Generally, a statutory deficiency as defined by section 6211 is to be determined by the court in each deficiency case. Exceptions to this general rule are discussed herein. Jeopardy assessments made prior to the issuance of a statutory notice are not taken into consideration in determining the statutory deficiency. In every deficiency case in which there has been a jeopardy assessment prior to the issuance of the statutory notice, there must be stipulated or provided in the Rule 155 computation, and the court must determine, the deficiency without taking into consideration the jeopardy assessment. If the agreed deficiency upon settlement or upon a Rule 155 computation is in excess of the amount of the jeopardy assessment, the additional deficiency to be assessed must also be determined by the court. If the jeopardy assessment has been paid, in whole or in part, and such payment results in an overpayment of tax or penalty, an overpayment must be stipulated and determined by the court’s decision. If jeopardy assessments were made after the issuance of the statutory notice, the case may be closed as an interim assessment case or as a jeopardy assessment case, with appropriate modification of the forms in Exhibits 35.11.1–141 through 35.11.1–143 and Exhibits 35.11.1–146 through 35.11.1–150.

Prior unpaid assessments, excessive credits claimed for tax withheld or estimated tax payments, and interim assessments must be considered in drafting the settlement or Rule 155 documents. In some instances, these documents must include a determination of the deficiency to be assessed or the deficiency to be paid to provide a basis upon which the Service may assess and/or collect the tax due. Some of these exceptional circumstances are hereinafter discussed. The attorney must determine whether the amount of the redetermined or agreed deficiency in tax or penalty is in excess of the amount of tax or penalty determined in the statutory notice. If so, an amendment to answer or stipulation must be filed to put the additional amount in issue.

For special rules applicable when a jeopardy or termination assessment has been made against a possessor of cash using the presumptions of section 6867, see CCDM 35.2.1.1.4.1.

An interim assessment is an assessment (other than a jeopardy assessment) of tax or penalty made after issuance of the statutory notice. These assessments are usually for amounts paid by the taxpayer on the deficiency determined by the Service. If the paid assessment results in an overpayment, the case is to be closed as an overpayment case. If there is a net deficiency after taking into consideration the paid interim assessment, however, the case is to be closed as an interim assessment case. In this instance, the settlement or Rule 155 documents should determine the deficiency without taking into consideration the assessment made subsequent to the mailing of the statutory notice. The amount of the subsequent assessment, with an indication of whether such assessment is paid or unpaid, in whole or in part, and the deficiency remaining to be assessed, should be shown in the settlement or Rule 155 documents. The waiver paragraph of the stipulation and combined stipulation and decision documents must be carefully drafted to prevent any subsequent misunderstanding that collection will include the deficiency (to be assessed) as well as the unpaid portion of the interim assessment. See Exhibit 35.11.1–141.

Remittances which have not been assessed, such as advance payments made after the issuance of a statutory notice of deficiency, voluntary remittances in the nature of a cash bond, excess collection, or similar accounts on the records of the Service should be taken into consideration in closing a case by settlement stipulation or by a Rule 155 computation. Such amounts do not have to be assessed except in Joint Committee cases. See CCDM 35.5.4. The transcript of petitioner’s account should usually be checked to determine the status of the account before preparing and filing a decision document with the Tax Court. Under Rev. Proc. 84–58, 1984–2 C.B. 501, post-statutory notice of deficiency remittances will be treated as payments of tax, unless specifically instructed otherwise by the taxpayer. Such payments will be posted to the taxpayer’s account as soon as received and ordinarily will not be assessed until after the decision is entered. Any posted payment will stop the running of interest on the deficiency and will be treated as any other assessed amount in that interest will be paid on any overpayment resulting therefrom, from the date the account was posted. No interest will be paid on amounts posted as a cash bond. If at the time of preparing the decision documents there is a net deficiency and the post-statutory notice payment has been assessed, use the interim assessment forms, Exhibit 35.11.1–141 and 35.11.1–142. If there is a net deficiency and the post-statutory notice payment has not been assessed, use the interim payment form, Exhibit 35.11.1–143. If there is an overpayment resulting from an assessed payment, use the appropriate overpayment form, Exhibits 35.11.1–129 through 35.11.1–137. If there is a net overpayment and the payment has not been assessed, use the unassessed payment forms, Exhibits 35.11.1–144 and 35.11.1–145.

A cash bond is not a payment of tax. The Tax Court does not have jurisdiction under section 6512(b)(2) to find an overpayment resulting from a deposit in the nature of a cash bond in excess of the deficiency. Accordingly, any bond case should be treated as an ordinary deficiency case, i.e. , disregard the bond in determining whether there is an overpayment and in preparing the decision document. The bond should, however, be referenced in the stipulation filed concurrently with the decision to acknowledge that a remittance was made.

Administrative difficulties have arisen when decisions, based on settlement stipulations or Rule 155 computations, do not take into consideration previous assessments (except jeopardy assessments) which have not been paid in full. Such unpaid assessments are usually nonpayment of original or returned tax. When this factor is involved in either a settlement or an agreed Rule 155 computation, there should be a clear and definite understanding in writing with the petitioner that the unpaid assessment is due and is to be paid in addition to the agreed upon deficiency. A "best practice" is to obtain payment of the unpaid assessment prior to the execution of the stipulation or the filing of the agreed Rule 155 computation. If this is not feasible, the form of the stipulation or the Rule 155 computation to which the petitioner agrees should clearly show the amount of the assessment which is due and unpaid. See Exhibits 35.11.1–151 and 35.11.1–200. In cases involving a substantial amount of unpaid assessment of original tax, and payment thereof will not be made prior to filing the settlement stipulation or agreed Rule 155 computation, it may be advisable to secure a collateral agreement signed by the taxpayer (not just the attorney) that the unpaid original tax is due. Such collateral agreement should be clear and unambiguous that the taxpayer owes not only the statutory deficiency stipulated, but also the unpaid assessed tax. For Rule155 cases in which the petitioner does not agree with the respondent’s computation, any unpaid assessment of original tax should be clearly shown in the computation and the court’s decision. See Exhibit 35.11.1–200.

Tax withheld and estimated tax payments are not assessed when the returned tax is assessed. Estimated tax payments are credited and given an account number when actually made. Withheld tax is not specifically assessed as to the taxpayer whose tax is withheld, but is assessed in connection with payment by the taxpayer’s employer. A statutory deficiency is determined without regard to tax withheld and estimated tax payments. When the taxpayer has claimed a credit on the return for tax withheld or estimated tax payments in amounts exceeding that actually withheld or paid, the decision document should reflect both the deficiency in payment and the statutory deficiency. Therefore, the decision of the court will form a basis upon which administrative officials can assess and collect the unpaid portions of the taxpayer’s tax liability for the year involved. If the terms of a settlement or a Rule 155 computation result in a statutory deficiency as well as an overpayment of tax by reason of tax withheld and/or estimated tax payments, the stipulation or Rule 155 and decision documents should provide for both the statutory deficiency and the overpayment. Where the total net tax paid, including the tax withheld and estimated tax payments, equals the settled or Rule 155 tax liability so that there is no additional tax to be collected, but there is additional tax to be assessed, the usual form of determining a deficiency may be used with an additional clause indicating the deficiency has been paid but not assessed. If the statutory deficiency has been assessed after the mailing of the statutory notice, the case should be closed as an interim assessment case.

Field Counsel. A recomputation of the tax liability in a case is necessary when the court’s opinion requires it under Rule 155. It may also be necessary in settled cases. In some instances, a computation, or a partial computation, may be necessary in the preparation and trial of a case. For computations, submit a request to Appeals via Form 1734. Transmit the Form 1734 to Appeals with a copy of the court’s opinion, Area Counsel’s decision, as appropriate, and the administrative file. It is unnecessary to send the legal file. Set forth on Form 1734 the specific adjustments to be made to the statutory notice computation.

Associate offices: A computation of the tax liability in cases handled by an Associate office may be necessary under certain circumstances. Primarily, these will involve cases on remand from a court of appeals or the Supreme Court. In most circumstances, the case should be transferred to Field Counsel for further proceedings under a mandate from a reviewing court. In the rare situation where the Associate office is handling a case on remand, the request for the computation should be made through the assistance of the Field Counsel office in which the case originated. A memorandum should be prepared by the Associate office attorney assgined to the case requesting Field Counsel to obtain a recomputation. This memorandum will set forth the adjustments to be made in the prior computation under Rule 155 or in the statutory notice, as appropriate. If the computation is pursuant to remand, a copy of the court of appeals or Supreme court opinion is to be forwarded with the request. The memorandum should set forth the interpretation of the opinion as to the adjustments to be made in the recomputation, and any admissions, concessions, etc., made by the parties. The administrative file will be forwarded with the request memorandum if the file is in the possession of the Associate office attorney; otherwise Field Counsel will be asked to forward the file to Appeals. The legal file should not be forwarded to the Appeals office.

For tried cases, all of the issues raised as to the amount of transferee liability and the interest on such liability should be settled by the court’s opinion. In this event, the computation would follow the court’s holding in these matters. For settled cases, the settlement stipulation should determine the amount of the liability as well as the beginning date for the running of interest on such liability.

The terminology used in transferee cases, designating the fiduciary capacity of the petitioner in the answer or other pleading, will also be used in the Rule 155 computation and the settlement stipulation.