Nicholas J. and Diane L. Palihnich - Page 13

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          and a $2,844 refund for 1982 (and any interest that accrued on              
          the overpayments and refund) would have been available to pay               
          petitioners’ 1980 tax liability.                                            
               Petitioners decided to fully pay their White Rim tax                   
          liabilities in 1987.  In 1987, petitioners reasonably believed              
          that, after they filed their amended returns and respondent                 
          applied overpayments to their 1980 year, they had paid amounts              
          substantially equal to the total tax liabilities arising from               
          their investment in White Rim for 1980-83, including the $39,599            
          deficiency respondent had determined for 1980.  Petitioners’                
          belief on this point was reasonable as shown by the fact that, in           
          August 1998, after respondent processed the amended returns,                
          respondent applied a $74,537 credit to petitioners’ 1980 tax                
          year.  The pendency until 1998 of petitioners’ 1980 Tax Court               
          case has no bearing on the interest abatement issue here because            
          petitioners reasonably believed that they had already paid the              
          tax they owed for 1980.                                                     
               We conclude that respondent’s loss of petitioners’ 1981-82             
          amended returns from 1987 to 1998 caused them to delay paying               
          their 1980 tax until 1998.                                                  
               The situation in this case is analogous to that in Douponce            
          v. Commissioner, T.C. Memo. 1999-398, where the Court held that             
          the Commissioner’s failure to provide a taxpayer with a correct             
          payoff amount was a ministerial error that warranted the                    






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