The opinion of the court was delivered by: LASKER
The government brought this action against Hershel Krasnow to collect unpaid assessed taxes owing for the taxable years 1969 and 1972, as well as accrued interest and statutory additions. Under a stipulation and partial consent order, Krasnow conceded his liability for the assessed taxes and his failure to make timely payments upon notice and demand. In accordance with the consent order, Krasnow has repaid the taxes and interest. He elected to contest, however, his liability for additions accruing under section 6651(a) (3) of the Internal Revenue Code of 1954 (the "Code"), as amended, 26 U.S.C. § 6651(a) (3), imposed on account of his failure to make prompt payment of the assessed taxes. Krasnow contends that collection of the additions is barred by the three-year statute of limitations prescribed by Code Section 6501. Both parties have moved for summary judgment, and the question for determination is whether the § 6651(a) (3) additions are subject to the § 6501 limitations period.
The additions imposed by § 6651(a) (3)
apply to taxpayers whose returns fail to reflect their full tax liability, and who are subsequently assessed for unpaid taxes. The additions accrue upon failure to pay the assessed tax within ten days of notice and demand,
and accumulate at the rate of.5 percent of the unpaid tax per month, up to a total of 25 percent of the unpaid tax.
Krasnow's argument that collection of the additions is time-barred appears to present a question of first impression. Krasnow's position is based upon his reading of Code section 6659, which provides that "additions to the tax . . . shall be paid upon notice and demand and shall be assessed, collected, and paid in the same manner as taxes."
Krasnow argues that assessment of additions "in the same manner" as taxes, under § 6659, requires application of the three-year statute of limitations which generally governs the assessment of taxes, § 6501.
Since more than three years has passed since the filing of the returns in question, and the additions have not been independently assessed to date, Krasnow contends that the government is now barred from collecting them. Additions, according to Krasnow, cannot be analogized to interest -- which is collected without a separate assessment -- because Code section 6601(g) specifically dispenses with the need for a separate assessment in the case of interest.
The government makes several arguments in support of its position that Congress did not intend the three-year statute of limitations to apply to additions accruing under § 6651(a) (3). The government first points out that § 6651(a) (3) provides for the accrual of additions for unpaid taxes for at least 50 months, which is the number of months that must elapse before additions at the rate of.5 percent per month would amount to 25 percent of the unpaid tax. If additions under § 6651(a) (3) were required to be separately assessed within the three-year limitations period, the government argues, no additions could be collected for taxes remaining unpaid after 36 months, and Congress' provision for a potential 50-month accrual period would be rendered meaningless. The government next cites the language of § 6651(a) (3) ("there shall be added . . .") as indicating that the additions are to be mandatory and, indeed, automatic upon failure to pay assessed taxes. The government also contends that, because determining the amount of the § 6651(a) (3) additions involves only readily made mathematical calculations, formal assessment of the additions would be of little value to taxpayers, and would impose a pointless administrative burden on the IRS.
Assessment, under the Code, is "essentially a bookkeeping notation . . . made when the Secretary or his delegate establishes an account against the taxpayer on the tax rolls." Laing v. United States, 423 U.S. 161, 170 n. 13, 46 L. Ed. 2d 416, 96 S. Ct. 473 (1976). See Code section 6203. An assessment is made when the IRS has determined (for example) that the tax shown on a taxpayer's return understates his true liability, or that the amount shown on the return has not been fully paid, and when the IRS formally records the amount calculated to be due. Notification to the taxpayer usually follows within 60 days of the assessment. See Code section 6303. The three-year limitations period on assessment, which is measured from the date of filing of the return, serves to assure taxpayers that the government will not, without the taxpayer's consent, begin or keep open an inquiry into the accuracy of the return many years after the return has been filed.
The question whether § 6659, which provides that additions shall be assessed "in the same manner as taxes," requires assessment of § 6651(a) (3) additions within the three-year limitations period, turns on Congress' intent in promulgating the two provisions. The provisions were enacted at different times: section 6659 as part of the 1954 Code, ch. 736, 68A Stat. 827, and § 6651(a) (3) as part of the Tax Reform Act of 1969, Pub. L. 91-172, § 943(a), 83 Stat. 727. While § 6659 lays down a general rule regarding the treatment of additions, § 6651(a) (3) was enacted in response to a specific Congressional concern about taxpayers' increasing failure to pay taxes or assessed deficiencies on time. As the accompanying Senate Report stated:
"Since the current cost of borrowing money is substantially in excess of the 6 percent interest rate provided by the Code, it is to the advantage of taxpayers in many cases to file a return on the due date but not to pay the tax shown as owing on the return. For the period the tax remains unpaid, the taxpayer is, in effect, borrowing from the government the amount of the tax at a 6 percent rate of interest.
Similar borrowings can result from failure to pay deficiencies . . . ."
See S. Rep. No. 91-552, 91st Cong., 1st Sess. (1969), reprinted in 2 U.S. Code Cong. & Adm. News (1969), 2027, 2336. See 4 B. BITTKER, FEDERAL TAXATION OF INCOME, ESTATES AND GIFTS ("BITTKER"), para. 114.3.2, at 114-13 (1981). The practical effect of the § 6651(a) (3) additions is simply to raise the interest rate on unpaid deficiencies.
The government's argument that § 6651(a) (3) cannot be given full effect if the IRS is required separately to assess these additions within three years from the filing of the tax return is persuasive. If Krasnow's position were accepted, the additions could accrue at most for only 36 months, rather than for the 50-month period contemplated by the statute; and, as the government points out, the accrual period would normally be much shorter than that, because the notice and demand for unpaid taxes is itself often made toward the end of the three-year limitations period. Krasnow attempts to meet this objection by arguing that additions could be collected for 50 months if the taxpayer agreed to extend the assessment period, see Code section 6501(c) (4). He advances no plausible reason why a taxpayer would agree to such an extension, however, and it is in any case far-fetched to assume that Congress provided for a 50-month accrual period only on the chance that the statutory limitations period might be voluntarily extended by some taxpayers.
Furthermore, the conclusion that separate assessment of § 6651(a) (3) additions is unnecessary would by no means drain § 6659, upon which Krasnow relies, of all meaning. Section 6659 assures (for example) that the summary procedures available for seizure of the taxpayer's property to satisfy tax debts may be employed for collection of any additions, penalties or interest owing as well. See Code section 6331. Moreover, there may well be circumstances in which separate assessment of additions other than those at issue here would be necessary. For example, when a taxpayer files late but remits the correct amount with his late return, and all that remains owing is interest and the penalty for late filing, the government would be entitled to begin summary collection proceedings by assessing the interest and applicable additions and sending a notice and demand for payment.
Section 6659 cannot be read as requiring assessment in the case at bar, however, when to do so would frustrate Congress' plain intent in enacting § 6651(a) (3). "Normally, a statute must, if reasonably possible, be construed in a way that will give force and effect to each of its provisions rather than render some of them meaningless." Allen Oil Co. Inc. v. Commissioner of Internal Revenue, 614 F.2d 336, 339 (2d Cir. 1980).
Finally, Krasnow has pointed to no particular harm that taxpayers suffer by not receiving a separate assessment of § 6651(a) (3) additions within the limitations period. As the Sixth Circuit has pointed out in another context, "the judgment whether to impose the tax [additions] simply involves calendar dates and mathematical computations . . . . These taxes are quite different from the factual and legal judgments which normally are in contention when a deficiency notice is issued (e.g., whether items are deductible? what is income? etc.)." Johnston v. Commissioner of Internal Revenue, 429 F.2d 804, 807 (6th Cir. 1970).
The taxpayer is protected from stale claims by the requirement of a timely assessment of the tax deficiency. The chief advantage to taxpayers that would result from applying a separate statute of limitations to these additions -- namely, the shortening of the accrual period from 50 to 36 months -- is not one that Congress appears to have intended.
The government's motion for summary judgment is granted, and the defendant's cross-motion for ...