

return did not disclose petitioner’s participation in the Roth

IRA transaction. Respondent audited petitioner’s returns for

2002 and 2003 and, following his marriage in 2004, peti-

tioner and his wife’s returns for 2004 through 2007 and

issued notices of deficiency to petitioner for his 2002 and

2003 tax years and to petitioner and his wife for the 2004

through 2007 tax years. In these notices respondent deter-

mined that the management fee transactions were not valid

business transactions and should result in an excise tax

under section 4973. With respect to the 2004 tax year

respondent determined that petitioner and his wife should

have included in income $482,912 from the management fee

transaction. According to respondent’s calculations, this

inclusion, along with corresponding computational adjust-

ments, increased petitioner and his wife’s tax liability by

$135,215.

Petitioner, his wife, and respondent settled these deficiency

cases and entered into a closing agreement in 2011. The

closing agreement required petitioner to include in his

income certain amounts for each of the tax years and pro-

vided that petitioner and his wife were not liable for the sec-

tion 4973 excise tax. The Court entered stipulated decisions

in the deficiency cases that reflected the parties’ closing

agreement.

160 143 UNITED STATES TAX COURT REPORTS (157)

During the course of the audit petitioner determined that

he had made a substantial error on his 2004 tax return

because he incorrectly transferred information from a

Schedule K–1, Partner’s Share of Income, Deductions,

Credits, etc., to that return. Petitioner and his wife prepared

an amended return (first amended return) including $51 of

taxable interest, $482,912 of income as determined by

respondent, deductions of $1,270,448 claimed on Schedule E,

Supplemental Income and Loss, and $23,625 in itemized

deductions. The first amended return resulted in a negative

taxable income.

Petitioner and his wife filed a second amended return for

the 2004 tax year during the pendency of the deficiency

cases. This second amended return claimed a net operating

loss carryback from the 2008 tax year of $2,856,026. On both

amended returns petitioner and his wife reported the

$482,912 from the management fee transaction as income.

The stipulated decision entered by the Court for the 2004 tax

year reflected the adjustments made in the first and second

amended 2004 tax returns.

Respondent also assessed a section 6707A penalty of

$100,000 for the 2004 tax year based on his belief that peti-

tioner had failed to disclose his participation in a transaction

identified in Notice 2004–8, supra, as a listed transaction.

Respondent assessed this penalty on September 11, 2008.

Respondent sent petitioner a final notice of intent to levy

on February 9, 2009. Petitioner timely requested a collection

due process (CDP) hearing. During the pendency of the

hearing, on September 27, 2010, Congress amended section

6707A to change the method of calculating the penalty. Small

Business Jobs Act of 2010 (SBJA), Pub. L. No. 111–240, sec.

2041(a), 124 Stat. at 2560. This change was effective retro-

actively for penalties assessed after December 31, 2006, id.

sec. 2041(b), and therefore the CDP hearing was suspended

in October 2010 so respondent could reconsider the calcula-

tion of the penalty. 3 Respondent’s revenue agent declined to

change the penalty, and petitioner requested review by the

IRS Appeals Office (Appeals), which also declined to modify

3 The parties scarcely mention, much less substantively discuss, this

midhearing ‘‘time-out’’ and apparent referral to the IRS examination func-

tion. We therefore will not further comment on these events.

(157) YARI v. COMMISSIONER 161

the penalty. Petitioner did not request any collection alter-

natives during the CDP hearing, and counsel for petitioner

requested that the settlement officer issue a notice of deter-

mination. Consequently, the settlement officer complied and

issued the notice of determination sustaining the collection

action.

Petitioner concedes that the Roth IRA transactions he

engaged in were listed transactions under Notice 2004–8,

supra, for the purposes of the section 6707A penalty. He

admits that he is liable for a penalty but challenges the cal-

culation of the penalty.

Discussion

I. Jurisdiction

The parties assume we have jurisdiction over the penalty

issue in this case. But the Court has an independent obliga-

tion to determine whether it has jurisdiction over a case, and

the parties cannot simply stipulate jurisdiction or waive

jurisdictional defects. Arbaugh v. Y & H Corp., 546 U.S. 500,

514 (2006); Charlotte’s Office Boutique, Inc. v. Commissioner,

121 T.C. 89, 102 (2003), aff ’d, 425 F.3d 1203 (9th Cir. 2005).

Therefore, we begin our analysis with the jurisdictional ques-

tion.

The Tax Court is a court of limited jurisdiction and may

exercise jurisdiction only to the extent authorized by Con-

gress. Adkison v. Commissioner, 592 F.3d 1050, 1052 (9th

Cir. 2010), aff ’g on other grounds 129 T.C. 97 (2007). But we

‘‘have jurisdiction to determine whether we have jurisdic-

tion.’’ Smith v. Commissioner, 133 T.C. 424, 426 (2009). In

Smith we also held that we did not have jurisdiction to

redetermine section 6707A penalties in a petition for redeter-

mination of a deficiency. Id. at 428–430. Because the section

6707A penalty did not fit the statutory definition of a defi-

ciency and because the Commissioner could assess and col-

lect the penalty without issuing a statutory notice of defi-

ciency, we lacked deficiency jurisdiction to redetermine the

penalty. Id. at 429. We noted, however, that ‘‘we would

presumably have jurisdiction to redetermine a liability chal-

lenge asserted by * * * [the taxpayers] in a collection due

process hearing.’’ Id. at 430 n.6. We now turn presumption

into conviction and aver our jurisdiction.

162 143 UNITED STATES TAX COURT REPORTS (157)

We begin by noting that section 6707A allows a taxpayer

to request the Commissioner to rescind all or part of the pen-

alty that is imposed because of a violation with respect to a

reportable transaction other than a listed transaction if

rescission would promote compliance with the Code and

effective tax administration. Sec. 6707A(d)(1). Congress

explicitly denied taxpayers the ability to seek judicial review

of the Commissioner’s rescission decision. Sec. 6707A(d)(2).

The provision prohibiting judicial review applies only to sub-

section (d) of section 6707A and does not otherwise preclude

our jurisdiction to review this penalty under section 6330.

See H.R. Rept. No. 108–548 (Part 1), at 262 n.233 (2004)

(stating that this provision contained in the American Jobs

Creation Act of 2004 (AJCA), Pub. L. No. 108–357, 118 Stat.

1418, ‘‘does not limit the ability of a taxpayer to challenge

whether a penalty is appropriate (e.g., a taxpayer may liti-

gate the issue of whether a transaction is a reportable trans-

action (and thus subject to the penalty if not disclosed) or not

a reportable transaction (and thus not subject to the pen-

alty))’’).

Section 6330(d)(1) as amended by the Pension Protection

Act of 2006, Pub. L. No. 109–280, sec. 855(a), 120 Stat. at

1019, expanded the Court’s review of collection actions to

include collection actions where the underlying tax liability

consists of penalties not reviewable in a deficiency action. See

Williams v. Commissioner, 131 T.C. 54, 58 n.4 (2008);

Callahan v. Commissioner, 130 T.C. 44, 48 (2008). In a CDP

hearing a taxpayer may challenge ‘‘the existence or amount

of the underlying tax liability for any tax period if the person

did not receive any statutory notice of deficiency for such tax

liability or did not otherwise have an opportunity to dispute

such tax liability.’’ Sec. 6330(c)(2)(B). In his hearing peti-

tioner challenged the amount of the underlying tax liability

that resulted from the section 6707A penalty. See Callahan

v. Commissioner, 130 T.C. at 49 (‘‘We have interpreted the

phrase ‘underlying tax liability’ as including any amounts a

taxpayer owes pursuant to the tax laws that are the subject

of the Commissioner’s collection activities.’’). Petitioner has

not had an opportunity to dispute the amount of the penalty,

and consequently, we have jurisdiction to redetermine the

amount of the penalty.

(157) YARI v. COMMISSIONER 163

II. Standard of Review

Ordinarily, our review of the determinations in a CDP

hearing is for abuse of discretion. Sego v. Commissioner, 114

T.C. 604, 610 (2000); Goza v. Commissioner, 114 T.C. 176,

181–182 (2000). But when the underlying tax liability is

properly at issue, we review the determination de novo. Sego

v. Commissioner, 114 T.C. at 610; Goza v. Commissioner, 114

T.C. at 181–182. Petitioner challenges respondent’s deter-

mination as to the amount of the penalty, and thus, we

review that determination de novo.

III. Section 6707A Penalty

Section 6707A(a) imposes a penalty on ‘‘[a]ny person who

fails to include on any return or statement any information

with respect to a reportable transaction which is required

under section 6011 to be included with such return or state-

ment’’. The amount of the penalty before the SBJA depended

on whether the transaction was a reportable transaction or

a listed transaction. Sec. 6707A(b) (2006), amended by SBJA

sec. 2041(a). For reportable transactions other than listed

transactions, it was $10,000 for natural persons and $50,000

for others, and for listed transactions, it was $100,000 for

natural persons and $200,000 for others. Id. The penalty

applied regardless of whether the listed or reportable trans-

action is respected for Federal income tax purposes. Peti-

tioner concedes he engaged in a listed transaction and that

he failed to properly disclose his participation.

The penalty for failing to disclose a listed transaction on

a return after enactment of the SBJA is ‘‘75 percent of the

decrease in tax shown on the return as a result of such

transaction (or which would have resulted from such trans-

action if such transaction were respected for Federal [income]

tax purposes).’’ Sec. 6707A(b)(1). In the case of individuals,

the statute prescribes minimum and maximum penalties for

failing to disclose a listed transaction of $5,000 and $100,000,

respectively. Sec. 6707A(b)(2) and (3). The parties disagree as

to what return and what amount of tax we should use in cal-

culating the tax. Petitioner urges us to use the amended

returns to determine the decrease in tax, and respondent

says we must look to the original return. These disparate

positions stem from a fundamental disagreement as to what

164 143 UNITED STATES TAX COURT REPORTS (157)

the phrase ‘‘decrease in tax shown on the return as a result

of the transaction’’ means. To resolve this dispute, we must

examine and interpret the statute. 4

The starting point for interpreting a statute is its plain

and ordinary meaning unless such an interpretation ‘‘would

produce absurd or unreasonable results’’. Union Carbide

Corp. v. Commissioner, 110 T.C. 375, 384 (1998). Undefined

words take their ‘‘ordinary, contemporary, common meaning.’’

Hewlett-Packard Co. & Consol. Subs. v. Commissioner, 139

T.C. 255, 264 (2012). We interpret statutes ‘‘ ‘in their context

and with a view to their place in the overall statutory

scheme.’ ’’ FDA v. Brown & Williamson Tobacco Corp., 529

U.S. 120, 133 (2000) (quoting Davis v. Mich. Dep’t of

Treasury, 489 U.S. 803, 809 (1989)). Where the statute is

clear and unambiguous, we need not resort to other tools of

statutory interpretation. BedRoc Ltd., LLC v. United States,

541 U.S. 176, 183 (2004). If the statute is silent or ambig-

uous, we may employ ‘‘ ‘traditional tools of statutory construc-

tion’ ’’, United States v. Home Concrete & Supply, LLC, 566

U.S. ll, ll, 132 S. Ct. 1836, 1844 (2012) (quoting

Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467

U.S. 837, 843 n.9 (1984)), including legislative history, to

ascertain congressional intent, Burlington N. R.R. Co. v.

Okla. Tax Comm’n, 481 U.S. 454, 461 (1987); Intermountain

Ins. Serv. of Vail, LLC v. Commissioner, 134 T.C. 211, 222–

223 (2010), rev’d, 650 F.3d 691 (D.C. Cir. 2011), vacated and

remanded, 566 U.S. ll, 132 S. Ct. 2120 (2012).

Petitioner urges us to interpret the statute as calculating

the penalty using the tax savings produced by the listed

transactions. He says we should ignore the tax reported on

the return with respect to which he was required to report

the listed transaction. Instead, petitioner asks us to focus on

the returns prepared years after the reporting obligation

arose. He urges us to look at the plain language of the

statute, its place in the statutory scheme, and to the legisla-

tive history. Respondent, on the other hand, says that the

4 The regulations are of no help here, as they merely parrot the statutory

language. Sec. 301.6707A–1(a), Proced. & Admin. Regs. The IRS released

these final regulations in 2011 with the explicit proviso that the regula-

tions ‘‘do not give further guidance on how the amount of the penalty is

computed’’ and stated that it intended to ‘‘provide guidance’’ at a ‘‘later

time.’’ T.D. 9550, 2011–47 I.R.B. 785, 786.

(157) YARI v. COMMISSIONER 165

plain meaning of the statute does not support petitioner’s

position and urges us to compute the tax with reference only

to the tax shown on the original tax return. In his view, we

disregard the returns prepared during the audit, the mis-

takes on the prior return, and the correct tax owed by peti-

tioner when calculating the penalty. To be clear about the

stakes, if we adopt petitioner’s reading of the statute, the

penalty would be the statutory minimum, or $5,000; if we

hold for respondent, the penalty will stand as $100,000.

We think the statute is clear and unambiguous: The pen-

alty is calculated with reference to the ‘‘tax shown on the

return’’. Sec. 6707A(b). When we look to the penalty provi-

sion as a whole, it is clear that Congress has penalized the

failure to disclose participation in a listed or otherwise

reportable transaction on the return or other information

statement giving rise to the disclosure obligation. If the tax-

payer fails to report the transaction on that return or

information statement, then the penalty is based on the tax

shown on that return or information statement, not some

other, later filed return or some hypothetical tax. Congress

did not say that the penalty should be calculated by ref-

erence to tax shown on a return; it did not say to calculate

the penalty using the tax required to be shown; and it did

not say to calculate the penalty using the decrease in tax

resulting from participation in the transaction. Congress very

clearly linked the penalty to the tax shown on a particular

return—the return giving rise to the reporting obligation.

Absent a ‘‘ ‘clearly expressed legislative intent to the con-

trary’ ’’, we will regard the clear and unambiguous language

of the statute as conclusive. 5 Reves v. Ernst & Young, 507

5 We observe that the process of divining the legislative intent under-

lying a statute’s language and structure, while subject to canons of con-

struction and well-established methodologies, is hardly an exact science.

Compare, e.g., Halbig v. Burwell, 758 F.3d 390, 406–412 (D.C. Cir. 2014)

(having found sec. 36B unambiguous, concluding that weight of legislative

history, including overall congressional policy goals, did not override stat-

ute’s plain meaning, which was that tax credits were unavailable to par-

ticipants in health insurance exchanges established by the Federal Govern-

ment), rehearing en banc granted, vacated by ll F.3d ll, 2014 WL

4627181 (D.C. Cir. Sept. 4, 2014), with King v. Burwell, 759 F.3d 358, 371–

372 (4th Cir. 2014) (having found sec. 36B ambiguous, concluding that leg-

islative history did not support either plausible interpretation, and defer-

Continued

166 143 UNITED STATES TAX COURT REPORTS (157)

U.S. 170, 177 (1993) (quoting United States v. Turkette, 452

U.S. 576, 580 (1981)). The plain meaning of the statute does

not support petitioner’s position.

Petitioner also contends that the legislative history sup-

ports his position, but he fails to point to any actual legisla-

tive history. In any event, the documentary evidence ref-

erencing the penalty provision does not support petitioner’s

position. Congress initially enacted section 6707A with a flat

penalty of $100,000 for individuals with respect to listed

transactions. AJCA sec. 811(a), 118 Stat. at 1575. There was

no variable minimum and no variable maximum and no 75%

of tax savings calculation. Congress added the current cal-

culation as part of the SBJA, likely because of concern that

an inflexible penalty would create harsh results. See H.R.

Rept. No. 111–447, at 15 (2010).

Unfortunately, no direct legislative history exists to

explain the change. What we do have is the rationale behind

an almost identical amendment included in a bill that never

became law. 6 H.R. 4849, 111th Cong., sec. 111 (2010). The

House passed H.R. 4849 partly out of concern for the poten-

tial inequities an inflexible penalty may create. H.R. Rept.

No. 111–447, supra at 15. Congress had heard from the

National Taxpayer Advocate that the potential magnitude of

the penalties had an overly harsh impact on individuals and

small businesses. Id. at 15–16. The tax advisers may not

have told these taxpayers of the reporting obligation, and the

penalties, for an individual conducting business through an

S corporation, could reach $300,000 per year for a listed

transaction that yielded little or no tax benefit. See National

Taxpayer Advocate, 2008 Annual Report to Congress (Vol.

One) 342–343, 419–421 (2008); see also sec. 6707A(b)(2)

(2004) (imposing a $200,000 penalty on nonindividual tax-

payers for failing to disclose a listed transaction).

Transactions that span multiple tax years magnify the

effect as the reporting obligation exists for each return.

ring to agency’s determination that statute permitted tax credits for par-

ticipants in Federal health insurance exchanges, as consistent with overall

congressional policy goals).

6 The only difference between the enacted and proposed amendments

was the inclusion in the proposed amendment to sec. 6707A(b)(2) of the ad-

ditional words ‘‘for any taxable year’’ between the words ‘‘transaction’’ and

‘‘shall not exceed’’.

(157) YARI v. COMMISSIONER 167

National Taxpayer Advocate, 2008 Annual Report to Con-

gress (Vol. One), supra, at 420. The House Ways and Means

Committee explained that the new penalty calculation would

‘‘provide a mechanism for establishing a penalty amount that

will be proportionate to the misconduct to be penalized, with-

out discouraging compliance with the requirement to disclose

reportable transactions.’’ H.R. Rept. No. 111–447, supra at

16.

Petitioner believes other legislative history inextricably

links the penalty calculation to the tax savings. He points to

the Joint Committee on Taxation’s general explanation, also

known as the Blue Book, to bolster his position. See Staff of

J. Comm. on Taxation, General Explanation of Tax Legisla-

tion Enacted in the 111th Congress 476–480 (J. Comm. Print

2011). The Joint Committee explained that Congress desired

to spare small businesses and individuals ‘‘unconscionable

hardship * * * as a result of the magnitude of the penalty’’

where the penalty ‘‘exceed[ed] the tax savings claimed on

these returns’’. Id. at 478. Contrary to petitioner’s position,

the Blue Books are not legislative history, though they can

sometimes be relevant if persuasive. United States v. Woods,

571 U.S. ll, ll, 134 S. Ct. 557, 568 (2013). In any event,

we remain unconvinced that the combined import of the Blue

Book and the earlier bill override our prior conclusions as to

the statute’s plain meaning.

It is clear that in the earlier bill Congress intended to

blunt the effect of section 6707A for taxpayers who failed to

disclose a transaction but nonetheless did not benefit much

from that transaction. But it is equally clear that Congress

was concerned with the ‘‘tax reported on the participant’s

income tax return as a result of participation in the trans-

action’’, not the tax required to be shown. H.R. Rept. No.

111–447, supra at 16. It is also clear that what Congress

intended to penalize is the failure to disclose participation,

not the tax savings produced by the transaction. Id. at 15. 7

That Congress linked the penalty to the tax savings does not

change the fact that the culpable act here is the failure to

7 See also Staff of J. Comm. on Taxation, General Explanation of Tax

Legislation Enacted in the 108th Congress 361 (J. Comm. Print 2005) (dis-

cussing the American Jobs Creation Act of 2004, Pub. L. No. 108–357, sec.

811, 118 Stat. at 1575, including ‘‘[r]easons for [c]hange’’).

168 143 UNITED STATES TAX COURT REPORTS (157)

disclose. Furthermore, the 2010 change linked the penalty

not to the tax savings calculated with the benefit of hindsight

but rather to the tax savings as claimed on the tax return.

In this vein, even the Blue Book fails to persuade as the

Joint Committee explained the change as aimed at

‘‘achiev[ing] proportionality between the penalty and the tax

savings that were the object of the transaction,’’ and not to

the actual tax saved. Staff of J. Comm. on Taxation, General

Explanation of Tax Legislation Enacted in the 111th Con-

gress, supra at 479.

We note also section 6651(a)(2), which imposes an addition

to tax for failure ‘‘to pay the amount shown as tax on any

return specified [by parts of the Code]’’. At first glance, this

addition to tax would ignore the correct tax liability, and a

taxpayer who reported a tax greater than the actual tax due

would suffer. But section 6651(c)(2) ameliorates this poten-

tially harsh result by providing: ‘‘If the amount required to

be shown as tax on a return is less than the amount shown

as tax on such return, subsections (a)(2) and (b)(2) shall be

applied by substituting such lower amount.’’

Congress obviously knows how to link a penalty or an

addition to tax to the tax required to be shown on the return

and has done so. Consequently, the fact that it did not do so

in section 6707A tends to bolster our holding that the pen-

alty applies to the amount shown on petitioner’s first filed

return. 8 See Marx v. Gen. Revenue Corp., 568 U.S. ll,

ll, 133 S. Ct. 1166, 1177 (2013) (declining to read into 15

U.S.C. sec. 1692k(a)(3) a limitation on the ability of courts to

award costs under rule 54 of the Federal Rules of Civil

Procedure in part because other ‘‘[s]tatutes confirm that Con-

gress knows how to limit a court’s discretion * * * when it

8 We note that, here, petitioner amended his first filed return after the

date prescribed for filing a return for the 2004 tax year. We do not express

an opinion as to the result had he filed his first amended return before

that date. See Goldstone v. Commissioner, 65 T.C. 113, 116 (1975) (where

taxpayers sought to avoid a credit’s recapture in a later year by amending

the return on which the credit was claimed, holding that the Commissioner

was entitled to reject the amended return and recapture the credit in the

later year but observing that courts had upheld the validity of amended

returns in other circumstances, such as where the amended returns were

filed before the filing deadline for the subject tax year).

(157) YARI v. COMMISSIONER 169

so desires’’). 9 Congress did not do so in section 6707A,

instead opting to impose the penalty as a percentage ‘‘of the

decrease in tax shown on the return as a result of such

transaction (or which would have resulted from such trans-

action if such transaction were respected for Federal tax pur-

poses).’’ Sec. 6707A(b)(1). Without a subsection analogous to

section 6651(c)(2), we calculate the penalty by reference to

the tax shown on the return and do not consider the amount

required to be shown.

Section 6707A imposes a strict liability penalty. See H.R.

Rept. No. 111–447, supra at 13. While it may be harsh in

situations where a taxpayer mistakenly overstates his tax,

such is the result of the plain meaning of the statutory lan-

guage. 10 Legislative history does not indicate a clear

congressional intent to the contrary, and we therefore find

that the settlement officer did not err in the calculation of

the penalty.

The Court has considered all of petitioner’s contentions,

argument, requests, and statements. To the extent not dis-

cussed herein, we conclude that they are moot, irrelevant, or

without merit. To reflect the foregoing,

Decision will be entered for respondent.

f

9 We note also that a net operating loss carryback from a subsequent tax

year does not reduce the tax required to be shown on the return for pur-

poses of calculating the sec. 6651(a)(2) addition to tax. See Vines v. Com-

missioner, T.C. Memo. 2009–267, slip op. at 15, aff ’d, 418 Fed. Appx. 900

(11th Cir. 2011).

10 A court’s ‘‘obligation to avoid adopting statutory constructions with ab-

surd results is well-established’’ and can, in rare cases, override the literal

meaning of unambiguous statutory language. Halbig v. Burwell, 758 F.3d

at 402 (citing Public Citizen v. DOJ, 491 U.S. 440, 454–455 (1990)). See

generally John F. Manning, ‘‘The Absurdity Doctrine’’, 116 Harv. L. Rev.

2387 (2003). The statutory construction we adopt here does not, in peti-

tioner’s case, yield ‘‘ ‘an outcome so contrary to perceived social values that

Congress could not have intended it.’ ’’ See Halbig v. Burwell, 758 F.3d at

402 (quoting United States v. Cook, 594 F.3d 883, 891 (D.C. Cir. 2010)).

Different facts—such as, for example, a mere scrivener’s error in a decimal

place, resulting in tax shown on the return of 10 or even 100 times the

facially correct amount—might entail a different analysis.