Krugman v. Commissioner

The filing deadline for the 1985 tax year was April 15, 1986. Eldon Krugman (plaintiff) failed to file a tax return for the 1985 tax year. In 1992, after reading a newspaper article about an Internal Revenue Service (IRS) (defendant) program offering leniency to nonfilers, Krugman decided to file a return for the 1985 tax year. Krugman’s 1985 return stated that Krugman owed approximately $3,000 in tax for that year, but Krugman did not include any payment with the return. On April 12, 1993, the IRS sent Krugman a notice stating that, with late-filing penalties, Krugman owed approximately $4,200 for the 1985 tax year. The IRS put Krugman on a payment plan starting in September 1993 and sent Krugman monthly notices. The notices included the amount Krugman owed each month as well as his remaining balance. Although the notices said that the running balance included penalties and interest, the IRS had erroneously failed to include the owed interest that had accrued on the unpaid tax liability. Krugman made payments under the plan until, on March 9, 1995, he got the balance down to zero. The IRS realized its error and, on August 9, 1995, sent Krugman a notice informing him that he still owed over $5,000 in interest. Krugman filed a claim requesting an interest abatement. The IRS agreed to abate only the interest that accrued between March and August of 1995, about $350. Krugman exhausted his administrative appeals and petitioned the United States Tax Court to review the IRS’s refusal to abate the entire $5,000 of interest. At the Tax Court, the IRS conceded that it should have included the amount of owed interest in its initial April 12, 1993, notice and agreed to abate the interest accrued between that date and August 9, 1995, but argued that it should not abate the full $5,000.