                                      YITZCHOK D. RAND AND SHULAMIS KLUGMAN, PETITIONERS v.
                                          COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
                                                    Docket No. 2633–11.                   Filed November 18, 2013.

                                                Ps filed a joint income tax return for 2008 improperly
                                              claiming three refundable credits: an earned income credit, an
                                              additional child tax credit, and a recovery rebate credit. As a
                                              result, they claimed a tax refund of $7,327. The parties agree
                                              that the correct tax liability was $144. The parties also agree
                                              that an accuracy-related penalty applies, but they dispute
                                              how the penalty should be calculated, specifically what should
                                              be used as the amount shown as the tax on the return. This
                                              number affects the amount of the underpayment that serves
                                              as the base upon which an accuracy-related penalty is com-
                                              puted. Held: When determining the amount shown as tax on
                                              the return under I.R.C. sec. 6664(a)(1)(A), the earned income
                                              credit, additional child tax credit, and recovery rebate credit
                                              are taken into account but do not reduce the amount shown
                                              as tax below zero.

                                       Andrew R. Roberson, Roger J. Jones, and Patty C. Liu, for
                                     petitioners. *
                                       Michael T. Shelton and Lauren N. Hood, for respondent.
                                       * An amicus curiae brief was filed by Carlton M. Smith as attorney for
                                     the Cardozo Tax Clinic.

                                     376




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                                     (376)                             RAND v. COMMISSIONER                                       377


                                                                                  OPINION

                                        BUCH, Judge: Respondent determined deficiencies, addi-
                                     tions to tax, and penalties with respect to petitioners’ joint
                                     Federal income tax as follows:

                                                                                     Addition to tax               Penalty
                                                   Year            Deficiency        sec. 6651(a)(1)             sec. 6662(a)

                                                   2006             $3,540                   $100                 $708.00
                                                   2007              3,901                    100                   780.20
                                                   2008              8,127                     -0-                1,625.40

                                     Because the parties have resolved all other issues by stipula-
                                     tion, the only issue for the Court to decide is the amount of
                                     the penalty under section 6662(a) 1 for 2008. Determining
                                     that amount requires us to first determine the ‘‘under-
                                     payment of tax required to be shown’’ on petitioners’ 2008
                                     tax return. See sec. 6662(a) (imposing 20% penalty on speci-
                                     fied portions of ‘‘an underpayment of tax required to be
                                     shown on a return’’); sec. 6664(a) (defining ‘‘underpayment’’).
                                     This, in turn, requires that we determine ‘‘the amount shown
                                     as the tax’’ on petitioners’ 2008 return. See sec. 6664(a)(1)(A).
                                        Respondent argues that the amount shown as tax on the
                                     return is reduced by the refundable credits claimed on the
                                     return. Under this approach, the amount shown as tax on
                                     the return is –$7,327. Petitioners argue that the amount
                                     shown as tax on the return is calculated without regard to
                                     refundable credits. Under this approach, the amount shown
                                     as tax on the return would be $144. The Cardozo Tax Clinic
                                     argues in its amicus brief (and petitioners argue in the alter-
                                     native) that the amount shown as tax on the return is
                                     reduced by the refundable credits but not below zero. Under
                                     this approach, the amount shown as tax on the return would
                                     be zero. This last result is correct, because it is the only
                                     approach supported by principles of statutory construction.

                                                                                Background
                                       Petitioners Rand and Klugman, who were a married couple
                                     during 2008, timely filed a 2008 joint Federal income tax
                                       1 Unless otherwise noted, all references to sections are to the Internal

                                     Revenue Code of 1986, as in effect for the 2008 tax year. All Rule ref-
                                     erences are to the Tax Court Rules of Practice and Procedure.




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                                     378                 141 UNITED STATES TAX COURT REPORTS                                    (376)


                                     return on Form 1040, U.S. Individual Income Tax Return.
                                     On line 7 of their Form 1040 they reported ‘‘Wages, salaries,
                                     tips, etc.’’ of $17,200. They attached to the Form 1040 a Form
                                     4852, Substitute for Form W–2, 2 that Rand signed and that
                                     stated that he had earned $17,200 in ‘‘Wages, tips, and other
                                     compensation’’. Petitioners reported business income of
                                     $1,020 from Rand’s work as a tutor. Lastly, they deducted
                                     $72 for one-half of the self-employment tax liability imposed
                                     by section 1401. In total petitioners reported that their
                                     adjusted gross income was $18,148.
                                        This income was reduced to zero by various deductions.
                                     Petitioners claimed a standard deduction of $10,900 and a
                                     deduction of $14,000 resulting from four personal exemp-
                                     tions. The result on line 43, where taxable income is
                                     reported, was zero, which in turn resulted in a tax liability
                                     on line 44 also of zero.
                                        The 2008 Form 1040 has several lines that set forth
                                     amounts of tax. Starting with a tax of zero on line 44, peti-
                                     tioners reported $144 of self-employment tax on line 57. This
                                     resulted in a ‘‘total tax’’ on line 61 of $144.
                                     Credits and Refund
                                       The total tax of $144 was reduced, below zero, by refund-
                                     able tax credits. Petitioners claimed an earned income credit
                                     of $4,824, an additional child tax credit of $1,447, and a
                                     recovery rebate credit of $1,200. They reported that they had
                                     two qualifying children for the purpose of calculating the
                                     earned income credit and the additional child tax credit, and
                                     they further reported that each child lived with them in the
                                     United States during all 12 months of 2008.
                                       To determine qualification, both the earned income tax
                                     credit and the additional child tax credit take into account
                                     the amount of earned income, and petitioners reported
                                     earned income of $18,148 on Schedule 8812, Child Tax
                                     Credit. This amount represents $17,200 of wages and $1,020
                                     of self-employment earnings, reduced by $72 for one-half of
                                     self-employment taxes. After taking into account the refund-
                                     able credits, petitioners claimed an overpayment of $7,327 on
                                        2 The complete name of Form 4852 is Substitute for Form W–2, Wage

                                     and Tax Statement, or Form 1099–R, Distributions From Pensions, Annu-
                                     ities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.




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                                     (376)                            RAND v. COMMISSIONER                                       379


                                     line 72 of their return, and on line 73, they requested that
                                     the full amount be refunded to them.
                                        On May 4, 2009, the Internal Revenue Service (IRS)
                                     refunded the $7,327.
                                     Agreed Adjustments
                                        The IRS sent a notice of deficiency to petitioners on
                                     December 10, 2010. The notice sets forth adjustments to tax
                                     and penalties for tax years 2006, 2007, and 2008, but only
                                     the penalty for 2008 remains at issue. The parties have
                                     resolved all issues for 2006 and 2007 by stipulation.
                                        For 2008 the notice of deficiency contains several adjust-
                                     ments, nearly all of which the parties have resolved by stipu-
                                     lation. 3 As is relevant to the dispute before us, the notice of
                                     deficiency determined that petitioners were not entitled to
                                     the earned income tax credit or the child tax credit; peti-
                                     tioners agreed. Also, the notice of deficiency determined that
                                     an accuracy-related penalty under section 6662 applies; the
                                     parties agree that a penalty applies ‘‘if the Court determines
                                     that there is ‘an underpayment of tax required to be shown
                                     on the return’ within the meaning of I.R.C. § 6662(a)’’.
                                        In addition to the adjustments set forth in the notice of
                                     deficiency, respondent filed an amendment to his answer in
                                     which he asserted that petitioners were not entitled to the
                                       3 Even after the parties’ stipulations, one issue remains unresolved (in

                                     addition to the penalty issue addressed in this Opinion). By stipulation,
                                     the parties agree that petitioners did not have sufficient earned income to
                                     qualify for the additional child tax credit or the recovery rebate credit. The
                                     earned income thresholds for claiming the additional child tax credit and
                                     the recovery rebate credit are $8,500 and $3,000, respectively. See sec.
                                     24(d)(1)(B)(i) (additional child tax credit); sec. 6428(b)(2)(A) (recovery re-
                                     bate credit). Respondent assumes that this stipulation eliminated the in-
                                     come reported on line 7, apparently predicated on the incorrect notion that
                                     all items reported on line 7 are earned income. Petitioners make no such
                                     assumption; they assume that the $17,200 remains on line 7.
                                        We need not resolve the parties’ confusion regarding their own stipula-
                                     tion. It is possible to have line 7 income that is not earned income, such
                                     as scholarship income that is not reported on a Form W–2. See IRS Publ.
                                     596, at 22 (2008). The two possible interpretations of their stipulation are
                                     (1) petitioners had $17,200 of line 7 unearned income, or (2) they had no
                                     line 7 income. Under either scenario, petitioners’ taxable income is zero,
                                     because their income would be fully offset by the standard deduction cou-
                                     pled with dependency exemptions.




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                                     380                 141 UNITED STATES TAX COURT REPORTS                                    (376)


                                     recovery rebate credit (along with a corresponding increase
                                     in the penalty under section 6662). Petitioners agreed to this
                                     adjustment.
                                       Thus, after concessions, the sole issue remaining to be
                                     decided is whether there is an ‘‘underpayment’’ upon which
                                     an accuracy-related penalty can be computed.
                                     Positions of the Parties
                                       The parties submitted the case without trial pursuant to
                                     Rule 122. Petitioners have conceded that they are liable for
                                     the accuracy-related penalty for 2008 if there is ‘‘an under-
                                     payment of tax required to be shown on a return’’ as that
                                     phrase is used in section 6662(a). It follows from the conces-
                                     sion that petitioners have waived any defense based on
                                     reasonable cause. See sec. 6664(c). For the purposes of part
                                     II of subchapter A of chapter 68 of the Code, which includes
                                     section 6662, the term ‘‘underpayment’’ is defined by section
                                     6664(a). It consists of four components:
                                       (1) the ‘‘tax imposed’’
                                       (2) ‘‘the amount shown as the tax by the taxpayer on his
                                     return’’
                                       (3) ‘‘amounts not so shown previously assessed (or collected
                                     without assessment)’’, and
                                       (4) ‘‘the amount of rebates made’’.
                                     In their briefs the parties agree that the first component is
                                     $144, the third component is zero, and the fourth component
                                     is zero. Their dispute is about the second component: the
                                     amount shown as the tax by the taxpayer on the return.
                                       The IRS contends that the statutory phrase ‘‘the amount
                                     shown as the tax’’ is ambiguous as to whether the amount
                                     includes the three refundable credits petitioners claimed on
                                     their 2008 return. The IRS contends that the Court should
                                     consult the definition of this phrase in section 1.6664–2(c),
                                     Income Tax Regs., and that this regulation should be inter-
                                     preted to require that petitioners’ claims for the three credits
                                     be included in the computation of the amount shown as tax
                                     on their return. The IRS contends that its interpretation of
                                     the regulation should be afforded deference under the prin-
                                     ciple that an agency’s interpretation of its own ambiguous




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                                     (376)                            RAND v. COMMISSIONER                                       381


                                     regulation must be afforded deference. See Auer v. Robbins,
                                     519 U.S. 452, 461 (1997).
                                        Petitioners contend that the Code unambiguously excludes
                                     any credits claimed on a return from the computation of the
                                     amount of tax shown on the return. According to petitioners,
                                     the provisions in the Code allowing tax credits clearly distin-
                                     guish between credits and the taxes against which credits
                                     are applied. For example, section 24(a) provides a ‘‘credit
                                     against the tax imposed by this chapter’’. To petitioners, this
                                     means that the additional child tax credit they claimed is not
                                     part of the tax shown on their return.
                                        Petitioners also observe that in defining the amount of tax
                                     shown on the return for calculating a deficiency, section
                                     6211(b)(4) provides that the difference between (1) the
                                     refundable credits 4 claimed on the return and (2) the amount
                                     shown as tax on the return (as determined without regard to
                                     refundable credits) is taken into account as a negative
                                     amount of tax. Because Congress did not enact a similar
                                     provision for the calculation of an underpayment, petitioners
                                     contend that Congress must have intended that refundable
                                     credits be excluded from the tax shown on the return in
                                     underpayment calculations.
                                        Petitioners make the following alternative argument:
                                     ‘‘Even if the refundable credits at issue were to be included
                                     in the calculation of the amount of tax shown by Petitioners
                                     on their return, there is no statutory or regulatory basis for
                                     reducing the amount of tax below zero. Thus, any under-
                                     payment would be limited to the amount of the credit against
                                     Petitioners’ reported self-employment tax.’’ This position was
                                     also presented by the Cardozo Tax Clinic.
                                        The Cardozo Tax Clinic filed an amicus brief contending
                                     that the three types of credits petitioners claimed are part of
                                     the amount shown as tax on the return when calculating an
                                     underpayment. However, the Clinic contends that the tax
                                     shown on a return cannot be negative when calculating an
                                        4 Section 6402(a) provides that the Secretary may credit the amount of

                                     an ‘‘overpayment’’ against the tax liability of the person making the over-
                                     payment and must refund any balance to the person. Section 6401(b) pro-
                                     vides that if the amount of specified credits (including the three credits pe-
                                     titioners claimed on their 2008 return) exceed the tax imposed by subtitle
                                     A (as reduced by other nonrefundable credits), the amount of such excess
                                     is considered an overpayment.




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                                     382                  141 UNITED STATES TAX COURT REPORTS                                    (376)


                                     underpayment because Congress purposefully declined to
                                     incorporate a provision like section 6211(b) in the definition
                                     of an underpayment. Thus, the Clinic disagrees with peti-
                                     tioners’ primary argument that credits are excluded from the
                                     calculation of the tax shown on the return, but it agrees with
                                     petitioners’ alternative argument.

                                                                                 Discussion
                                       The issue to be resolved is the amount of tax shown on the
                                     return (within the meaning of section 6664(a)(1)(A)) for a
                                     2008 income tax return that reported:
                                           •   $0 of income tax under section 1,
                                           •   $144 of self-employment tax under section 1401,
                                           •   $1,447 of additional child tax credit,
                                           •   $4,824 of earned income credit, and
                                           •   $1,200 of recovery rebate credit, resulting in
                                           •   $7,327 of overpayment, claimed as a refund.

                                     The positions taken are: (a) –$7,327, as the IRS argues, (b)
                                     $144, as petitioners argue, or (c) $0, as the Clinic argues
                                     (and as petitioners argue in the alternative). We hold that
                                     the amount is zero. The result of this conclusion is that, for
                                     penalty computation purposes, petitioners have an under-
                                     payment of $144.
                                     Operative Provisions
                                       Section 6662(a) provides the rules for the application of an
                                     accuracy-related penalty, including a penalty that is predi-
                                     cated on negligence or a substantial understatement of
                                     income tax. Subsection (a) provides:
                                             SEC. 6662(a). IMPOSITION OF PENALTY.—If 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.

                                     In turn, ‘‘underpayment’’ is defined by section 6664(a), which
                                     provides, in relevant part:
                                              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—




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                                     (376)                             RAND v. COMMISSIONER                                       383


                                                 (A) the amount shown as the tax by the taxpayer on his return,
                                               plus
                                                 (B) amounts not so shown previously assessed (or collected with-
                                               out assessment), over
                                               (2) the amount of rebates made.

                                     This ‘‘part’’ of the Code includes sections 6662 through 6664.
                                     Feller v. Commissioner Inapposite
                                        In this case we are not called upon to address whether the
                                     statute is clear on its face as to whether ‘‘the amount shown
                                     as the tax by the taxpayer on his return’’ takes into account
                                     the earned income tax credit, the additional child tax credit,
                                     or the recovery rebate credit. In Feller v. Commissioner, 135
                                     T.C. 497, 508 (2010), we previously held that ‘‘Section 6664
                                     is silent and ambiguous with respect to the issue before us;
                                     i.e., Congress has not directly addressed the meaning of the
                                     term ‘underpayment’ when a taxpayer has overstated with-
                                     holding credits.’’ But in Feller the Court addressed the
                                     validity of a regulation that interpreted section 6664.
                                        In Feller the Court addressed the question of how over-
                                     stated withholding credits under section 31 fit within the
                                     definition of an underpayment under section 6664. As is
                                     pertinent here, the Court found the definition of an under-
                                     payment to be ambiguous, at least insofar as overstated
                                     withholding credits are concerned. This determination of
                                     ambiguity was necessary to the Court’s analysis, because the
                                     Secretary     had     promulgated     regulations   specifically
                                     addressing the treatment of withholding credits. One such
                                     regulation, section 1.6664–2(c), Income Tax Regs., provides:
                                              (c) Amount shown as the tax by the taxpayer on his return—(1)
                                           Defined.—For purposes of paragraph (a) of this section, the amount
                                           shown as the tax by the taxpayer on his return is the tax liability shown
                                           by the taxpayer on his return, determined without regard to the items
                                           listed in paragraphs (b)(1), (2), and (3) of this section, except that it is
                                           reduced by the excess of—
                                              (i) The amounts shown by the taxpayer on his return as credits for tax
                                           withheld under section 31 (relating to tax withheld on wages) and sec-
                                           tion 33 (relating to tax withheld at source on nonresident aliens and for-
                                           eign corporations), as payments of estimated tax, or as any other pay-
                                           ments made by the taxpayer with respect to a taxable year before filing
                                           the return for such taxable year, over
                                              (ii) The amounts actually withheld, actually paid as estimated tax, or
                                           actually paid with respect to a taxable year before the return is filed for
                                           such taxable year.




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                                     384                 141 UNITED STATES TAX COURT REPORTS                                    (376)


                                     See sec. 1.6664–2(b)(1), (2), and (3), Income Tax Regs.; see
                                     also sec. 1.6664–2(g), Example (3), Income Tax Regs. The
                                     phrase ‘‘items listed in paragraphs (b)(1), (2), and (3) of this
                                     section’’ refers to amounts paid by or on behalf of the tax-
                                     payer, such as estimated taxes and withholding.
                                        When testing the validity of a regulation, we generally look
                                     to the two-part test established under Chevron, U.S.A., Inc.
                                     v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984). The
                                     first prong of that test is ‘‘whether Congress has directly
                                     spoken to the precise question at issue.’’ Id. at 842. If Con-
                                     gress has not spoken to the precise question at issue, then
                                     the Court must determine whether the regulation ‘‘is based
                                     on a permissible construction of the statute.’’ Id. at 843.
                                     Thus, when testing the validity of section 1.6664–2(c),
                                     Income Tax Regs., in Feller, the Court was first required to
                                     determine whether section 6664 has ‘‘spoken to the precise
                                     question at issue.’’ That question, as noted by the opinion of
                                     the Court in Feller, was ‘‘the meaning of the term ‘under-
                                     payment’ when a taxpayer has overstated withholding
                                     credits.’’ Feller v. Commissioner, 135 T.C. at 508. In this
                                     case, we are not addressing withholding credits.
                                        In contrast to withholding credits, the regulations under
                                     section 6664 fail to address either of the two questions that
                                     are relevant to the current dispute. First, they fail to address
                                     whether the earned income credit, additional child tax credit,
                                     and recovery rebate credit are taken into account when cal-
                                     culating the amount shown as the tax on the return. One
                                     could interpret this regulation as taking into account these
                                     credits only by relying on the canon expressio unius est
                                     exclusio alterius, discussed below—i.e., by specifically
                                     addressing withheld taxes and payments, one could infer
                                     that the Secretary intended that no adjustment be made for
                                     refundable tax credits. Even then, however, the regulations
                                     fail to address the second question: whether there can be a
                                     ‘‘negative tax’’.
                                        Because the Secretary has not promulgated a regulation
                                     addressing how the refundable credits at issue here should
                                     be taken into account, we need not address whether the
                                     statute leaves room for agency interpretation. It follows that
                                     we are also not resolving the question of whether the Sec-
                                     retary may promulgate a regulation that is inconsistent with




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                                     (376)                             RAND v. COMMISSIONER                                       385


                                     this Opinion. 5 And the mere fact that we devote these pages
                                     to interpreting the statute does not, by implication, mean
                                     that the statute is ambiguous. Whether a statute is ambig-
                                     uous is determined not only from the language of the statute
                                     being considered, but also from the ‘‘language and design of
                                     the statute as a whole.’’ See, e.g., K Mart Corp. v. Cartier,
                                     Inc., 486 U.S. 281, 291 (1988). Thus, in looking beyond the
                                     language of section 6664(a)(1)(A) as part of our analysis, we
                                     are not answering the question of whether the statute is
                                     ambiguous. We are simply interpreting the statute. And to
                                     do so, we turn to principles of statutory construction.
                                     Reading Section 6664(a)(1)(A) in the Light of Section
                                     6211(a)(1)(A)
                                       Returning to the definition of an underpayment, we note
                                     that the Code provides the following:
                                              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 with-
                                                out assessment), over
                                                (2) the amount of rebates made.

                                     A series of canons of statutory construction lead to the
                                     conclusion that refundable credits must be taken into
                                     account when determining the amount shown as the tax by
                                     the taxpayer but that those credits cannot reduce that
                                     amount below zero.
                                        Where the same words or phrase appear within a text,
                                     they are presumed to have the same meaning. Atl. Cleaners
                                     & Dyers, Inc. v. United States, 286 U.S. 427, 433 (1932)
                                     (‘‘Undoubtedly, there is a natural presumption that identical
                                     words used in different parts of the same act are intended to
                                     have the same meaning.’’); see also TG Mo. Corp. v. Commis-
                                     sioner, 133 T.C. 278, 296 (2009). The phrase ‘‘the amount
                                           5 If
                                           the Secretary should promulgate such a regulation, we may be called
                                     upon to revisit that question, but judicial restraint dictates that we not re-
                                     solve that question now. LTV Corp. v. Commissioner, 64 T.C. 589, 595
                                     (1975) (‘‘[C]ourts will not gratuitously decide complex issues that cannot
                                     affect the disposition of the case before them.’’).




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                                     386                  141 UNITED STATES TAX COURT REPORTS                                    (376)


                                     shown as the tax by the taxpayer’’ appears three times in the
                                     Code. Two of those passages are related: the definition of a
                                     deficiency under section 6211 and the definition of an under-
                                     payment under section 6664. 6
                                        Although not explicitly linked today, the definition of a
                                     deficiency under section 6211 and the definition of an under-
                                     payment under section 6664(a) are linked by history. As
                                     summarized in Feller v. Commissioner, 135 T.C. at 506, in
                                     1989 several penalty provisions were consolidated into sec-
                                     tions 6662 through 6665. Omnibus Budget Reconciliation Act
                                     of 1989, Pub. L. No. 101–239, sec. 7721(a), 103 Stat. at 2395,
                                     2399. The term ‘‘underpayment’’, which had been defined in
                                     section 6653 before the 1989 amendments, was defined in
                                     section 6664(a) after the amendments. Before amendment,
                                     ‘‘underpayment’’ was defined with an explicit cross-reference
                                     to the definition of a deficiency. Specifically, section 6653 pro-
                                     vided:
                                             SEC. 6653(c). DEFINITION OF UNDERPAYMENT.—For purposes of this
                                           section, the term ‘‘underpayment’’ means—
                                                (1) INCOME, ESTATE, GIFT, AND CERTAIN EXCISE TAXES.—In the case
                                             of a tax to which section 6211 (relating to income, estate, gift, and cer-
                                             tain excise taxes) is applicable, a deficiency as defined in that section
                                             * * *

                                     Thus, at one time, the terms ‘‘underpayment’’ and ‘‘defi-
                                     ciency’’ were coextensive.
                                        Although they are linked by history, the fact remains that
                                     in 1989 Congress uncoupled these terms. And although iden-
                                     tical words are presumed to have the same meaning, the
                                     presumption ‘‘ ‘is not rigid’ ’’. United States v. Cleveland
                                     Indians Baseball Co., 532 U.S. 200, 213 (2001) (quoting Atl.
                                     Cleaners & Dyers, 286 U.S. at 433). But here, Congress
                                     expressly indicated that uncoupling these terms was not
                                     intended to remove their definitional nexus. Despite
                                     detaching the definition of an underpayment from the defini-
                                     tion of a deficiency, Congress informed us that ‘‘the bill pro-
                                     vides a standard definition of underpayment for all of the
                                     accuracy-related penalties. This standard definition is
                                     intended to simplify and coordinate the definitions in present
                                       6 The third passage is section 1314 (amongst the mitigation provisions of

                                     sections 1311 through 1314), and in that instance, this phrase appears
                                     only in connection with a cross-reference to section 6211.




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                                     (376)                             RAND v. COMMISSIONER                                       387


                                     law; it is not intended to be substantively different from
                                     present law.’’ H.R. Rept. No. 101–247, at 1394 (1989), 1989
                                     U.S.C.C.A.N. 1906, 2864. But see H.R. Conf. Rept. No. 101–
                                     386, at 654 (1989), 1989 U.S.C.C.A.N. 3018, 3257. Given that
                                     sections 6211(a)(1)(A) and 6664(a)(1)(A) use the same phrase
                                     and that the two provisions are contextually and historically
                                     related, we turn to section 6211(a)(1)(A) to assist us in inter-
                                     preting the provision before us.
                                     Credits Reduce Tax Shown on Return
                                        Before we reach the question of whether the three tax
                                     credits at issue can reduce the amount shown as tax below
                                     zero, we must first decide whether these credits reduce the
                                     amount shown as tax to any extent. Although section 6664
                                     is silent on this point, section 6211 is instructive.
                                        Section 6211 expressly excludes certain credits from the
                                     amount shown on the return as the tax by the taxpayer,
                                     which is in turn used to calculate the amount of a deficiency.
                                     Specifically, section 6211(b) provides:
                                             SEC. 6211(b). RULES FOR APPLICATION OF SUBSECTION (a).—For pur-
                                           poses of this section—
                                               (1) The tax imposed by subtitle A and the tax shown on the return
                                             shall both be determined without regard to payments on account of
                                             estimated tax, without regard to the credit under section 31, without
                                             regard to the credit under section 33, and without regard to any
                                             credits resulting from the collection of amounts assessed under section
                                             6851 or 6852 (relating to termination assessments).[7]

                                        Because the Code specifies that certain credits should be
                                     disregarded when determining the tax shown on the return,
                                     we can infer that other credits should not be disregarded.
                                     Under the canon expressio unius est exclusio alterius, if a
                                     statute provides specific exceptions to a general rule, we may
                                     infer that Congress intended to exclude any further excep-
                                     tions. Leatherman v. Tarrant Cnty. Narcotics Intelligence &
                                     Coordination Unit, 507 U.S. 163, 168 (1993); see also
                                     Catterall v. Commissioner, 68 T.C. 413, 421 (1977), aff ’d sub
                                     nom. Vorbleski v. Commissioner, 589 F.2d 123 (3d Cir. 1978).
                                     This is not a rigid rule and will not apply if the result ‘‘is
                                       7 This section was also present in substantially the same form before the

                                     1989 amendments that removed the express cross-reference from the defi-
                                     nition of an underpayment to the definition of a deficiency.




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                                     388                  141 UNITED STATES TAX COURT REPORTS                                    (376)


                                     contrary to all other textual and contextual evidence of
                                     congressional intent.’’ Burns v. United States, 501 U.S. 129,
                                     136 (1991); see also Neuberger v. Commissioner, 311 U.S. 83,
                                     88 (1940). In this instance we see no evidence of a contrary
                                     congressional intent. Whether we review the context sur-
                                     rounding the definition of an underpayment under section
                                     6664 or the definition of a deficiency under section 6211, the
                                     statute is silent as to the treatment of the refundable tax
                                     credits at issue here. In the absence of anything showing a
                                     contrary congressional intent, the canon expressio unius est
                                     exclusio alterius applies. Because Congress expressly chose to
                                     disregard certain credits when determining the amount
                                     shown as the tax by the taxpayer on his return when calcu-
                                     lating a deficiency, it follows that other credits should be
                                     taken into account to reduce the amount so shown. Because
                                     the phrase ‘‘the amount shown as the tax by the taxpayer’’
                                     appears in both sections, 6211 and 6664, we likewise con-
                                     clude that the amount shown as the tax by the taxpayer on
                                     his return when calculating an underpayment should be
                                     reduced by refundable credits.
                                        Although not specifically addressed in our prior opinions,
                                     this holding is consistent with many previous opinions of this
                                     Court, including Feller, where the claiming of a credit to
                                     which a taxpayer was not entitled resulted in the imposition
                                     of a penalty. Most credits are identified in the Code as a
                                     ‘‘credit against the tax imposed’’. 8 Petitioners attach special
                                     meaning to the phrase ‘‘credit against the tax’’ and infer from
                                           8 See
                                              sec. 21 (expenses for household and dependent care services nec-
                                     essary for gainful employment); sec. 22 (credit for the elderly and the per-
                                     manently and totally disabled); sec. 23 (adoption expenses); sec. 24 (child
                                     tax credit); sec. 25 (interest on certain home mortgages); sec. 25A (hope
                                     and lifetime learning credits); sec. 25B (elective deferrals and IRA con-
                                     tributions by certain individuals); sec. 25C (nonbusiness energy property);
                                     sec. 25D (residential energy efficient property); sec. 27 (taxes of foreign
                                     countries and possessions of the United States; possession tax credit); sec.
                                     30 (credit for qualified electric vehicles); sec. 30A (Puerto Rico economic ac-
                                     tivity credit); sec. 30B (alternative motor vehicle credit); sec. 30C (alter-
                                     native fuel vehicle refueling property credit); sec. 38 (general business
                                     credit); sec. 53 (credit for prior year minimum tax liability); sec. 54 (credit
                                     to holders of clean renewable energy bonds). In using that same phrase,
                                     the general business credit under section 38 brings along with it more
                                     than 30 other credits that must also be considered a ‘‘credit against the
                                     tax’’. See sec. 38(b).




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                                     (376)                             RAND v. COMMISSIONER                                                389


                                     those words that a credit against the tax is a payment and
                                     not part of the tax itself. Whether a particular tax credit is
                                     a refundable credit or not, the Code uses this same phrase
                                     ‘‘credit against the tax’’. Compare sec. 32(a)(1) (earned
                                     income credit applied as a ‘‘credit against the tax imposed’’)
                                     with sec. 38(a) (general business credit applied as a ‘‘credit
                                     against the tax imposed’’). And we have imposed penalties on
                                     disallowed credits against the tax under many provisions. 9
                                     In doing so, we necessarily reduced the amount shown as tax
                                     by the reported credit against the tax. Nothing in the Code
                                     suggested that such credits should have been removed from
                                     the computation, and nothing in the Code suggests that we
                                     should do so now.
                                     No Negative Tax
                                        Having concluded that credits can reduce the amount
                                     shown as tax on the return, we must next address the
                                     Clinic’s argument that the earned income credit, additional
                                     child tax credit, and recovery rebate credit cannot reduce the
                                     amount shown as the tax on the return below zero. We again
                                     turn to canons of statutory construction.
                                        Section 6664(a) is silent on the issue of whether the
                                     amount shown as the tax on the return can be negative. But
                                     as noted previously, where the same phrase appears multiple
                                     times in the same statutory scheme, we can look to those
                                     other appearances to help discern the meaning. Conven-
                                     iently, section 6211 directly addresses the question of a nega-
                                     tive tax. Section 6211(b)(4) provides:
                                             SEC. 6211(b). RULES           FOR    APPLICATION           OF       SUBSECTION (a).—For pur-
                                           poses of this section—

                                                                       *    *       *       *      *        *      *
                                               (4) For purposes of subsection (a)—

                                           9 See,
                                              e.g., Carlebach v. Commissioner, 139 T.C. 1 (2012) (imposing a
                                     penalty on disallowed child care credit under section 21 and child tax cred-
                                     it under section 24); Langley v. Commissioner, T.C. Memo. 2013–22 (hope
                                     and lifetime learning credits under section 25A); Ellis-Babino v. Commis-
                                     sioner, T.C. Memo. 2012–127 (general business credit under section 38, in-
                                     cluding the increasing research activities credit under section 41); A.J.
                                     Concrete Pumping, Inc. v. Commissioner, T.C. Memo. 2001–42 (general
                                     business credit under section 38, including the investment tax credit under
                                     section 46).




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                                     390                 141 UNITED STATES TAX COURT REPORTS                                    (376)


                                                 (A) any excess of the sum of the credits allowable under sections
                                              24(d), 32, 34, 35, 36, 53(e), and 6428 over the tax imposed by sub-
                                              title A (determined without regard to such credits), and
                                                 (B) any excess of the sum of such credits as shown by the taxpayer
                                              on his return over the amount shown as the tax by the taxpayer on
                                              such return (determined without regard to such credits),
                                            shall be taken into account as negative amounts of tax.

                                     More simply stated, any excess of the refundable credits
                                     claimed as compared to the amount to which the taxpayer
                                     was entitled is treated as a negative tax.
                                        We can infer from this provision that the specified refund-
                                     able credits would not be considered a negative tax but for
                                     this provision. In this instance, the surplusage canon leads
                                     us to conclude that excess credits are not otherwise a nega-
                                     tive tax. Under the surplusage canon we are to give effect to
                                     every provision Congress has enacted. United States v.
                                     Menasche, 348 U.S. 528, 538–539 (1955) (‘‘ ‘The cardinal prin-
                                     ciple of statutory construction is to save and not to destroy.’
                                     Labor Board v. Jones & Laughlin Steel Corp., 301 U.S. 1, 30
                                     (1937). It is our duty ‘to give effect, if possible, to every
                                     clause and word of a statute,’ Inhabitants of Montclair Tp. v.
                                     Ramsdell, 107 U.S. 147, 152 (1883), rather than to emas-
                                     culate an entire section[.]’’); see also Tucker v. Commissioner,
                                     135 T.C. 114, 154 (2010) (‘‘[W]e decline to read words out of
                                     the statute; rather, we attempt to give meaning to every
                                     word that Congress enacted[.]’’). If, as respondent suggests,
                                     these credits are considered a negative tax, then section
                                     6211(b)(4) would be mere surplusage; it would be wholly
                                     unnecessary. To give section 6211(b)(4) any meaning, we
                                     must assume that, in determining the amount shown as the
                                     tax, the specified credits would not be considered a negative
                                     tax but for that provision. We then use this conclusion to
                                     inform our views on the use of the word ‘‘underpayment’’ in
                                     section 6664.
                                        Based on the negative tax provision of section 6211(b)(4),
                                     we conclude that these credits do not yield a negative tax for
                                     purposes of defining an underpayment under section
                                     6664(a)(1)(A). We return to our premise that, because section
                                     6664(a)(1)(A) uses the same phrase ‘‘the amount shown as
                                     the tax by the taxpayer’’ as section 6211(a), we should inter-
                                     pret it consistently with section 6211. And we have concluded
                                     that, but for section 6211(b)(4), the specified refundable




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                                     (376)                            RAND v. COMMISSIONER                                       391


                                     credits would not yield a negative tax for the amount shown
                                     as the tax by the taxpayer. Thus, we must likewise conclude
                                     that these refundable credits would not yield a negative tax
                                     for the amount shown as the tax under section 6664 unless
                                     there is a counterpart to section 6211(b)(4). In turning to sec-
                                     tion 6664, we find no counterpart to section 6211(b)(4).
                                     Accordingly, excess earned income credits, additional child
                                     tax credits, and recovery rebate credits do not result in a
                                     negative tax for the amount shown as the tax by the tax-
                                     payer on his return.
                                        We note that our conclusion breaks the historical link
                                     between the definitions of a deficiency and an underpayment;
                                     however, it was Congress that made that break. As we pre-
                                     viously noted, the definition of an underpayment was linked
                                     to the definition of a deficiency until 1989. In 1988 Congress
                                     amended section 6211(b)(4) to specifically provide that cer-
                                     tain refundable credits could be taken into account as nega-
                                     tive amounts of tax. Technical and Miscellaneous Revenue
                                     Act of 1988, Pub. L. No. 100–647, sec. 1015(r)(2), 102 Stat.
                                     at 3572. 10 Because this occurred when the definition of an
                                     underpayment was linked to the definition of a deficiency, it
                                     meant that those credits would be considered a negative tax
                                     for the definition of an underpayment as well. We previously
                                     noted that Congress expressed the view that uncoupling the
                                     link between sections 6664(a)(1)(A) and 6211(a)(1)(A) was not
                                     intended to ‘‘substantively’’ alter the definition of an under-
                                     payment. H.R. Rept. No. 101–247, supra at 1394, 1989
                                     U.S.C.C.A.N. at 2864. But as was noted in Feller, the legisla-
                                     tive history states that ‘‘the new definition was intended to
                                     ‘simplify and coordinate’ diverse ‘underpayment’ definitions
                                     under former law. And in fact the new ‘underpayment’ defini-
                                       10 Of the credits at issue here, only the earned income credit was in-

                                     cluded in section 6211(b)(4) in 1988. In 1998 Congress added the additional
                                     child tax credit to the Code, and in 2000 it incorporated the credit in the
                                     negative tax provision of section 6211(b)(4). Consolidated Appropriations
                                     Act, 2001, Pub. L. No. 106–554, sec. 1(a)(7), 114 Stat. at 2763 (2000)
                                     (amending sec. 6211(b)(4)); Taxpayer Relief Act of 1997, Pub. L. No. 105–
                                     34, sec. 101(a), 111 Stat. at 788 (adding sec. 24). In 2008 Congress added
                                     the rebate recovery credit to the Code and incorporated the credit in the
                                     negative tax provision of section 6211(b)(4). Economic Stimulus Act of
                                     2008, Pub. L. No. 110–185, sec. 101(b)(1), 122 Stat. at 615 (amending sec.
                                     6211(b)(4)); id. sec. 101(a), 122 Stat. at 613 (amending sec. 6428(a)).




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                                     392                  141 UNITED STATES TAX COURT REPORTS                                    (376)


                                     tion in section 6664(a) differs in various ways from the old
                                     ‘underpayment’ definitions which it replaced.’’ Feller v.
                                     Commissioner, 135 T.C. at 514–515 (Thornton, J., concur-
                                     ring) (quoting H.R. Rept. No. 101–247, supra at 1394, 1989
                                     U.S.C.C.A.N. at 2864). One of those differences is that Con-
                                     gress did not include a counterpart to section 6211(b)(4) in
                                     section 6664(a). If this is not what Congress intended, it is
                                     not for the Court to reform the statute. Verito v. Commis-
                                     sioner, 43 T.C. 429, 443 (1965) (‘‘We were not given the
                                     responsibility of writing statutes, but we do have the respon-
                                     sibility of interpreting them as we find them.’’).
                                        Moreover, Congress has made it clear in analogous cir-
                                     cumstances when it intended refundable credits to be taken
                                     into account. We have already shown how Congress
                                     addressed a ‘‘negative tax’’ in section 6211. Likewise, in the
                                     preparer penalty of section 6694, Congress made it clear that
                                     refunded amounts like the refundable credits at issue here
                                     should be taken into account for purposes of determining an
                                     underpayment.
                                        Section 6694 imposes a penalty on a tax return preparer
                                     who prepares a return with an ‘‘unreasonable position’’ as
                                     that term is defined in section 6694(a)(2). For the penalty to
                                     apply, there must be an ‘‘understatement of liability’’. Sec.
                                     6694(a)(1)(A). Congress, however, made it clear that an
                                     understatement of liability includes a situations where a
                                     return has overstated credits that yield a refund. Specifically,
                                     section 6694(e) provides in relevant part:
                                             SEC. 6694(e). UNDERSTATEMENT OF LIABILITY DEFINED.—For purposes
                                           of this section, the term ‘‘understatement of liability’’ means any under-
                                           statement of the net amount payable with respect to any tax imposed
                                           by this title or any overstatement of the net amount creditable or
                                           refundable with respect to any such tax. * * *

                                     By including the phrase ‘‘or any overstatement of the net
                                     amount creditable or refundable’’, Congress explicitly defined
                                     ‘‘understatement’’ for preparer penalty purposes to include
                                     refundable credits. Congress could have similarly taken such
                                     credits into account under the definition of an underpayment
                                     under section 6664(a), but it did not.




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                                     (376)                            RAND v. COMMISSIONER                                       393


                                     Rule of Lenity
                                        Beyond the previously discussed canons of statutory
                                     construction on which we rely, our Opinion is further sup-
                                     ported by another canon: the rule of lenity.
                                        The rule of lenity is an ‘‘ancient maxim’’ that ‘‘is perhaps
                                     not much less old than construction itself. It is founded on
                                     the tenderness of the law for the rights of individuals; and
                                     on the plain principle that the power of punishment is vested
                                     in the legislative, not in the judicial department. It is the
                                     legislature, not the Court, which is to define a crime, and
                                     ordain its punishment.’’ United States v. Wiltberger, 18 U.S.
                                     76, 95 (1820). Thus, under the rule of lenity statutes that
                                     impose a penalty are to be construed in favor of the more
                                     lenient punishment. Black’s Law Dictionary 1449 (9th ed.
                                     2009). And although often considered in the criminal context,
                                     the rule of lenity has been applied in the civil context and
                                     specifically with regard to civil tax penalties.
                                        In Commissioner v. Acker, 361 U.S. 87 (1959), the IRS
                                     sought to impose two penalties on a taxpayer as a result of
                                     the taxpayer’s failure to file a declaration of estimated
                                     income tax. One penalty was for a failure to file the declara-
                                     tion. The other, however, was for a ‘‘substantial underesti-
                                     mate of estimated tax’’. The latter penalty came about
                                     because, by regulation, the failure to file a declaration of esti-
                                     mated tax was deemed to be an estimate of zero. In rejecting
                                     the latter penalty, the Supreme Court stated: ‘‘We are here
                                     concerned with a taxing Act which imposes a penalty. The
                                     law is settled that ‘penal statutes are to be construed
                                     strictly,’ and that one ‘is not to be subjected to a penalty
                                     unless the words of the statute plainly impose it’.’’ Id. at 91
                                     (fn. ref. omitted) (quoting FCC v. Am. Broadcasting Co., 347
                                     U.S. 284, 296 (1954), and Keppel v. Tiffin Sav. Bank, 197
                                     U.S. 356, 362 (1905)).
                                        Here, the words of the relevant statutes do not plainly
                                     impose a penalty on refunds resulting from overstated
                                     earned income credits, additional child tax credits, or
                                     recovery rebate credits. Because the penalty is not plainly
                                     imposed on the refundable portion of the credits, the rule of
                                     lenity further confirms what we have already concluded: that
                                     section 6662 does not impose a penalty on the refundable




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                                     394                 141 UNITED STATES TAX COURT REPORTS                                    (376)


                                     portion of erroneously claimed earned income credits, addi-
                                     tional child tax credits, and recovery rebate credits.
                                     Additional Issues Raised by Respondent
                                        We have concluded that the earned income credit, addi-
                                     tional child tax credit, and recovery rebate credit can be
                                     taken into account to reduce the amount shown as tax on the
                                     return, but not below zero. We turn to two additional points
                                     raised by respondent.
                                           Auer Deference
                                       Respondent urges us to apply Auer deference to his
                                     interpretation on brief of the phrase ‘‘the amount shown as
                                     the tax by the taxpayer on his return’’. See Auer, 519 U.S.
                                     452. When applying Auer deference, a court defers to an
                                     agency’s interpretation of its own ambiguous regulation, even
                                     where that interpretation appears on brief. Chase Bank USA,
                                     N.A. v. McCoy, 562 U.S. ll, ll, 131 S. Ct. 871, 880
                                     (2011). Judicial deference need not give way to judicial
                                     abdication. The regulations are silent on the issue before us,
                                     and respondent’s position on brief is at least arguably incon-
                                     sistent with the statute.
                                       Although we do not in this instance defer to respondent’s
                                     interpretation on brief, we note that our interpretation of the
                                     statute is not inconsistent with the regulation. To the extent
                                     the regulation implies that refundable credits should be
                                     taken into account in determining the amount shown as the
                                     tax, we have done so. But, consistent with the statutory
                                     scheme, we have done so only to the extent that it does not
                                     give rise to a negative tax. On this, the regulation is silent.
                                           Gap in the Penalty Regime
                                       Respondent also asserts that if his position is not adopted
                                     there would be a gap in the penalty regime. Respondent’s
                                     point is not well taken for at least three reasons.
                                       First, to the extent respondent’s claim is that a claim of
                                     excess refundable credits could not be penalized under our
                                     holding, respondent is mistaken. To the extent the credits
                                     reduce the amount of tax shown on the return, the disallow-
                                     ance of those credits will result in an increased under-
                                     payment upon which a section 6662 accuracy-related penalty
                                     could be imposed. More simply stated, the portion of a dis-




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                                     (376)                            RAND v. COMMISSIONER                                       395


                                     allowed credit that reduced a tax liability may be subject to
                                     an accuracy-related penalty.
                                        Second, to the extent an improperly claimed credit resulted
                                     in a refund, it may be subject to a penalty under section
                                     6676. In 2007 Congress added section 6676, which imposes a
                                     20% penalty on an erroneous claim for refund. Small Busi-
                                     ness and Work Opportunity Tax Act of 2007, Pub. L. No.
                                     110–28, sec. 8247(a), 121 Stat. at 204. An erroneous claim for
                                     refund is any claim for refund of an ‘‘excessive amount’’,
                                     which is defined as ‘‘the amount by which the amount of the
                                     claim for refund or credit for any taxable year exceeds the
                                     amount of such claim allowable’’. Sec. 6676(b). Such a pen-
                                     alty might have applied here, if respondent had asserted it.
                                     Thus, there is no gap in the penalty regime. To the extent
                                     an erroneously claimed credit reduces a tax liability, it may
                                     be subject to an accuracy-related penalty under section 6662;
                                     to the extent that credit generates a refund, it may be sub-
                                     ject to a penalty under section 6676.
                                        And third, respondent is incorrect that there would be a
                                     gap in the penalty regime insofar as an erroneously claimed
                                     earned income tax credit is concerned. In 1997 Congress
                                     carved out a separate sanction for taxpayers who improperly
                                     claim the earned income tax credit. See sec. 32(k) (added by
                                     the Taxpayer Relief Act of 1997, Pub. L. No. 105–34, sec.
                                     1085, 111 Stat. at 955). Specifically, section 32(k) provides
                                     that a false claim to the earned income credit in one tax year
                                     results in the denial of the earned income credit in the next
                                     two tax years ‘‘[If] there was a final determination that the
                                     taxpayer’s claim of credit * * * was due to reckless or inten-
                                     tional disregard of rules and regulations’’. 11 And it appears
                                     that Congress intended that the two-year bar be in lieu of
                                     any other monetary sanctions. For example, the penalty
                                     under section 6676 for an erroneous claim for refund specifi-
                                     cally excludes a claim for refund relating to an erroneous
                                     earned income credit.
                                     Conclusion
                                       In the case of an underpayment due to negligence or a
                                     substantial understatement of income tax, among other
                                       11 The period of disallowance is 10 years if the claim of credit is due to

                                     fraud.




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                                     396                  141 UNITED STATES TAX COURT REPORTS                                    (376)


                                     things, section 6662 imposes an accuracy-related penalty on
                                     the underpayment. Section 6664(a) defines the term ‘‘under-
                                     payment’’ in part by reference to the amount shown as the
                                     tax by the taxpayer on his return. The earned income credit,
                                     additional child tax credit, and recovery rebate credit all
                                     reduce the amount shown as the tax by the taxpayer on his
                                     return, but not below zero.
                                       To reflect the foregoing and concessions,
                                                                          Decision will be entered under Rule 155.
                                        Reviewed by the Court.
                                        THORNTON, VASQUEZ, GALE, WHERRY, KROUPA, HOLMES,
                                     PARIS, KERRIGAN, and LAUBER, JJ., agree with this opinion
                                     of the Court.
                                        FOLEY, J., did not participate in the consideration of this
                                     opinion.


                                        GUSTAFSON, J., dissenting: The Commissioner argues that
                                     petitioners are liable under section 6662(a) for an accuracy-
                                     related penalty of about $1,494, because of an ‘‘under-
                                     payment’’ of their tax. Colloquially, one could certainly say
                                     that petitioners ‘‘underpaid’’ their 2008 income tax by
                                     claiming refundable credits to which they were not entitled.
                                     However, as the majority opinion explains, in a case like this
                                     one an ‘‘underpayment’’ is defined in section 6664(a)(1)(A),
                                     and it exists only where the tax ‘‘imposed’’ exceeds the tax
                                     ‘‘shown’’ (i.e., ‘‘the amount shown as the tax by the taxpayer
                                     on his return’’). The majority opinion corrects one significant
                                     fallacy in the Commissioner’s reckoning (i.e., the Commis-
                                     sioner’s erroneous assumption that there can be a ‘‘negative
                                     amount of tax’’ for purposes of computing the underpayment
                                     to be penalized); but the majority still holds petitioners liable
                                     for a lesser penalty (about $29) that, though modest in
                                     amount, contradicts an important principle: The IRS has no
                                     authority to impose, and the courts have no authority to sus-
                                     tain, a penalty that Congress did not enact. 1
                                           1 In
                                            Feller v. Commissioner, 135 T.C. 497, 526–543 (2010) (Gustafson, J.,
                                     dissenting), I made a similar critique of this Court’s Opinion imposing the
                                     fraud penalty of section 6663; but in one respect the majority’s error in
                                     this case is more extreme: The outcome in Feller was supported by a regu-




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                                     (376)                            RAND v. COMMISSIONER                                       397


                                     I. Introduction
                                        For 2008 petitioners filed a Form 1040, ‘‘U.S. Individual
                                     Income Tax Return’’, on which they reported income and tax
                                     but also claimed refundable credits (to which they were not
                                     entitled). As a result, petitioners incorrectly reported no bal-
                                     ance due but rather claimed an overpayment and a refund to
                                     which they were not entitled.
                                        In particular, Form 1040 for 2008 required petitioners to
                                     report ‘‘Tax’’ on line 44, ‘‘Alternative minimum tax’’ on line
                                     45, and the total of those on line 46. The form called for var-
                                     ious non-refundable credit amounts not at issue here on lines
                                     47–55, ‘‘Self-employment tax’’ on line 57, and ‘‘total tax’’ on
                                     line 61. As their ‘‘total tax’’, petitioners reported $144. (I
                                     submit that this $144 amount is ‘‘the amount shown as the
                                     tax by the taxpayer on his return’’ for purposes of section
                                     6664(a)(1)(A)).
                                        Thereafter, in the section of Form 1040 entitled ‘‘Pay-
                                     ments’’, petitioners claimed an ‘‘Earned income credit’’ (line
                                     64a), an ‘‘Additional child tax credit’’ (line 66), and a
                                     ‘‘Recovery rebate credit’’ (line 70), to which they were not
                                     actually entitled. They reported ‘‘total payments’’ of $7,471
                                     (consisting solely of those excessive claimed credits) and
                                     therefore reported an ‘‘amount you overpaid’’ of $7,327 on
                                     line 72, and they requested on line 73 that it all be ‘‘refunded
                                     to you’’.
                                        The IRS determined against petitioners an accuracy-
                                     related penalty pursuant to section 6662(a). That penalty
                                     depends on (among other things) ‘‘the amount shown as the
                                     tax by the taxpayer on his return’’. Rather than using the
                                     ‘‘total tax’’ of $144 that petitioners reported on line 61 of
                                     their return as the tax shown, the IRS used negative $7,327
                                     (i.e., the erroneous overpayment petitioners claimed on line
                                     72), and the majority uses zero (an amount calculated by

                                     lation, i.e., 26 C.F.R. section 1.6664–2(c)(1), Income Tax Regs. (which the
                                     majority held valid, over my dissent); but in this case there is no equiva-
                                     lent regulation to define ‘‘tax shown’’ in such a way as to support the impo-
                                     sition of the penalty. This absence of a regulation makes all the more ap-
                                     propriate the invocation of the rule of lenity (discussed below) to construe
                                     the penalty statute narrowly. Cf. Babbitt v. Sweet Home Ch. of Comtys. for
                                     a Great Or., 515 U.S. 687, 704 n.18 (1995) (‘‘We have applied the rule of
                                     lenity * * * where no regulation was present’’).




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                                     398                  141 UNITED STATES TAX COURT REPORTS                                    (376)


                                     subtracting the excess credits from the tax reported, but not
                                     going below zero). Neither of these approaches is warranted
                                     by the statute.
                                     II. The governing law
                                       Under our Constitution, it is Congress that enacts laws.
                                     See U.S. Const. art. I, sec. 7, cl. 1. The first enumerated
                                     power given to Congress (and not to the Executive or the
                                     courts) is the ‘‘Power To lay and collect Taxes, Duties,
                                     Imposts and Excises’’. Id., sec. 8, cl. 1. 2 As the Supreme
                                     Court observed in Whitman v. Am. Trucking Ass’ns, 531 U.S.
                                     457, 472 (2001):
                                           Article I, § 1, of the Constitution vests ‘‘[a]ll legislative Powers herein
                                           granted * * * in a Congress of the United States.’’ This text permits no
                                           delegation of those powers * * *.

                                     Only the legislature can legislate. Only Congress can enact
                                     tax laws.
                                       Section 6664(a) defines the ‘‘underpayment’’ to which the
                                     accuracy-related penalty of section 6662 applies. Section
                                     6664(a) provides 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 with-
                                                out 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

                                           2 Article
                                                   I, Section 7, Clause 1 of the Constitution includes an additional
                                     democratic provision particular to tax law: ‘‘All bills for raising revenue
                                     shall originate in the House of Representatives’’—i.e., the house that (in
                                     James Madison’s words) ‘‘speak[s] the known and determined sense of a
                                     majority of the people’’. See The Federalist No. 58 (James Madison) (the
                                     two houses have ‘‘equal authority * * * on all legislative subjects, except
                                     the originating of money bills’’, which authority is conferred on ‘‘the House
                                     [of Representatives], composed of the greater number of members, * * *
                                     and speaking the known and determined sense of a majority of the peo-
                                     ple’’). Article I, Section 9, Clause 4 of the Constitution originally prohibited
                                     ‘‘direct’’ taxes; and when the Constitution was amended to curtail that pro-
                                     hibition, the Sixteenth Amendment provided (echoing Article I, section 8)
                                     that ‘‘[t]he Congress shall have power to lay and collect taxes on incomes’’.




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                                     (376)                             RAND v. COMMISSIONER                                       399


                                           ground that the tax imposed was less than the excess of the amount
                                           specified in paragraph (1) over the rebates previously made.

                                     In simplified terms, the ‘‘underpayment’’ is the excess of
                                     one’s actual liability over his reported liability—i.e., tax
                                     ‘‘imposed’’ minus tax ‘‘shown’’ equals ‘‘underpayment’’.
                                        By statute Congress has authorized the Secretary of the
                                     Treasury to prescribe ‘‘regulations for the enforcement of ’’
                                     the Internal Revenue Code, see sec. 7805(a); and where such
                                     authorized regulations interpret a statute, the courts defer to
                                     that interpretation, see Chevron, U.S.A. Inc. v. Natural Res.
                                     Def. Council, Inc., 467 U.S. 837, 843–845 (1984). Notably, in
                                     Feller v. Commissioner, 135 T.C. 497 (2010), a majority of
                                     this Court deferred to such a regulation—i.e., 26 C.F.R. sec-
                                     tion 1.6664–2(c)(1), Income Tax Regs.—to define tax ‘‘shown’’
                                     (and thereby to define ‘‘underpayment’’) in a manner not sug-
                                     gested in the statute. 3 However, the regulations that define
                                     an ‘‘underpayment’’ include no provision to the effect that
                                     excess refundable credits somehow reduce tax ‘‘shown’’.
                                        There is no other law governing the issue in this case—
                                     unless we invent it.
                                     III. Discussion
                                        Without doubt, Congress could impose a penalty for
                                     claiming refundable credits to which one is not entitled. The
                                     question we face is whether in fact Congress did so in section
                                     6662(a) when it imposed the accuracy-related penalty on
                                     ‘‘underpayments’’, defined in section 6664(a)(1)(A) as ‘‘tax
                                     imposed’’ minus ‘‘amount shown’’, or whether instead the IRS
                                     and the majority go beyond the statute in determining a pen-
                                     alty liability for improperly claimed refundable credits.



                                           3 See
                                              note 1, above. An analogous regulation defines ‘‘tax shown’’ for pur-
                                     poses of avoiding the penalty for failure to pay estimated tax: One can pay
                                     ‘‘100 percent of the tax shown on the return of the individual for the pre-
                                     ceding taxable year.’’ Sec. 6654(d)(1)(B)(ii) (emphasis added). The statute
                                     is silent about credits, but the regulations make it appear that ‘‘tax shown’’
                                     means tax minus refundable credits (but not withholding credits or pay-
                                     ments of estimated tax). See 26 C.F.R. sec. 1.6654–2(a)(1)(i), (b)(1)(iii),
                                     (b)(2)(i). But again, there is no such regulation pertinent to the accuracy-
                                     related penalty of section 6662.




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                                     400                 141 UNITED STATES TAX COURT REPORTS                                    (376)


                                           A. The Commissioner’s position and the majority opinion
                                              are at odds with the plain meaning of ‘‘the amount
                                              shown as the tax by the taxpayer on his return’’.
                                        The term at issue is ‘‘the amount [1] shown [2] as the tax
                                     [3] by the taxpayer [4] on his return’’. Sec. 6664(a)(1)(A).
                                     Under section 6664(a) this amount is subtracted from ‘‘tax
                                     imposed’’ (i.e., the actual tax liability) to yield the ‘‘under-
                                     payment’’. The plain meaning of this term could hardly be
                                     clearer:
                                        In the first place, the amount in section 6664(a)(1)(A) is an
                                     amount ‘‘shown’’. It is therefore an amount that is visible.
                                     The plain language steers us away from an amount that
                                     would need to be determined by investigation or correction
                                     and points us simply to what is ‘‘shown’’—in this case, the
                                     $144 amount shown by petitioners as ‘‘total tax’’ on line 61.
                                     However, both the Commissioner and the majority opinion
                                     substitute for this amount ‘‘shown’’ a lesser amount com-
                                     puted by subtracting excess credits. Neither of the resulting
                                     numbers (i.e., neither the Commissioner’s proposed negative
                                     $7,327 nor the majority’s zero amount) is shown anywhere on
                                     petitioners’ 2008 return as an amount of ‘‘tax’’, so the
                                     Commissioner and the majority look to an amount that is not
                                     shown as tax and thereby ignore the plain language of the
                                     statute that describes an amount ‘‘shown’’.
                                        Second, the amount in section 6664(a)(1)(A) is ‘‘tax’’. Of
                                     course, the Code also has provisions about other kinds of
                                     amounts—e.g., of income, deductions, costs, basis, exclusions,
                                     credits, payments, penalties, and so on—but section
                                     6664(a)(1)(A) refers to an amount of ‘‘tax’’, a term not at all
                                     interchangeable with those other kinds of amounts. But both
                                     the Commissioner and the majority compute an amount that
                                     consists of tax reduced by excess refundable credits. How-
                                     ever, the plain meaning of the statutory language restricts us
                                     to ‘‘tax’’ that is shown on the return, and the statutory lan-
                                     guage gives no warrant for injecting excess credits into the
                                     equation.
                                        Third, section 6664(a)(1)(A) looks to an amount shown ‘‘by
                                     the taxpayer’’. Of course, the Code authorizes the IRS to
                                     make its own determinations of amounts relevant to tax
                                     liabilities; but plainly section 6664(a)(1)(A) describes an
                                     amount shown ‘‘by the taxpayer’’. The Commissioner and the




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                                     (376)                             RAND v. COMMISSIONER                                       401


                                     majority correct the amount shown ‘‘by the taxpayer[s]’’ on
                                     their return, $144, and replace it with other numbers that
                                     they determine. Their methods thus wander from the plain
                                     language of section 6664(a)(1)(A), which looks to an amount
                                     shown ‘‘by the taxpayer’’.
                                        Fourth, the amount in section 6664(a)(1)(A) is an amount
                                     shown as tax ‘‘on his return’’. The Commissioner designed
                                     Form 1040 and designated certain items and not others as
                                     ‘‘tax’’. Petitioners were required to use Form 1040 and did so.
                                     By using an amount other than the $144 that petitioners
                                     reported as ‘‘total tax’’ on the prescribed return, the Commis-
                                     sioner and the majority contradict the plain meaning of the
                                     statutory description of an amount of tax ‘‘on the return’’.
                                           B. The Form 1040 ‘‘return’’ has never ‘‘shown as the tax’’ an
                                              amount reduced by refundable credits.
                                       The critical term in section 6664(a)(1)(A) is the ‘‘amount
                                     shown as the tax on the return’’. (Emphasis added.) Section
                                     6011(a) authorizes the IRS to prescribe returns and requires
                                     taxpayers to use them. In 26 C.F.R. section 1.6012–1(a)(6),
                                     Income Tax Regs., the IRS has prescribed Form 1040. It is
                                     therefore appropriate to accord great weight to the manner
                                     in which tax and refundable credits are characterized on
                                     Form 1040.
                                       In fact, Form 1040 calls for a computation of ‘‘total tax’’
                                     (without reduction by refundable credits) and only then calls
                                     for the refundable credits to be reported as ‘‘payments’’, con-
                                     sistent with the Code. 4 Form 1040 was so arranged when
                                     refundable credits were first allowed in 1975; 5 and when
                                           4 The
                                              portion of a refundable credit that exceeds the tax liability is an
                                     ‘‘overpayment’’, see secs. 37, 6401(b)(1); an overpayment is by definition a
                                     ‘‘part of the amount of the payment’’, sec. 6401(a) (emphasis added); and
                                     the refundable credit is therefore treated in the Code as a payment. By
                                     contrast, nonrefundable credits are limited to and can never exceed the
                                     amount of the tax liability, see sec. 26(a), and thus never reduce the liabil-
                                     ity below zero.
                                        5 When the first refundable credit (the earned income tax credit) ap-

                                     peared on the Form 1040 for 1975, ‘‘Tax’’ was computed on line 16a and
                                     was reduced by certain credits before the addition of ‘‘Other taxes’’ (line
                                     19) to yield a ‘‘Total’’ (line 20). From that were subtracted withholding, es-
                                     timated payments, the EITC (line 21c), and other payments to yield (on
                                     line 23 or line 24) either a ‘‘BALANCE DUE IRS’’ (not a ‘‘tax’’) or an
                                                                                                       Continued




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                                     402                 141 UNITED STATES TAX COURT REPORTS                                    (376)


                                     Congress enacted the current penalty regime in 1989 (and
                                     employed the ‘‘shown * * * on his return’’ definition), the
                                     Form 1040 return most recently in use—i.e., the Form 1040
                                     for 1988—reflected this same arrangement. 6 The IRS has
                                     always constructed the Form 1040 return in such a way that
                                     ‘‘total’’ tax is figured first and then refundable credits are
                                     characterized as ‘‘payments’’ of that tax. The IRS has never
                                     prescribed an individual income tax return on which there
                                     was ‘‘shown as the tax’’ an amount that had already been
                                     reduced by refundable credits.
                                        I do not suggest that IRS forms and instructions are gen-
                                     erally precedential. Cf. Casa De La Jolla Park, Inc. v.
                                     Commissioner, 94 T.C. 384, 396 (1990) (‘‘The sources of
                                     authoritative law in the tax field are the statute and regula-
                                     tions and not government publications’’). But here the statu-
                                     tory definition of ‘‘underpayment’’ utterly depends on and
                                     incorporates the ‘‘return’’. By definition, petitioners cannot
                                     owe the penalty unless they under-reported ‘‘the amount
                                     shown as the tax * * * on * * * [their] return’’ (emphasis
                                     added)—but the parties and the majority admit that the
                                     ‘‘total tax’’ of $144 that they did show on their return was

                                     ‘‘amount OVERPAID’’. That is, the 1975 Form 1040 reflected that credit
                                     amounts like these are in the nature of payments, not tax. The Form 1040
                                     for 2008 was similar in all material respects to the Form 1040 for 1975.
                                        6 On the Form 1040 for 1988, the ‘‘Tax Computation’’ section (consisting

                                     of lines 32 through 40) included, after the computation of taxable income,
                                     a line 38 on which one was to ‘‘Enter tax’’, a line 39 for ‘‘Additional taxes’’,
                                     and a line 40 that totaled lines 38 and 39. The next section, entitled ‘‘Cred-
                                     its’’ (lines 41 through 47), consisted not of refundable credits in the nature
                                     of payments against the tax liability but instead credits (such as the child
                                     care credit and the foreign tax credit) that are taken into account in fig-
                                     uring the tax liability. Thereafter, a section of ‘‘Other Taxes’’ (lines 48
                                     through 53) included, for example, the self-employment tax and the alter-
                                     native minimum tax; and it ended with line 53, which read: ‘‘Add lines 47
                                     through 52. This is your total tax’’ (bold in original). Only after this ‘‘total
                                     tax’’ on line 53 did the 1988 return include, in the section of the return
                                     entitled ‘‘Payments’’, an entry (at line 56) for ‘‘Earned income credit’’,
                                     which was one of the items that yielded ‘‘total payments’’ on line 61. The
                                     net amount due after these ‘‘total payments’’ was not referred to as tax,
                                     but either as an ‘‘amount OVERPAID’’ (line 62) or as an ‘‘AMOUNT YOU
                                     OWE’’ (line 65). This is what in fact appeared on a ‘‘return’’ at the time
                                     Congress defined a taxpayer’s underpayment as ‘‘tax imposed’’ minus tax
                                     ‘‘shown * * * on his return’’. The Form 1040 for 2008 was similar in all
                                     material respects to the Form 1040 for 1988.




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                                     (376)                            RAND v. COMMISSIONER                                       403


                                     correct. Everyone agrees that the tax imposed, $144, was the
                                     ‘‘total tax’’ amount shown on the return. Given the wording
                                     of section 6664(a)(1)(A), one cannot ignore petitioners’ actual
                                     ‘‘return’’ in finding an underpayment and imposing the
                                     accuracy-related penalty.
                                           C. The definition of ‘‘deficiency’’ in section 6211 does not
                                              alter the definition of ‘‘underpayment’’ in section
                                              6664(a).
                                        To interpret the ‘‘underpayment’’ definition in section
                                     6664(a), the majority looks to the ‘‘deficiency’’ definition in
                                     section 6211(b)(1), which employs similar phrases, but the
                                     majority thereby draws incorrect inferences. In defining a tax
                                     ‘‘deficiency’’, section 6211(b)(1) provides that ‘‘[t]he tax
                                     imposed * * * and the tax shown * * * shall both be deter-
                                     mined without regard to’’ certain credits but does not provide
                                     for disregarding the refundable credits at issue here. The
                                     majority therefore invokes the canon expressio unius est
                                     exclusio alterius and infers that, as a general rule, ‘‘tax
                                     shown’’ must therefore include all those credits (else no
                                     exclusion of any would have been necessary). And the
                                     majority opinion goes on to note that no such exclusions are
                                     provided in section 6664(a) defining ‘‘underpayment’’, and
                                     therefore ‘‘underpayment’’ must be determined with regard to
                                     these unmentioned credits. That is, the opinion effectively
                                     holds that ‘‘tax imposed’’ and ‘‘tax shown’’ must generally
                                     mean tax after (among other things) the refundable credits at
                                     issue here. For two reasons this argument is untenable.
                                        First, if not only tax ‘‘shown’’ but also ‘‘tax imposed by this
                                     title’’ (emphasis added) should generally be understood to
                                     refer to tax net of refundable credits, then other Code sec-
                                     tions that refer to ‘‘tax imposed by this title’’ but that do not
                                     explicitly exclude the netting of credits might become very
                                     problematic. Section 6001 requires that ‘‘[e]very person liable
                                     for any tax imposed by this title * * * shall keep such
                                     records * * * as the Secretary may from time to time pre-
                                     scribe’’, and section 6011(a) requires that a return be filed by
                                     ‘‘any person made liable for any tax imposed by this title’’.
                                     For taxpayers who are entitled to refundable credits, these
                                     requirements apply not only if they report a balance due but
                                     also if they are entitled to a refund. Section 6501(a) provides




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                                     404                 141 UNITED STATES TAX COURT REPORTS                                    (376)


                                     for assessment of ‘‘tax imposed by this title’’ (and the IRS
                                     duly assessed the $144 ‘‘total tax’’ that petitioners reported
                                     on their 2008 return and separately recorded the allowance
                                     of the credits claimed). Section 6511(a) sets a deadline for the
                                     filing of a claim for refund of ‘‘any tax imposed by this title’’.
                                     It would be nonsense to suggest that this deadline does not
                                     apply where the claimed overpayment arises from refundable
                                     credits.
                                        These provisions have always been (rightly) understood to
                                     apply where there is a tax liability, whether or not that
                                     liability has been satisfied by refundable credits. That is, it
                                     is a truism that ‘‘tax imposed’’ does not generally mean
                                     ‘‘amount of tax due after application of refundable credits’’.
                                     It is hard to imagine administering the provisions listed
                                     above if it were otherwise. The inference that an internal
                                     revenue statute that addresses ‘‘tax imposed’’—or ‘‘tax
                                     shown’’—without mentioning refundable credits must refer to
                                     the tax due after such credits is manifestly unwarranted.
                                        Second, the majority states that it ‘‘see[s] no evidence of a
                                     contrary congressional intent’’ (i.e., intent contrary to its
                                     expressio unius construction), but it describes no inquiry into
                                     the congressional intent that did produce the critical lan-
                                     guage in section 6211. See op. Ct. p. 388. In fact, the clari-
                                     fication in section 6211(b)(1) that ‘‘[t]he tax imposed * * *
                                     and the tax shown * * * shall both be determined without
                                     regard to’’ withholding credits is a truism whose presence
                                     has a historical explanation. After income tax withholding
                                     was inaugurated in 1943, the definition of ‘‘deficiency’’ had to
                                     be changed in order to prevent non-rebate refunds (i.e.,
                                     refunds of over-withheld tax) from inappropriately increasing
                                     the amount of a deficiency. In 1944 Congress therefore
                                     employed and defined the concept of a ‘‘rebate’’ refund (now
                                     in section 6211(b)(2)) and—important to the current discus-
                                     sion—noted that tax ‘‘imposed’’ and tax ‘‘shown’’ did not
                                     include the relatively new withholding credit. See Feller v.
                                     Commissioner, 135 T.C. at 536–538.
                                        At that time, there were no refundable credits. Congress’
                                     1944 expressio as to withholding credits made no implication
                                     whatsoever as to the alterius of refundable credits that would
                                     not exist until 1975. The silence of section 6211(b)(1) about
                                     refundable credits (which did not then exist) should not give
                                     rise to an aberrant definition of section 6664(a)(1)(a) that




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                                     (376)                            RAND v. COMMISSIONER                                       405


                                     assumes that ‘‘tax’’ imposed and shown somehow includes
                                     refundable credits not mentioned in either statute.
                                           D. The rule of lenity calls for a strict construction of the
                                              penalty.
                                        The majority opinion is correct that the ‘‘rule of lenity’’
                                     requires that penalty statutes be ‘‘construed strictly’’.
                                     Commissioner v. Acker, 361 U.S. 87, 91 (1959); see op. Ct. pp.
                                     392–393. The majority aptly invokes this canon to conclude
                                     ‘‘that section 6662 does not impose a penalty on the refund-
                                     able portion of erroneously claimed earned income credits,
                                     additional child tax credits, and recovery rebate credits’’, see
                                     op. Ct. p. 393; but it fails to observe that the same canon
                                     counsels against expanding the penalty to make it apply
                                     where refundable credits were overstated but ‘‘tax’’ was not
                                     understated.
                                        Applying the rule of lenity, we should construe ‘‘tax’’
                                     strictly to mean tax, rather than construing it loosely to
                                     mean tax minus refundable credits. We should construe
                                     ‘‘shown as the tax * * * on his return’’ strictly to mean
                                     shown as the tax on his return, rather than construing it
                                     loosely to mean not really shown as the tax on his return.
                                     IV. Conclusion
                                        The parties and the majority agree that the tax ‘‘imposed’’
                                     is $144, and there is no dispute that $144 was shown as the
                                     ‘‘total tax’’ on line 61 of petitioners’ return. There is therefore
                                     no ‘‘underpayment’’ as defined in section 6664(a)(1)(A) and,
                                     as a result, no penalty can be imposed under section 6662(a).
                                        HALPERN and GOEKE, JJ., agree with this dissent.


                                       MORRISON, J., dissenting: On their joint federal tax return
                                     for 2008, Rand and Klugman claimed that they were entitled
                                     to three types of refundable credits: the earned income credit,
                                     the additional child tax credit, and the recovery rebate credit.
                                     To buttress their claims to these credits, Rand and Klugman
                                     falsely reported on their tax return:
                                           (1) that they lived in the United States;
                                           (2) that their children lived in the United States;




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                                     406                 141 UNITED STATES TAX COURT REPORTS                                    (376)


                                       (3) that they had earned income of $18,148, including
                                     $17,200 in wages supposedly paid to Rand by the Yeshivas
                                     Brisk Institute in Israel.
                                     Rand and Klugman reported that their total tax liability,
                                     before credits, was $144. This amount was attributable to
                                     self-employment taxes. The refundable credits they claimed
                                     total $7,471, and they sought a refund of $7,327 ($7,471 –
                                     $144).
                                        The statements on the return were false; Rand and
                                     Klugman were not entitled to the refundable credits they
                                     claimed. The issue remaining in this case is to determine the
                                     amount of their penalty under section 6662.
                                        Section 6662 imposes a 20% penalty on underpayments
                                     associated with inaccurate tax returns. For returns that are
                                     fraudulent, a 75% penalty applies under section 6663. The
                                     amount of either penalty is mathematically dependent on the
                                     amount of the underpayment. The amount of the under-
                                     payment is in turn a function of four variables, including
                                     ‘‘the amount [of tax] shown as the tax by the taxpayer on his
                                     return’’. Sec. 6664(a)(1)(A). This variable is referred to here
                                     as the ‘‘tax shown’’. A disagreement about how to calculate
                                     this variable divides our Judges in this case.
                                        The Court holds that the ‘‘tax shown’’ for the purpose of
                                     calculating an underpayment cannot be less than zero.
                                     Therefore, the Court holds that the ‘‘tax shown’’ on Rand and
                                     Klugman’s return is zero. In my view, the ‘‘tax shown’’ on the
                                     return can be less than zero. I would hold that the ‘‘tax
                                     shown’’ on Rand and Klugman’s return is $144 (the amount
                                     they reported on their return for self-employment tax) minus
                                     $7,471 (the refundable credits they claimed), which is
                                     –$7,327. 1
                                        Whether the ‘‘tax shown’’ on a return can be negative, i.e.,
                                     less than zero, in calculating an underpayment is not
                                     answered by the plain language of the Internal Revenue
                                     Code. Section 1 imposes the federal income tax on individ-
                                     uals. It provides that a ‘‘tax’’ is ‘‘imposed’’ on ‘‘taxable
                                     income’’. The tax imposed by section 1 is supplemented by a
                                     ‘‘tax’’ imposed by section 1401(a) on ‘‘the self-employment
                                        1 The difference between zero and –$7,327 affects the amount of the un-

                                     derpayment. If the ‘‘tax shown’’ is zero, the underpayment is $144. If the
                                     ‘‘tax shown’’ is –$7,327, the underpayment is $7,471.




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                                     (376)                            RAND v. COMMISSIONER                                       407


                                     income of every individual’’. The Code provides for several
                                     types of credits ‘‘against the’’ taxes imposed by section 1 and
                                     section 1401, among other taxes. Some of these credits,
                                     including the additional child tax credit, the earned income
                                     credit, and the recovery rebate credit, are refundable credits.
                                     See secs. 24(d), 32(a), 6428(a). Refundable credits must be
                                     refunded by the Internal Revenue Service (IRS) to the tax-
                                     payer to the extent they exceed the taxpayer’s pre-refund-
                                     able-credit tax liability. See secs. 6402(a), 6401(b).
                                        I disagree with the Court’s holding for three primary rea-
                                     sons. First, it does not give sufficient weight to Congress’s
                                     purpose in enacting section 6662. Second, it relies too heavily
                                     on section 6211(b)(4), a section of uncertain relevance to the
                                     term in dispute in this case—the term ‘‘underpayment’’.
                                     Third, the Court’s holding creates a gap in the penalty
                                     regime that Congress could not have intended. I address
                                     each shortcoming in turn.
                                        When a law is ambiguous, it is appropriate for a court to
                                     interpret the law in a manner consistent with Congress’s
                                     purpose behind the law. See Thompson v. GMAC, LLC, 566
                                     F.3d 699, 707 (7th Cir. 2009); Yarish v. Commissioner, 139
                                     T.C. 290, 295 (2012). Sections 6662 and 6664 are ambiguous
                                     with respect to the meaning of ‘‘underpayment’’ and, specifi-
                                     cally, whether ‘‘tax shown’’ can be negative. The Court’s
                                     strained attempt to arrive at the meaning of ‘‘tax shown’’
                                     demonstrates as much. See Yarish v. Commissioner, 139 T.C.
                                     at 295 (finding a statutory phrase ambiguous where ‘‘it is
                                     susceptible of at least two different meanings’’). Accordingly,
                                     it is appropriate to look to the purpose underlying section
                                     6662 to determine the meaning of ‘‘underpayment’’ and ‘‘tax
                                     shown’’.
                                        The purpose of the section 6662 penalty is to deter tax-
                                     payers from taking questionable tax return positions that
                                     they hope that the IRS will not discover. Estate of Kluener
                                     v. Commissioner, 154 F.3d 630, 637 (6th Cir. 1998) (section
                                     6662), aff ’g in part, rev’g in part T.C. Memo. 1996–519;
                                     Caulfield v. Commissioner, 33 F.3d 991, 994 (8th Cir. 1994)
                                     (former section 6661), aff ’g T.C. Memo. 1993–423; Karpa v.
                                     Commissioner, 909 F.2d 784, 786 (4th Cir. 1990) (former sec-
                                     tion 6661), aff ’g T.C. Memo. 1989–535. Credits are reported
                                     by taxpayers on income tax returns, just as items of gross
                                     income and deductions are reported on income tax returns.




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                                     408                  141 UNITED STATES TAX COURT REPORTS                                    (376)


                                     See United States v. Gormley, 201 F.3d 290, 293 (4th Cir.
                                     2000). 2 Taxpayers like Rand and Klugman, who make false
                                     claims of credits on their tax returns, hope that the IRS will
                                     not discover that they are not entitled to the credits. In the
                                     case of refundable credits, the claimants hope that the IRS
                                     will write them a refund check (as the IRS did for Rand and
                                     Klugman). False claims of credits on returns are as difficult
                                     for the IRS to detect as falsely reported items of gross income
                                     or deductions. Treating a false claim of credits as part of the
                                     ‘‘tax shown’’ on the return, and treating a false claim to
                                     refundable credits as potentially a report of negative tax, are
                                     consistent with the purpose of section 6662.
                                        Adopting this interpretation would result in imposing a
                                     penalty on Rand and Klugman of $1,494. 3 This is not an
                                     onerous penalty for filing the false return, considering the
                                     false return was designed to generate an undeserved tax ben-
                                     efit of $7,471. By contrast, the Court holds that the appro-
                                     priate amount of the penalty is 20% of $144, or $29. That is
                                     only about 0.39% (less than one two-hundredth) of the tax
                                     benefit sought.
                                        The second reason I contest the Court’s holding is that it
                                     relies unduly on section 6211(b)(4). The Court uses an elabo-
                                     rate scheme of statutory construction to divine the meaning
                                     of ‘‘underpayment’’. The Court assumes that, because ‘‘tax
                                     shown’’ is used in both section 6664 (defining ‘‘under-
                                     payment’’) and section 6211 (defining ‘‘deficiency’’), the
                                     phrase has the same meaning in both sections. Further,
                                     because section 6211(b)(4), which applies exclusively to the
                                     definition of ‘‘deficiency’’, contains a negative tax provision,
                                     the Court infers that ‘‘tax shown’’, in the absence of the sub-
                                     section (b)(4) modification, cannot be negative. On the basis
                                        2 Professor Lawrence Zelenak in his article ‘‘Tax or Welfare? The Admin-

                                     istration of the Earned Income Tax Credit’’, 52 UCLA L. Rev. 1867, 1869
                                     (2005), observes:
                                              In common with other taxpayer-favorable provisions of the federal in-
                                           come tax, the EITC [the earned income tax credit] is administered on the
                                           basis of self-declared eligibility. As with persons claiming other income
                                           tax deductions, exclusions, and credits, the EITC claimant makes the en-
                                           tries on her tax return required to determine the amount of EITC to
                                           which she is entitled, and pays less tax or receives a bigger refund as
                                           a result. * * *
                                           3 Twenty percent of $7,471 is $1,494. See sec. 6662.




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                                     (376)                            RAND v. COMMISSIONER                                       409


                                     of these two assumptions, the Court holds that ‘‘tax shown’’
                                     for purposes of defining ‘‘underpayment’’ cannot be negative.
                                     This reasoning is flawed for four reasons.
                                        First, the Court’s holding implicitly (and incorrectly)
                                     assumes that there is a sure meaning of ‘‘tax shown’’ (as used
                                     in section 6211(a)) without the negative tax provision found
                                     in subsection (b)(4). This assumption is incorrect, as is illus-
                                     trated by the fact that the Judges in this case cannot agree
                                     on the meaning of ‘‘tax shown’’ in the absence of subsection
                                     (b)(4). Because its meaning is unclear, the Court should not
                                     rely on it in defining ‘‘tax shown’’ in the definition of ‘‘under-
                                     payment’’. The Court holds that ‘‘tax shown’’ (in the absence
                                     of subsection (b)(4)) means the tax reported on the return,
                                     reduced for credits, but not below zero and that subsection
                                     (b)(4) only provides the mechanism by which we reduce ‘‘tax
                                     shown’’ into negative territory when calculating a deficiency.
                                     Judge Gustafson adopts the view that ‘‘tax shown’’ means the
                                     tax reported, unreduced for credits, and that subsection (b)(4)
                                     provides the mechanism by which we reduce ‘‘tax shown’’ by
                                     credits in calculating a deficiency and reduce ‘‘tax shown’’
                                     below zero. Under this view, in the absence of subsection
                                     (b)(4), ‘‘tax shown’’ is not reduced by credits at all. These
                                     divergent views demonstrate that, while we know the bot-
                                     tom-line result of subsection (b)(4)—that refundable credits
                                     can reduce ‘‘tax shown’’ below zero when calculating a defi-
                                     ciency—we do not know how it achieves this result. This sug-
                                     gests that the concept of ‘‘tax shown’’ (as used in section
                                     6211(a), without subsection (b)(4)), is an unreliable indicator
                                     of Congress’s intended meaning of underpayment and that
                                     the Court should not rely on it.
                                        Second, portions of the opinion of the Court suggest that
                                     the concepts of deficiency and underpayment are separate,
                                     yet the Court draws heavily from section 6211 (defining
                                     ‘‘deficiency’’) in defining ‘‘tax shown’’ (as used in the defini-
                                     tion of ‘‘underpayment’’) and, indirectly, in defining ‘‘under-
                                     payment’’. The Court’s approach is inconsistent with
                                     Congress’s intent. Congress separated the meaning of
                                     ‘‘underpayment’’ from the meaning of ‘‘deficiency’’ in 1989.
                                     The Court acknowledges as much: ‘‘[O]ur conclusion breaks
                                     the historical link between the definitions of a deficiency and
                                     an underpayment; however, it was Congress that made that
                                     break.’’ See op. Ct. p. 391. Yet the Court adopts a definition




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                                     410                 141 UNITED STATES TAX COURT REPORTS                                    (376)


                                     of ‘‘underpayment’’ that is necessarily, if indirectly, linked to
                                     the meaning of ‘‘deficiency’’. Despite Congress’s attempt to
                                     separate the two terms, the Court’s holding requires us to
                                     scrutinize the meaning of ‘‘deficiency’’ to determine the
                                     meaning of ‘‘underpayment’’. The consequences of this
                                     approach are illustrated by the role that amendments to sec-
                                     tion 6211(b)(4) have inadvertently played in the Court’s defi-
                                     nition of ‘‘tax shown’’ (for purposes of an underpayment). Sec-
                                     tion 6211(b)(4) has been amended twice since 1989—in 2000
                                     and in 2008—to incorporate the child tax credit and the
                                     recovery rebate credit. 4 Each of these amendments changed
                                     the definition of ‘‘deficiency’’. Under the Court’s view, both of
                                     these amendments also affected the definition of ‘‘under-
                                     payment’’ because they indirectly changed the meaning of
                                     ‘‘tax shown’’ in the definition of ‘‘underpayment’’. Further,
                                     there is nothing in the Court’s opinion that suggests that
                                     future amendments to section 6211(b)(4) will not similarly
                                     affect the meaning of ‘‘tax shown’’ and, as a result, ‘‘under-
                                     payment’’. In recognition of the fact that Congress broke the
                                     link between deficiency and underpayment in 1989, the
                                     better approach would be to ignore section 6211(b)(4) entirely
                                     in arriving at the meaning of ‘‘tax shown’’.
                                        A related problem is that the Court’s holding is not sup-
                                     ported by the legislative history it cites. See op. Ct. p. 391
                                     (citing H.R. Rept. No. 101–247, at 1394 (1989), 1989
                                     U.S.C.C.A.N. 1906, 2864). The committee report stated that
                                     the establishment of a separate definition of ‘‘underpayment’’
                                     in 1989 (separate from the definition of ‘‘deficiency’’) was not
                                     intended to change the definition of ‘‘underpayment’’. H.R.
                                     Rept. No. 101–247, at 1394, 1989 U.S.C.C.A.N. at 2864. But
                                     taken literally this would mean that the definition of ‘‘under-
                                     payment’’ remained unchanged from its pre-1989 definition.
                                       4 In 1997 Congress added the additional child tax credit to the Code, and

                                     in 2000 it incorporated the credit in the negative-tax provision of sec.
                                     6211(b)(4). Consolidated Appropriations Act, 2001, Pub. L. No. 106–554,
                                     sec. 1(a)(7), 114 Stat. at 2763 (amending sec. 6211(b)(4)); Taxpayer Relief
                                     Act of 1997, Pub. L. No. 105–34, sec. 101(a), 111 Stat. at 796 (adding sec.
                                     24). In 2007 Congress added the rebate recovery credit to the Code and
                                     incorporated the credit in the negative-tax provision of sec. 6211(b)(4). Eco-
                                     nomic Stimulus Act of 2008, Pub. L. No. 110–185, sec. 101(b)(1), 122 Stat.
                                     at 615 (amending sec. 6211(b)(4)); id. sec. 101(a), 122 Stat. at 613 (amend-
                                     ing sec. 6428(a)).




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                                     (376)                             RAND v. COMMISSIONER                                       411


                                     Because its pre-1989 definition included the negative-tax
                                     provision of section 6211(b)(4), that would mean that the ‘‘tax
                                     shown’’ on the return, which could be negative before 1989,
                                     can still be negative now. 5 But this would mean that the
                                           5 Before
                                                 1989 former sec. 6653(a)(1) and (b)(1) imposed penalties equal
                                     to percentages of the portions of an underpayment due to negligence (5%)
                                     or fraud (75%), respectively. Former sec. 6661(a) (repealed 1989) also im-
                                     posed a penalty equal to 25% of the portion of an underpayment due to
                                     a substantial understatement of income tax. An underpayment was not de-
                                     fined by sec. 6661(a). An underpayment for purposes of the 5% negligence
                                     penalty and the 75% fraud penalty was generally defined the same as a
                                     deficiency for income tax returns. This rule was found in former sec.
                                     6653(c): ‘‘the term ‘underpayment’ means * * * a deficiency as defined in
                                     [section 6211]’’. See Feller v. Commissioner, 135 T.C. 497, 506–507 (2010).
                                     In 1988 Congress amended sec. 6211(b)(4) to add the negative-tax provi-
                                     sion we summarized above. Technical and Miscellaneous Revenue Act of
                                     1988, Pub. L. No. 100–647, sec. 1015(r)(2), 102 Stat. at 357 (amending sec.
                                     6211(b)(4)). At the time, of the three types of credits Rand and Klugman
                                     claimed, only the earned income credit was in existence and referenced in
                                     the negative-tax provision of sec. 6211(b)(4). Thus, sec. 6211(b)(4) provided:
                                           For purposes of subsection (a) —
                                               (A) any excess of the sum of the credits allowable under sections
                                             * * * 32 and 34 over the tax imposed by subtitle A (determined with-
                                             out regard to such credits), and
                                               (B) any excess of the sum of such credits as shown by the taxpayer
                                             on his return over the amount shown as the tax by the taxpayer on
                                             such return (determined without regard to such credits),
                                           shall be taken into account as negative amounts of tax.
                                     Because of the cross-reference of former sec. 6653(c) to the definition of
                                     ‘‘deficiency’’, the 1988 amendment modified the definition of ‘‘under-
                                     payment’’ for purposes of sec. 6653(a)(1) and (b)(1). One year later, in 1989,
                                     Congress revamped the system of civil tax penalties. Omnibus Budget Rec-
                                     onciliation Act of 1989 (OBRA), Pub. L. No. 101–239, sec. 7721(a), (c), 103
                                     Stat. at 2395, 2399. It repealed former sec. 6653; it added sec. 6662 (the
                                     accuracy-related penalty), sec. 6663 (the fraud penalty—equal to 75% of
                                     the portion of the underpayment attributable to fraud), and sec. 6664 (set-
                                     ting forth definitions of terms used in secs. 6662 and 6663). OBRA sec.
                                     7721(a), (c)(1). The word ‘‘underpayment’’, used in sec. 6662 (and sec.
                                     6663), is defined by sec. 6664(a). Secs. 6662(a), 6663(a). The 1988 amend-
                                     ment modifying the definition of ‘‘deficiency’’ remained in the Code, but
                                     after 1989 it no longer expressly affected the definition of ‘‘underpayment’’.
                                     This is because in 1989 the definition of ‘‘underpayment’’ was detached
                                     from the definition of ‘‘deficiency’’. See Feller v. Commissioner, 135 T.C. at
                                     507–508 (‘‘The definition of an underpayment is no longer tied to the defi-
                                     nition of a deficiency under section 6211, as it had been in section
                                     6653(c)’’.). Despite the detachment of the definition of ‘‘underpayment’’
                                                                                                       Continued




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                                     412                 141 UNITED STATES TAX COURT REPORTS                                    (376)


                                     ‘‘tax shown’’ on Rand and Klugman’s return should be
                                     reduced to –$7,327. This is the opposite of what the Court
                                     holds. The Court holds that the ‘‘tax shown’’ on the return in
                                     underpayment calculations cannot be negative. And it holds
                                     that the ‘‘tax shown’’ on Rand and Klugman’s return is zero.
                                     The Court’s holding, whatever its other merits, is not sup-
                                     ported by the Ways and Means Committee report.
                                        The fourth problem with the Court’s reliance on section
                                     6211(b)(4) in defining ‘‘tax shown’’ (for purposes of an under-
                                     payment) is that the approach relies too heavily on principles
                                     of statutory construction. Recall that the Court’s reasoning
                                     employs not one, but two principles of statutory construction:
                                     the principle that the same phrase means the same thing
                                     wherever it appears in the statute and the principle that all
                                     statutory phrases must be given effect. It has been recog-
                                     nized that principles of statutory construction rest upon the
                                     assumption that Congress is all-knowing. See, e.g., Edwards
                                     v. United States, 814 F.2d 486, 488 (7th Cir. 1987). Thus, for
                                     example, when Congress uses the same phrase in a statute,
                                     it is assumed to do so deliberately because it knows the
                                     phrase will be construed the same way wherever it appears.
                                     This assumption can give rise to inaccurate readings, espe-
                                     cially where, as here, two principles of statutory construction
                                     are chained together. For example, it may be reasonable to
                                     assume that, in using the phrase ‘‘tax shown’’ in sections
                                     6664 and 6211, Congress intended that ‘‘tax shown’’ would
                                     carry the same meaning in both sections; however, it seems
                                     inherently less reasonable to assume further that Congress
                                     intended for section 6211(b)(4) (defining ‘‘deficiency’’) to be
                                     relied upon to define ‘‘tax shown’’ (as used in defining
                                     ‘‘underpayment’’). The Court’s chain of reasoning seems espe-
                                     cially suspect in the light of Congress’s express intent to
                                     separate the definition of underpayment from the definition
                                     of deficiency. See op. Ct. p. 391.
                                        Finally, the majority contends that its holding, which occa-
                                     sions a puny $29 penalty for Rand and Klugman’s false claim
                                     for $7,471 in tax credits, does not result in a gap in the pen-
                                     from the definition of ‘‘deficiency’’, a report of the House Ways and Means
                                     Committee asserted that the definition of ‘‘underpayment’’ under the 1989
                                     amendments was ‘‘not intended to be substantively different’’ from pre-
                                     vious law. H.R. Rept. No. 101–247, at 1394 (1989), 1989 U.S.C.C.A.N.
                                     1906, 2864.




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                                     (376)                             RAND v. COMMISSIONER                                       413


                                     alty regime because there are penalties for false or excessive
                                     claims for credits found in section 32(k) and section 6676.
                                     Section 32(k), enacted in 1997, provides that a false claim to
                                     the earned income credit for one tax year results in the
                                     denial of the earned income credit for the next two tax years
                                     ‘‘[if] there was a final determination that the taxpayer’s
                                     claim of credit * * * was due to reckless or intentional dis-
                                     regard of rules and regulations’’. 6 Many taxpayers who
                                     falsely claim the earned income credit for one year will not
                                     qualify for the credit for the subsequent two years anyway.
                                     Rand and Klugman, for example, claimed earned income
                                     credits for 2006, 2007, and 2008, even though, as they have
                                     now stipulated, they were not entitled to the earned income
                                     credit for any of the three years. For such taxpayers as Rand
                                     and Klugman, section 32(k), even if applicable, 7 deprives
                                     them of nothing to which they would otherwise be entitled.
                                     It is doubtful that Congress intended section 32(k) to be the
                                     only penalty potentially applicable to false refund claims
                                     related to earned income credits.
                                         Section 6676, enacted in 2007, imposes a 20% penalty on
                                     overstated claims to various types of credits, including the
                                     additional child tax credit and the recovery rebate credit. 8 It
                                     is unlikely that Congress thought the section 6676 penalty
                                     was a sufficient (or exclusive) penalty for returns that seek
                                     refunds based on false claims of tax credits. First, the section
                                     6676 penalty does not apply to claims to the earned income
                                     credit. 9 See sec. 6676(a). Second, the percentage of the sec-
                                           6 Theperiod of disallowance is 10 years if the claim of credit is due to
                                     fraud.
                                        7 Sec. 32(k) is conditioned upon ‘‘reckless or intentional disregard of rules

                                     and regulations.’’ Sec. 6662 is not. See sec. 6662(b)(2).
                                        8 The Court seems to take the IRS to task for failing to assert the sec.

                                     6676 penalty against Rand and Klugman. The opinion states: ‘‘Such a pen-
                                     alty might have applied here, if respondent [the IRS] had asserted it.’’ See
                                     op. Ct. p. 395. However, the record does not disclose whether the IRS has
                                     asserted a sec. 6676 penalty. This is not surprising. The present pro-
                                     ceeding is a deficiency proceeding under sec. 6214. In a deficiency pro-
                                     ceeding the Tax Court does not have authority to redetermine a taxpayer’s
                                     liability for a sec. 6676 penalty, which the IRS can assess without a notice
                                     of deficiency. See sec. 6671(a).
                                        9 It is the earned income credit that makes up the largest portion of the

                                     refundable tax credits claimed by Rand and Klugman on their 2008 return.
                                     They claimed an earned income credit of $4,824, an additional child tax
                                                                                                       Continued




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                                     414                 141 UNITED STATES TAX COURT REPORTS                                    (376)


                                     tion 6676 penalty is only 20%; however, the penalty related
                                     to fraudulent returns is 75%. Sec. 6663(a). Under the Court’s
                                     approach, a claim for a refund, even if fraudulent, is not sub-
                                     ject to the 75% fraud penalty. It seems improbable that Con-
                                     gress intended such behavior to be so lightly penalized.
                                     Third, the section 6676 penalty applies to ‘‘a claim for refund
                                     or credit’’ whether or not made on a return. Thus, the section
                                     6676 penalty covers more taxpayer submissions to the IRS
                                     than the section 6662 and 6663 penalties, which are confined
                                     to returns.
                                        In addition, the Court asserts that Congress’s exemption of
                                     the earned income credit from section 6676 shows its intent
                                     that the section 6662 penalty does not reach improper refund
                                     claims relating to the earned income credit. See op. Ct. p.
                                     395. It says: ‘‘And it appears that Congress intended that the
                                     two-year bar be in lieu of any other monetary sanctions. For
                                     example, the penalty under section 6676 for an erroneous
                                     claim for refund specifically excludes a claim for refund
                                     relating to an erroneous earned income credit.’’ See id. I dis-
                                     agree. In enacting section 6676 in 2007, Congress may have
                                     understood that false refund claims relating to the earned
                                     income credit were already governed by the forfeiture penalty
                                     under section 32(k) enacted in 1997, the 20% penalty under
                                     section 6662, and the 75% penalty under section 6663 (if
                                     fraudulent). It may have thought that the potential applica-
                                     bility of these penalties would be sufficient.
                                        COLVIN, J., agrees with this dissent.

                                                                               f




                                     credit of $1,447, and a recovery rebate credit of $1,200.




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