Estate of Forgey v. Commissioner

Glenn Forgey died in October 1993. The Internal Revenue Service (IRS) granted the request of Forgey’s estate (plaintiff) for an extension of the deadline to file an estate-tax return. The estate eventually submitted its return in May 1995, approximately four months late. The estate’s return showed an estate-tax liability of approximately $2.2 million and a balance due of approximately $1.7 million. The return did not include a deduction for interest expense, which the estate was not permitted to claim at the time. In July, the IRS assessed the estate-tax liability and a $378,802 late-filing addition to tax (i.e., penalty) pursuant to 26 U.S.C. § 6651(a)(1). In April 1998, the IRS issued a deficiency notice for $866,434 in estate tax and a § 6651(a)(1) addition to tax due to that deficiency. The IRS’s deficiency calculation included its allowance of a $488,190 interest-expense deduction to which the estate became entitled. The estate and the IRS reached a settlement on most issues, which resulted in a taxable estate that was $332,352 larger than what the estate reported on its return. However, after application of the interest-expense deduction, the taxable estate’s net adjustment was negative. Thus, the estate’s tax liability after the settlement was less than what the estate reported on its return. The estate filed a petition against the IRS commissioner (defendant) in the United States Tax Court challenging the IRS’s imposition of a late-filing addition to tax prior to its issuance of a deficiency notice. The commissioner moved for entry of decision on jurisdictional grounds, arguing that the court lacked jurisdiction because the challenged addition to tax was not attributable to a deficiency. The estate responded that the court had jurisdiction because a portion of the assessed addition to tax was attributable to a deficiency.