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Thursday, January 09, 2003


H&H Trim did not pay quarterly employment taxes timely in 1993. In January 1997, the H&H calls the IRS to ask how much is owed. IRS employee quotes a figure that does not include all accrued interest. H&H pays the amount quoted. In June of 1998, H&H becomes aware that there is unpaid interest, and it is still accruing. H&H requests abatement of unpaid interest. IRS denies abatement. H&H appeals, leading eventually to this case before the Tax Court. The law is that the IRS is authorized to abate interest that is excessive, beyond the period of limitations, erroneous or illegal. The IRS argued that "excessive" means "beyond the period of limitations, erroneous or illegal". H&H argued that "excessive" means "unfair".
Tax Court agreed with H&H for exactly the right reason: since "beyond the period of limitations, erroneous or illegal" is already in the statute, if that is what "excessive" meant then "excessive would be superfluous, and statutes should not be interpreted to make words superfluous. Tax Court then divides interest into three periods. As to interest prior to Jan. 1997, it held that H&H still owes that, since it was their fault it accrued and they would have paid it if the employee had informed them of it. The employee's error does not relieve them of past interest accrued. Good for the Tax Court. As for interest from Jan 1997 to June 1998, H&H is not responsible, since they would not have accrued that interest if the IRS employee had given them correct information. Therefore it was unfair. Good for Tax Court. The IRS is responsible for misinformation they directly tell you, even if they can publish misinformation with no consequences. As for June 1998 forward, Tax Court says the accrual of interest is fair, because H&H admits that they knew that owed interest on their 1993 taxes. Here Tax Court is off-base. The interest since June 1998 resulted from a controversy that arose because the IRS's fail to grant an abatement that Tax Court says they were wrong not to grant under an abuse of discretion standard. If the IRS had granted the partial abatement that Tax Court claims was justified, we do not actually know if H&H would have continued to appeal, but my suspicion is that H&H would have not appealed paid the previous interest, forestalling future interest. Thus the interest from June 1998 forward was also probably caused by another IRS mistake - not granting the partial abatement - and should therefore have also been adjudicated "unreasonable."

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