United States Tax Court

United States Tax Court

165 T.C. No. 2

MOXON CORPORATION,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

__________

Docket No. 727-18L.

Filed July 2, 2025.

—————

P corporation was a partner in entity AD. R issued a

Notice of Final Partnership Administrative Adjustment

regarding AD, setting forth R’s disallowance of purported

losses and assertion of an I.R.C. § 6662(h) penalty. R’s

determinations were largely sustained in a partnershiplevel proceeding. R then issued P affected items Notices of

Deficiency determining deficiencies and I.R.C. § 6662(h)

penalties based on the result of the partnership-level

proceeding. However, R mailed the affected items Notices

of Deficiency to an incorrect address. P did not file a Tax

Court petition in response to those Notices, and R assessed

the deficiencies and penalties.

R later issued collection notices to P, and P

requested a collection due process hearing. R determined

that the collection actions should be sustained and issued

P a Notice of Determination stating the same. P filed a

Petition with this Court in response.

R eventually realized that he had mailed the

affected items Notices of Deficiency to an incorrect address.

R requested that this case be remanded for a supplemental

collection due process hearing, after which R issued P a

Supplemental Notice of Determination reflecting the

Appeals officer’s determination that the deficiencies were

Served 07/02/25

2

subject to deficiency procedures and would be abated.

However, the Appeals officer determined that the penalties

were not subject to deficiency procedures and would not be

abated.

The parties filed Cross-Motions for Partial

Summary Judgment regarding certain of the Appeals

officer’s determinations with respect to the penalties.

P claimed that the Appeals officer erred, arguing that

(1) the penalties are subject to deficiency procedures and/or

(2) no penalties can apply because “the penalties are a

function of the tax, which is zero.” R claimed that the

Appeals officer correctly determined that (1) the penalties

are not subject to deficiency procedures and (2) the fact that

the relevant deficiencies were improperly assessed does not

affect R’s assessments regarding, and ability to collect, the

penalties.

Held: The I.R.C. § 6662(h) penalties at issue are not

subject to deficiency procedures pursuant to I.R.C.

§ 6230(a)(2)(A)(i).

Held, further, the fact that the relevant deficiencies

were improperly assessed does not affect R’s assessments

regarding, and ability to collect, the I.R.C. § 6662(h)

penalties.

—————

Harriet A. Wessel and Jasper G. Taylor III, for petitioner.

Sharmeen Ladhani, Brooke N. Stan, Sheila R. Pattison, Christina D.

Sullivan, and Siang L. Sang, for respondent.

OPINION

GOEKE, Judge: Pending before the Court are Cross-Motions for

Partial Summary Judgment filed by the parties on March 18, 2025. The

facts described below are stated solely for the purpose of deciding the

Motions for Partial Summary Judgment and are not findings of fact for

this case. See Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520

(1992), aff’d, 17 F.3d 965 (7th Cir. 1994). Considering the facts and law,

3

we will grant respondent’s Motion for Partial Summary Judgment and

deny petitioner’s Motion for Partial Summary Judgment.

Background

Petitioner was a partner in AD Global FX Fund, LLC (AD Global),

during 1999. 1 In 1999 AD Global used paired foreign currency options

to generate tens of millions of dollars in purported losses for AD Global’s

partners, including petitioner. On October 15, 2004, respondent issued

a Notice of Final Partnership Administrative Adjustment (FPAA) to AD

Global’s tax matters partner (TMP) disallowing the purported losses and

asserting various alternative penalties, including a 40% gross valuation

misstatement penalty pursuant to section 6662(h). 2 In 2005 AD Global’s

TMP filed a Complaint contesting respondent’s determinations in the

U.S. District Court for the Southern District of New York. AD Global’s

case was consolidated with related cases, and on June 25, 2014, the

consolidated cases were dismissed pursuant to a stipulation by the

parties. See AD Global FX Fund, LLC v. United States (AD Global),

No. 05-CV-223 (S.D.N.Y. June 25, 2014). Respondent’s determinations,

as set forth in the FPAA regarding AD Global, were almost entirely

sustained. 3

Pursuant to section 6230(a)(2)(A)(i), in March and April 2015

respondent mailed petitioner affected items Notices of Deficiency

(SNODs) that were based on the outcome in AD Global. However,

respondent mailed the SNODs to an incorrect address. One of the

SNODs pertained to petitioner’s 1999 tax year and reflected

respondent’s determination of a $12,615,331 deficiency and a $5,046,132

section 6662(h) penalty. The other SNOD pertained to petitioner’s 2000

tax year and reflected respondent’s determination of a $1,134 deficiency

and a $454 section 6662(h) penalty. 4 Petitioner did not file a petition

Before its repeal, the Tax Equity and Fiscal Responsibility Act of 1982

(TEFRA), Pub. L. No. 97-248, §§ 401–407, 96 Stat. 324, 648–71, governed the tax

treatment and audit procedures for many partnerships, including AD Global.

1

Unless otherwise indicated, all statutory references are to the Internal

Revenue Code (Code), Title 26 U.S.C., in effect at all relevant times, regulation

references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all

relevant times, and Rule references are to the Tax Court Rules of Practice and

Procedure. We round monetary amounts to the nearest dollar.

2

3 Certain of respondent’s adjustments to AD Global’s partners’ outside bases

were not sustained.

4 The small deficiency for 2000 pertained to a disallowed net operating loss

carryforward from 1999.

4

with this Court in response to either SNOD, and respondent assessed

the deficiencies and penalties on August 17, 2015.

Petitioner did not pay the assessed deficiencies or penalties. On

May 2, 2017, respondent issued petitioner a Notice of Federal Tax Lien

Filing and Your Right to a Hearing (Notice of Lien). On May 30, 2017,

respondent issued petitioner a Final Notice–Notice of Intent to Levy and

Notice of Your Right to a Hearing (Notice of Intent to Levy). Petitioner

timely filed Forms 12153, Request for a Collection Due Process or

Equivalent Hearing, in response to both the Notice of Lien and the

Notice of Intent to Levy. After a Collection Due Process (CDP) hearing

(during which petitioner offered to compromise the outstanding

liabilities for $1,000), an Appeals officer determined that the lien and

the proposed levy should be sustained. On December 20, 2017, a Notice

of Determination setting forth those determinations was issued to

petitioner. Petitioner timely petitioned this Court for review. Petitioner

was incorporated and maintained its principal office in New York State

when it filed its Petition.

Respondent’s counsel later discovered that the administrative

record did “not include a copy of the [SNODs] or certified mail list or any

other indication that respondent’s [Appeals] Officer verified that the

[SNODs] w[ere] mailed to petitioner’s last known address.” At

respondent’s request (with no objection from petitioner) we ordered that

the case be remanded to the Internal Revenue Service (IRS)

Independent Office of Appeals for a supplemental CDP hearing. After

the supplemental CDP hearing was held, petitioner was issued a

Supplemental Notice of Determination. The Appeals officer wrote in the

Supplemental Notice of Determination that

Appeals cannot verify the IRS complied with proper

procedures for mailing the [SNODs] per IRM 8.22.5.4.2.1.1

for the periods ending December 31, 1999, and December

31, 2000. Although the SNODs were mailed via certified

mail, there is no evidence to support they were properly

mailed to the taxpayer’s last known address. Deficiencies

of $12,615,331 in 1999 and $1,134 in 2000 are partner-level

determinations and are subject to deficiency procedures.

Since proper procedures cannot be verified, those

assessments are invalid and will be abated. However, per

IRC 6230(a)(2)(A)(i), the penalties of $5,046,132.40 in 1999

and $453.60 in 2000 are not subject to deficiency

procedures, so the last known address issues with the

5

notices of deficiency are not relative [sic] with respect to

any assessment of such penalties and are those [sic]

assessments are sustained.

There is no dispute that the deficiencies for 1999 and 2000 will be

abated. However, petitioner argued that the penalties should also be

abated, while respondent argued that the Appeals officer properly

sustained the penalties. On March 18, 2025, the parties filed CrossMotions for Partial Summary Judgment regarding certain of the

Appeals officer’s determinations with respect to the penalties. 5 Each

party filed a response on April 17, 2025.

Discussion

I.

Summary Judgment and Standard of Review

Summary judgment is intended to expedite litigation and avoid

unnecessary and expensive trials. Fla. Peach Corp. v. Commissioner, 90

T.C. 678, 681 (1988). We may grant summary judgment when, as in this

case, there is no genuine dispute as to any material fact and a decision

may be rendered as a matter of law. Rule 121(a)(2); Sundstrand Corp.,

98 T.C. at 520. A partial summary adjudication is appropriate if some

but not all issues in the case may be decided as a matter of law, even

though not all the issues in the case are disposed of. See Rule 121(a)(1);

Turner Broad. Sys., Inc. & Subs. v. Commissioner, 111 T.C. 315, 323–24

(1998).

In a CDP case our standard of review depends on whether the

underlying liability is at issue. When the taxpayer’s underlying liability

is properly at issue, we review the IRS’s determinations regarding such

liabilities de novo. Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza

v. Commissioner, 114 T.C. 176, 181–82 (2000). Section 6330(c)(2)(B)

permits taxpayers to challenge the existence or amount of their

5 There is a section 6751 issue in dispute that the parties did not address in

their Motions for Partial Summary Judgment. The parties agree that the U.S. Court

of Appeals for the Second Circuit (to which an appeal of this case would presumably

lie, see § 7482(b)(1)(B)) is considering the same issue in Warner Enterprises, Inc. v.

Commissioner, No. 24-611 (2d Cir. filed Feb. 29, 2024), and that the decision in that

case will be controlling precedent in petitioner’s case. Having considered the section

6751 issue (including our ruling for the Commissioner on the issue in Warner

Enterprises, Inc. v. Commissioner, T.C. Memo. 2022-85) we judge that there is no

reason to wait for the Second Circuit before ruling on the parties’ Motions for Partial

Summary Judgment. We will address the section 6751 issue separately, after the

Second Circuit has ruled.

6

underlying tax liability only if they did not receive a notice of deficiency

or otherwise have a prior opportunity to contest that liability. A

taxpayer is precluded from disputing the underlying tax liability in a

CDP case before this Court if the taxpayer failed to properly raise the

merits of the underlying tax liability as an issue during the CDP

hearing. Giamelli v. Commissioner, 129 T.C. 107, 112–15 (2007).

When the underlying liability is not at issue, we review the IRS’s

determinations for abuse of discretion. Hoyle v. Commissioner, 131 T.C.

197, 200 (2008), supplemented by 136 T.C. 463 (2011); Goza, 114 T.C.

at 182. Abuse of discretion exists when a determination is arbitrary,

capricious, or without sound basis in fact or law. See Murphy v.

Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir.

2006). When a determination by an Appeals officer is predicated upon

an error of law, that determination constitutes an abuse of discretion.

See Alessio Azzari, Inc. v. Commissioner, 136 T.C. 178, 191 (2011) (citing

Swanson v. Commissioner, 121 T.C. 111, 119 (2003)), supplemented by

T.C. Memo. 2012-310.

In his response to petitioner’s Motion for Partial Summary

Judgment, respondent briefly argued that “[s]ince petitioner did not

raise any underlying liability challenges to the penalty liabilities

[during the CDP hearing], petitioner is precluded from doing so now at

the Tax Court level.” Petitioner argued that it is not challenging the

underlying penalty liabilities, only the Appeals officer’s determination

that the penalties should not be abated as a matter of law. Petitioner

claimed that the Appeals officer’s determination was predicated upon an

error of law, which constituted an abuse of discretion.

Considering the basis for the Appeals officer’s determination set

forth in the Supplemental Notice of Determination, we agree with

petitioner. The Supplemental Notice of Determination correctly reflects

that the Appeals officer considered determinations regarding the

correctness of the assessments to be part of their verification that “the

requirements of any applicable law or administrative procedure have

been met.” See § 6330(c)(1). While there is no indication in the

administrative record that petitioner specifically raised penalty

assessment issues during the supplemental CDP hearing, we “review

the Appeals officer’s verification under section 6330(c)(1) without regard

to whether [a] taxpayer raised it at the Appeals hearing” if the taxpayer

raised the issue before this Court in a timely manner. Hoyle, 131 T.C.

at 202–03; see Rule 331(b)(4). The Appeals officer’s determination not to

abate the penalty assessments was raised by petitioner before this Court

7

in a timely manner after the supplemental CDP hearing. Accordingly,

we will review whether that determination was based on a correct

interpretation of applicable law.

II.

Summary of the Parties’ Arguments

Petitioner alleged that the Appeals officer erred as a matter of

law in determining that the penalties should not be abated. Petitioner

made two primary arguments in support of its position. First, petitioner

argued that deficiency procedures apply to the penalties and the

penalties should therefore be abated because the SNODs were not sent

to petitioner’s last known address. Second, petitioner argued that the

penalties should be abated because “the penalties are a function of the

tax, which is zero.”

Respondent alleged that the Appeals officer correctly determined

that the penalties should not be abated. Respondent argued that the

“penalties were determined to be applicable at the partnership-level,

and deficiency procedures do not apply to such penalties.” Disputing

petitioner’s second argument, respondent argued that “[p]etitioner’s tax

liabilities can be determined even when assessment [of the tax

liabilities] is prohibited” and that penalties based on such tax liabilities

were properly assessed and may be collected.

III.

Whether Deficiency Procedures Apply to the Penalties

The purpose of TEFRA was to provide a method for uniformly and

efficiently adjusting and resolving items of partnership income, loss,

deduction, or credit without the necessity of separate proceedings for

each partner. See Boyd v. Commissioner, 101 T.C. 365, 369 (1993);

Maxwell v. Commissioner, 87 T.C. 783, 787 (1986). Pursuant to TEFRA

procedures, adjustments to partnership items and the applicability of

penalties which relate to such adjustments are determined in a

partnership-level proceeding and not in a partner-level proceeding.

§ 6221. The deficiencies set forth in the SNODs were based on

adjustments to partnership items determined in AD Global, which was

a partnership-level proceeding. Likewise, the applicability of the section

6662(h) penalties set forth in the SNODs was determined in AD Global.

Adjustments to partnership items in a partnership-level

proceeding may result in adjustments to the tax liabilities of individual

partners. Once adjustments to partnership items become final, the

Commissioner must generally initiate further action at the partner level

to adjust an individual partner’s tax liability. If such action gives rise to

8

an affected item (i.e., items affected by a partnership item adjusted at

the partnership level, see § 6231(a)(5)) that requires partner-level

determinations, it is subject to the deficiency procedures under sections

6211 through 6216, and the Commissioner must issue an affected items

notice of deficiency to the partner before assessing the tax. See

§ 6230(a)(2)(A)(i).

Penalties determined to apply in a partnership-level proceeding

do not follow the same track. Rather, section 6230(a)(2)(A)(i) exempts

“penalties, additions to tax, and additional amounts that relate to

adjustments to partnership items” from “[d]eficiency proceedings.” We

have held that “[p]ursuant to section 6230(a)[, a section 6662(h) penalty

determined to apply in a partnership-level proceeding] may be directly

assessed as a computational adjustment, notwithstanding the need for

partner-level determinations.” Thompson v. Commissioner, 137 T.C.

220, 239 (2011), rev’d and remanded on other grounds, 729 F.3d 869 (8th

Cir. 2013). Even if the Commissioner issues an affected items notice of

deficiency that includes such a penalty, “[t]he issuance of [such] a

purported notice of deficiency cannot trigger deficiency procedures

where none applies.” Id. We have similarly held “that the deficiency

procedures [do not] apply to the assessment of any partnership-item

penalty determined at the partnership level, regardless of whether

further partner-level determinations are required.” Domulewicz v.

Commissioner, 129 T.C. 11, 23 (2007), aff’d in relevant part, remanded

in part sub nom. Desmet v. Commissioner, 581 F.3d 297 (6th Cir. 2009).

We also addressed this issue in Gunther v. Commissioner, T.C. Memo.

2019-6, at *14, aff’d, 789 F. App’x 836 (11th Cir. 2020), ruling in that

deficiency case “that we have no jurisdiction in this pre-payment forum

to consider . . . penalties determined at the partnership level.” Because

we lacked jurisdiction with respect to the penalties at issue, we held that

“we have no authority to enjoin . . . collection or assessment” of the

penalties, denied taxpayers’ motion to restrain the collection or

assessment insomuch as it pertained to the penalties, and granted the

Commissioner’s motion to dismiss the penalties from the case. Id.

at *14–15. Opinions issued by other courts are in line with our

precedent. See United States v. Woods, 571 U.S. 31, 42 n.2 (2013)

(discussing the Commissioner’s ability “to assess the 40-percent penalty

directly”); Highpoint Tower Tech. Inc. v. Commissioner, 931 F.3d 1050,

1060 (11th Cir. 2019) (“[Section] 6230(a)(1) and (a)(2)(A)(i) clearly

exclude[s] the [section 6662(h)] penalty at issue from Tax Court

deficiency jurisdiction . . . .”); Chai v. Commissioner, 851 F.3d 190,

197 n.5 (2d Cir. 2017) (“Penalties determined in a partnership

proceeding, even if they require a partner-level substantive

9

determination, are excepted from the affected-item notice of deficiency

requirement.”), aff’g in part, rev’g in part on another issue T.C. Memo.

2015-42; Gosnell v. United States, 525 F. App’x 598, 600 (9th Cir. 2013)

(“[I]t was proper for the IRS to directly assess [the taxpayer’s] share of

the penalties as a computational adjustment without following

deficiency

procedures,

regardless

of

whether

partner-level

determinations were required to do so.”).

Although the statutory text and precedent favor respondent’s

position, petitioner urges us to side with it. Considering the clear

precedent regarding this issue, we will only briefly address petitioner’s

arguments.

Some of petitioner’s arguments are based on strained readings of

relevant statutes. For example, petitioner argued that

section 6230(a)(2)(A)(i) provides, in relevant part:

“Subchapter B shall apply to any deficiency attributable to

. . . affected items which require partner level

determinations (other than penalties, additions to tax,

. . . )” The penalties here are attributable to affected items

which require partner level determinations. Therefore, by

inverse inference, section 6230(a)(2)(A)(i) literally provides

that subchapter B does not necessarily apply to a deficiency

attributable to the penalties in this case. Indeed, given that

a true statement’s inverse is not necessarily true, while

subchapter B contains procedures for initiating and

maintaining deficiency proceedings, it would be incorrect

to conclude, as the [Appeals officer] apparently did, that

section 6230(a)(2)(A)(i) establishes that these procedures

have no relevance to the penalties in this case.

(Citations and footnote omitted.) Petitioner relatedly argued that

support for the proposition that section 6230(a)(2)(A)(i)

establishes only that a taxpayer may not dispute . . .

penalties in a deficiency proceeding follows from the

headings of relevant Code sections. The headings in section

6230 refer to “Deficiency Proceedings” while, by contrast,

the heading in subchapter B is “Deficiency Procedures in

the Case of Income, Estate, Gift and Certain Excise Taxes.”

The logical inference . . . is that deficiency proceedings do

10

not apply to penalties subject to section 6230(a)(2)(A)(i)

even though deficiency procedures may apply.

(Footnote omitted.) Petitioner concluded that the “only effect [of section

6230(a)(2)(A)(i)] is to preclude a partner from disputing, in a deficiency

proceeding only, a penalty approved in a TEFRA proceeding and

asserted against the partner through an affected items SNOD. That is,

while deficiency proceedings do not apply to the penalties, deficiency

procedures do.” Petitioner did not address our caselaw ruling “that the

deficiency procedures [do not] apply to the assessment of any

partnership-item penalty determined at the partnership level,

regardless of whether further partner-level determinations are

required.” Domulewicz, 129 T.C. at 23 (emphasis added). We reject

petitioner’s argument and reaffirm our precedent for the reasons

discussed at length in Domulewicz and other cases cited in this

Discussion Part III. 6

Petitioner also argued that

Respondent evidently believes that deficiency procedures

continue to apply to the[] penalties: Respondent inserted

penalties in the SNODs and assessed them at the same

time as the taxes, more than 90 days after the April 24,

2015 date on the SNODs, as opposed to simply assessing

them immediately without any SNODs, as Respondent

would have done had the penalties been assessable

penalties.[7] . . . If Respondent had instead believed that the

6 We note that the captions/headings petitioner referenced in its arguments do

“not have the force of law, see sec. 7806(b) (providing that no ‘descriptive matter

relating to the content of this title [shall] be given any legal effect’), and cannot cloud

the plain words of the statute.” Rowen v. Commissioner, 156 T.C. 101, 112 n.9 (2021)

(first citing United States v. Reorganized CF & I Fabricators of Utah, Inc., 518 U.S.

213, 222–23 (1996); then citing N.Y. & Presbyterian Hosp. v. United States, 881 F.3d

877, 886 n.13 (Fed. Cir. 2018); and then citing Antonin Scalia & Bryan A. Garner,

Reading Law: The Interpretation of Legal Texts 222 (2012)). The meaning of section

6230(a) is clear, and petitioner’s attempt to draw a distinction between “proceedings”

and “procedures” in the captions/headings is not convincing.

7 Petitioner stated that it “believes [it] to be the case” that respondent’s penalty

assessments were timely. We agree that the penalty assessments were timely. Section

6229(d) provides that the period of limitations with respect to partnership and affected

items is suspended for one year after the date that a court decision in a partnership

proceeding becomes final. AD Global was dismissed on June 25, 2014. That dismissal

operates as a decision, which became final on August 24, 2014. See § 6226(h); Fed. R.

App. P. 4(a)(1)(B). Respondent assessed the penalties on August 17, 2015, which was

11

penalties did not depend on the SNODs’ validity, there

would be no apparent reason for him not to have assessed

them immediately, as soon as the SNODs were issued.

Petitioner did not address the fact that the Commissioner also included

penalties in the affected items notices of deficiency at issue in

Thompson, Domulewicz, and Gunther. The penalties at issue were

properly dismissed from each of those cases; the fact that they were

included in affected items notices of deficiency was of no consequence.

Similarly, the fact that respondent included penalties in the SNODs at

issue in this case is of no consequence; deficiency procedures simply do

not apply to the penalties.

Finally, petitioner pointed to a lengthy footnote in Thompson in

which we discussed “ambiguity in the parenthetical phrase ‘other than

penalties, additions to tax, and additional amounts that relate to

adjustments to partnership items’ at the end of sec[tion]

6230(a)(2)(A)(i).” See Thompson, 137 T.C. at 239 n.24. We concluded that

“[d]espite having issued [an affected items notice of deficiency that

included a penalty determined to apply in a partnership-level

proceeding], the Commissioner can proceed with a direct assessment

and collection of the penalty, limiting the taxpayer partner’s recourse to

a suit or claim for refund.” 8 Id. (citing § 6230(c)(4)). Petitioner argued

that the footnote is incorrect, and that any ambiguity should be resolved

in petitioner’s favor. 9 Petitioner pointed out that we resolved the

ambiguity by “turn[ing] to [Treasury Regulation § 301.6231(a)(6)1(a)(3)] for guidance.” Id. We cited Mayo Foundation for Medical

Education & Research v. United States, 562 U.S. 44, 55–56 (2011), which

before August 24, 2015, and therefore timely considering only the dismissal date. See

§ 6229(d).

Furthermore, AD Global’s 1999 tax return was not filed until October 6, 2003,

and respondent issued an FPAA regarding AD Global on October 15, 2004.

Accordingly, only slightly more than one year of the three-year period of limitations

had run at the time the FPAA was issued. See § 6229(a). The FPAA and the subsequent

partnership proceeding caused the running of the period of limitations to be suspended

until August 24, 2015. See § 6229(d). As of that date, nearly two years remained on the

period of limitations.

8 In a later case we held that taxpayers may also raise partner-level defenses

to such penalties in a CDP case. McNeill v. Commissioner, 148 T.C. 481, 489 (2017).

9 Petitioner similarly argued that a dissent in Thompson written by the same

Judge that wrote this Opinion is correct and favors petitioner’s position. However, that

dissent pertained to deficiencies determined in the affected items notice of deficiency

at issue and did not address the penalties. See Thompson, 137 T.C. at 240–42

(Goeke, J., dissenting).

12

clarified “that the Commissioner’s regulatory pronouncements are

generally entitled to the standard of deference set forth in Chevron

U.S.A. Inc. v. Natural Res. Def. Council, 467 U.S. 837 (1984).”

Thompson, 137 T.C. at 239 n.24. Petitioner claimed that “[r]esort to

regulations to clarify what the court believes to be a statutory ambiguity

is no longer valid after” the Supreme Court’s ruling in Loper Bright

Enterprises v. Raimondo, 144 S. Ct. 2244, 2266 (2024) (overruling

Chevron and stating that if a government agency’s interpretation of a

statute “is not the best, it is not permissible”).

Even considering section 6230(a)(2)(A)(i) under the Loper Bright

standard, we would still rule for respondent. Although we previously

noted a certain amount of “ambiguity” in section 6230(a)(2)(A)(i),

Thompson, 137 T.C. at 239 n.24, the statute clearly favors respondent’s

position overall, see Domulewicz, 129 T.C. at 22 (“Under a plain reading

of [the Taxpayer Relief Act of 1997, Pub. L. No. 105-34, § 1238(b)(2), 111

Stat. 788, 1026], the effect of th[at] amendment was to remove

partnership-item penalties from the deficiency procedures . . . .”); see

also Hamel v. Commissioner, T.C. Memo. 2025-19, at *9–10 (addressing

a similar challenge regarding section 6230(a)(2)(A)(i) made in a motion

for reconsideration and concluding that “[o]ur foregoing statutory

analysis [in Domulewicz] holds true, notwithstanding the decision in

Loper Bright”), supplementing T.C. Memo. 2024-62. 10 Furthermore, we

have found, and petitioner has cited, no case in which a court has

interpreted section 6230(a)(2)(A)(i) in the same manner that petitioner

has. Rather, caselaw (cited throughout this Discussion Part III) entirely

supports respondent’s position.

In addition the Supreme Court cautioned that by overruling

Chevron it did not “call into question prior cases that relied on the

Chevron framework. The holdings of those cases . . . are still subject to

statutory stare decisis despite [the Supreme Court’s] change in

interpretive methodology.” Loper Bright, 144 S. Ct. at 2273. Regardless

10 Opinions from other Courts and, indeed, many of our own opinions do not

note any ambiguity in section 6230(a)(2)(A)(i). See, e.g., Highpoint Tower Tech. Inc. v.

Commissioner, 931 F.3d at 1060 (describing section 6230(a)(2)(A)(i) as

“unambiguous”); Gunther, T.C. Memo. 2019-6, at *11–12 (discussing “the plain

language of” section 6230(a)(2)(A)(i)). However, we need not reconsider our statement

in Thompson, 137 T.C. at 239 n.24, regarding the existence of “ambiguity” in section

6230(a)(2)(A)(i) because we would rule for respondent even if we again concluded that

the statute was ambiguous.

13

of the extent to which the holding in Thompson relies on the standard of

review set forth in Chevron, that holding is entitled to stare decisis.

We again hold that penalties determined in a partnership-level

proceeding are not subject to deficiency procedures pursuant to

section 6230(a)(2)(A)(i). Rather, such penalties are assessable by the

Commissioner. Taxpayers may raise any partner-level defenses to the

penalties in a refund action or in a CDP case. § 6230(c)(1)(C), (4);

McNeill, 148 T.C. at 489.

IV.

Effect of Deficiency Abatements on Penalties

The parties agree that the deficiencies included in the SNODs will

be abated. What effect, if any, this has on the penalties at issue presents

an issue of first impression in this Court.

Section 6662(a) provides that “[i]f this section applies to any

portion of an underpayment of tax required to be shown on a return,

there shall be added to the tax an amount equal to 20 percent of the

portion of the underpayment to which this section applies.” 11 The term

“underpayment” is defined in section 6664(a) as follows:

Sec. 6664(a). Underpayment.—For purposes of this

part, the term “underpayment” means the amount by

which any tax imposed by this title exceeds the excess of—

(1) the sum of—

(A) the amount shown as the tax by the

taxpayer on his return, plus

(B) amounts not so shown previously

assessed (or collected without assessment),

over

(2) the amount of rebates made.

For purposes of paragraph (2), the term “rebate” means so

much of an abatement, credit, refund, or other repayment,

as was made on the ground that the tax imposed was less

than the excess of the amount specified in paragraph (1)

over the rebates previously made.

Paragraphs (1)(B) and (2) are not relevant in this case.

11 As relevant in this case, section 6662(h) increases the amount of a penalty

to 40% in the case of a “gross valuation misstatement[].”

14

Petitioner argued that there is no underpayment to which a

section 6662 penalty may apply. Petitioner’s arguments center on the

term “tax imposed” in section 6664(a). Petitioner claimed that “a tax

cannot be deemed ‘imposed’ . . . where the taxing authority has decreed

that the tax need not be paid” and that “for a tax to be deemed ‘imposed’,

at a minimum it must be required to be paid.” However, we interpret

the term “tax imposed” in section 6664(a) as the amount of tax imposed

by Congress (through the Code) that is required to be shown on a

taxpayer’s return, not an amount based on respondent’s ability to assess

and collect.

We have described the “basic formula” of section 6664(a) as

“(correct tax − reported tax = underpayment).” Feller v. Commissioner,

135 T.C. 497, 510 (2010). For reasons discussed infra, this formula

accurately describes the first part of the formula as the “correct tax”

rather than the tax that can be collected.

The Supreme Court has stated that “[i]n its numerous uses

throughout the Code, it is clear that the term ‘assessment’ refers to little

more than the calculation or recording of a tax liability.” United States

v. Galletti, 541 U.S. 114, 122 (2004) (first citing § 6201; then citing

§ 6203; then citing § 6204; and then citing Statement of Procedural

Rules, 26 C.F.R. § 601.103); see also § 6501(a) (“[T]he amount of any tax

imposed by this title shall be assessed within 3 years after the return

was filed . . . .”); Laing v. United States, 423 U.S. 161, 170 n.13 (1976)

(describing an assessment as “essentially a bookkeeping notation”

regarding a taxpayer’s account). The Supreme Court has likewise stated

that “a taxpayer’s ‘liability’ for unpaid taxes” is separate from the IRS’s

“official ‘assessment’ of what the delinquent taxpayer owes.” Polselli v.

IRS, 143 S. Ct. 1231, 1239 (2023) (first citing § 6203; and then citing

Galletti, 541 U.S. at 122). The Supreme Court has also recognized that

taxes are imposed by Congress, rather than by the IRS. See Moore v.

United States, 144 S. Ct. 1680, 1693 (2024) (noting that taxpayers

sought “to differentiate the [Mandatory Repatriation Tax] from . . . other

taxes long imposed by Congress” and discussing Congress’s taxing

power throughout the opinion). In sum, a taxpayer’s liability for a tax

imposed by Congress is distinct from whether the IRS has, or may,

assess and collect that liability. See Polselli, 143 S. Ct. at 1239; Galletti,

541 U.S. at 122. This favors respondent’s position.

Other precedent also favors respondent’s position. In Snow v.

Commissioner, 141 T.C. 238, 247 (2013), supplementing T.C. Memo.

2013-114, we held that “the section 6662 penalty [at issue is based] on

15

an ‘underpayment’ amount that represents the amount of revenue that

the Government was deprived of as a result of amounts actually shown

on [the taxpayer’s] return.” We further stated that “[t]he underpayment

. . . is equal to the true amount the Government was deprived of as a

result of [the taxpayer’s] return.” Id. at 247–48. Snow supports the

proposition that when determining the amount of an underpayment, the

focus is on the correct amount of tax that was required to be reported,

not on what amount the Commissioner is able to collect. See id.

Our ruling in Snow was based to a significant extent on Treasury

Regulation § 1.6664-2. Treasury Regulation § 1.6664-2(a) provides that

the amount of an underpayment is equal to the amount of income tax

imposed minus the amount shown as the tax by the taxpayer on their

return plus amounts of tax not shown on the return that were previously

assessed or collected plus the amounts of rebates made. Treasury

Regulation § 1.6664-2(b) provides that “the ‘amount of income tax

imposed’ is the amount of tax imposed on the taxpayer under subtitle A

for the taxable year,[12] determined without regard to” tax payments,

certain credits, and taxes not required to be assessed on the return.

Petitioner argued that Treasury Regulation § 1.6664-2(b)

define[s] “tax imposed” as being not reduced for specified

amounts, even though the taxpayer has previously paid

them. Yet the regulations make no mention of amounts

Respondent is barred from assessing for procedural

reasons such as a lack of a deficiency notice or the statute

of limitations. There is no reason to think that amounts

would be included in the penalty base when the taxpayer

was never obligated to pay them in the first place.[13]

(Citation omitted.) We believe the reason that Treasury Regulation

§ 1.6664-2(b) does not mention amounts that cannot be assessed is that

compiling an exhaustive list of items not factoring into the “amount of

income tax imposed” would be impractical. Furthermore, petitioner was

obligated to report the tax at issue on its 1999 and 2000 tax returns and

was obligated to pay that tax at the time required by Congress. That

petitioner generated tens of millions of dollars in purported losses

12 We note that subtitle A of the Code, titled “Income Taxes,” pertains to taxes

imposed, while Code sections regarding the Commissioner’s assessment and collection

authority and the period of limitations are found in subtitle F, titled “Procedure and

Administration.”

2(b).

13 Petitioner did not challenge the validity of Treasury Regulation § 1.6664-

16

through AD Global, failed to comply with its reporting and payment

obligations, and then was fortunate in that respondent mailed the

SNODs to an incorrect address does not mean that petitioner “was never

obligated to pay [the taxes] in the first place.” Petitioner’s argument on

this point is based on a fiction and is unconvincing.

Petitioner also argued that “neither the Code nor the Treasury

regulations define the term ‘imposed’ and the word may mean different

things in different contexts.” However, in Wasie v. Commissioner, 86

T.C. 962, 969–70 (1986), we discussed the word “imposed” as used in

section 4941, stating:

[The taxpayer] argues that the word “imposed” means

determined by means of a statutory notice. [The

Commissioner] argues that the word “imposed” does not

mean that [the Commissioner] must take affirmative steps

to determine, assess, or collect the tax. We agree with [the

Commissioner]. The use of “imposed” in section 4941 is no

different from its use in section 3 [regarding taxes imposed

on individuals] or 11 [regarding taxes imposed on

corporations]. The imposition of the tax by Congress merely

establishes its existence thereby facilitating its

determination, assessment, collection, overpayment, etc.,

within the context of the internal revenue laws.

Accordingly, in that context, it is not necessary that the tax

under section 4941(a)(1) and 4941(b)(1) be determined or

enforced, but only that it has been congressionally imposed

and it may be determined or enforced by [the

Commissioner].

In petitioner’s case, respondent may not assess/enforce the tax imposed

by Congress because the limitations period expired. However,

respondent may, and has, determined the amount of petitioner’s correct

tax. 14 The correct tax (i.e., the tax imposed) can be used to calculate an

underpayment upon which a section 6662 penalty may be based. See

§ 6664(a).

In Baur v. Commissioner, 2 T.C. 1016, 1018 (1943), aff’d, 145 F.2d

338 (3d Cir. 1944), we addressed section 510 of the Revenue Act of 1932,

stating that “[t]he ‘tax imposed by this title’ means whatever tax the

14 Outside of petitioner’s legal argument (discussed in this Opinion) that the

tax imposed is zero, petitioner has not challenged respondent’s determinations of the

tax imposed for 1999 and 2000.

17

[taxpayer] is required to pay under the statute.” Petitioner argued that

Baur supports its position because respondent may no longer assess or

collect tax for 1999 and 2000, allegedly meaning that petitioner is not

required to pay anything and there is no tax imposed. However, we read

Baur to refer to the correct tax imposed by Congress and required to be

reported on a return, rather than the amount of tax that may still be

assessed and/or collected by the Commissioner. See Baur v.

Commissioner, 145 F.2d at 340 (noting that the liability at issue “ar[ose]

by virtue of the positive statutory imposition of Sec. 510”).

The doctrine of setoff also supports respondent’s position. When a

taxpayer claims a tax refund from the government, setoff allows the

government to defend against such a claim by raising a tax that was not

reported and/or paid, even if the Commissioner may no longer assess or

collect that tax because the limitations period expired. As the Supreme

Court has explained:

An overpayment must appear before refund is authorized.

Although the statute of limitations may have barred the

assessment and collection of any additional sum, it does not

obliterate the right of the United States to retain payments

already received when they do not exceed the amount

which might have been properly assessed and demanded.

Lewis v. Reynolds, 284 U.S. 281, 283 (1932). The Federal Court of Claims

has stated that

[i]n a refund action, the taxpayer cannot recover unless he

has overpaid his tax. It is not enough that he can prevail

on the particular items on which he sues, for he may have

underpaid with respect to other components entering into

that tax. Only if the overall balance moves his way can he

recover. His entire tax liability under the particular tax

return is therefore open for redetermination.

Dysart v. United States, 169 Ct. Cl. 276, 282 (1965). Thus, even when

the Commissioner may no longer assess or collect a tax imposed by

Congress, such liability still exists and can be used to reduce or

eliminate any overpayment claimed by a taxpayer. Similarly, the tax

liabilities imposed on petitioner still exist even though respondent may

not assess or collect them. That tax can be (and was) used to calculate

the underpayments upon which the section 6662 penalties may be

based. See § 6664(a).

18

Petitioner argued that Adams v. Commissioner, 72 T.C. 81 (1979),

supplementing 70 T.C. 373 (1978), aff’d, 688 F.2d 815 (1982)

(unpublished table decision), supports its position. Petitioner claimed

that in that case, “the court held that the second-level excise tax under

[section] 4941(a) is ‘imposed’ when liability for it becomes final, ‘clearly

not’ when the statutory notice is mailed.” Adams is inapposite; it

involved a section 4941 “second-level tax” that was part of an odd

statutory scheme in which “the second-level tax is not imposed,

assuming no correction occurs, until the expiration of the correction

period. However, the correction period does not expire until the decision

of this Court with respect to the second-level tax becomes final.” Adams,

72 T.C. at 85. Noting that the statutory scheme was “anything but

clear,” we stated “that for us to piece together a procedure to reach the

results intended by Congress in this and subsequent cases would

necessitate rewriting many portions of the statute. This we decline to

do.” Id. at 86. Accordingly, on the basis of the specific and odd statute

written by Congress, we ruled that the section 4941 tax at issue had not,

and could not have, been imposed at the time the Commissioner mailed

the notice of deficiency. 15 See Adams, 72 T.C. at 85–86. No such

statutory scheme exists in petitioner’s case, and there is no basis to rule

that the relevant taxes have not been imposed.

Petitioner also pointed to Occidental Petroleum Corp. v. United

States, 231 Ct. Cl. 334, 335 n.2 (1982), in which the Federal Court of

Claims stated that a particular “‘regular tax imposed’ is the amount of

taxes [the taxpayer] would have been required to pay if the minimum

tax and the foreign tax credit provisions had not been enacted.”

Petitioner emphasized the term “would have been required to pay,” but

this is clearly a reference to what tax would have been imposed by

Congress under a hypothetical situation, not a holding that a tax

liability must be collectible by the Commissioner for it to be deemed

imposed. See id.

For the reasons discussed supra, we hold that the deficiencies

determined in the SNODs represent “tax[es] imposed” pursuant to

section 6664(a). Although respondent improperly assessed, and may not

collect, the associated underpayments, the relevant statutory scheme

15 Section 4941 was later amended by Congress, resolving the issues with the

statutory text discussed in Adams. Act of Dec. 24, 1980, Pub. L. No. 96-596, § 2(a)(1)(A)

and (B), (2)(A), (3)(A), 94 Stat. 3469, 3469–71.

19

devised by Congress clearly allows for section 6662 penalties based on

those underpayments to be assessed and collected. See § 6230(a)(2)(A)(i).

V.

Conclusion

With respect to the section 6662(h) penalties at issue, (1) the

deficiency procedures do not apply and (2) the fact that the relevant

deficiencies were improperly assessed does not affect respondent’s

assessments and ability to collect the penalties. We have considered all

arguments made, and to the extent not mentioned or addressed, they

are irrelevant or without merit.

To reflect the foregoing,

An appropriate order will be issued granting respondent’s Motion

for Partial Summary Judgment and denying petitioner’s Motion for

Partial Summary Judgment.