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asked for a partial abatement of interest. The Commissioner took
the position that a deal’s a deal, and moved to collect the
unpaid 1994 tax.
There are only two issues for us to decide: (1) may the
Nicholses use the net operating losses to fend off the
Commissioner’s collection effort?; and (2) are they entitled to
an abatement of interest? The Commissioner has moved for summary
judgment on both.
Background
This case began with the Commissioner’s audit of the
Nicholses’ 1994 tax return. The audit was prolonged, but in May
2001 the parties finally negotiated a compromise and executed a
standard IRS Form 870, entitled “Waiver of Restrictions on
Assessment and Collection of Deficiency in Tax and Acceptance of
Overassessment.” As the name states, a taxpayer who signs this
form waives any restrictions on assessment of a disputed tax by
the Commissioner. Waiving restrictions on assessment may seem a
minor detail--assessment is little more than a recording of a tax
liability in the IRS’s records, sec. 6203,1 but it is an
important milestone in tax procedure because, once the IRS
assesses a liability, it can then begin to try to collect.
Signing a Form 870 and agreeing to immediate assessment and
1 All section references are to the Internal Revenue Code,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
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Last modified: May 25, 2011