Docket Nos. 23881-81 23882-81 23883-81.
Geoffrey J. O'Connor, for the petitioners. Leslie J. Spiegel, for the respondent.
HELD, the amount of an appeal bond under I.R.C. sec. 7485 may not be reduced by the amount of any pending claims for refund. HELD FURTHER, ‘stripped‘ United States obligations may not be used as collateral in lieu of a surety bond under 31 U.S.C. sec. 9303 (1982). Geoffrey J. O'Connor, for the petitioners. Leslie J. Spiegel, for the respondent.
On August 24, 1987, decisions were entered in these cases pursuant to our opinion filed on March 27, 1986. Subsequently, petitioners filed a timely motion to vacate decisions which was denied on November 3, 1987. Petitioners have moved for an order fixing the amount of an appeal bond pursuant to Rule 192 and section 7485. Respondent requests us to fix the amount of the bond at $5,544,933. Petitioners do not dispute respondent's request as far as it goes, but claim that the amount of the bond should be reduced by $2,950,502 to reflect certain claims for income tax refunds previously filed by petitioners with respondent. In addition, petitioners seek to use ‘stripped‘ U.S. Government bonds as collateral in lieu of a surety bond and ask us to require respondent to accept, in lieu of such bond, a trust arrangement for certain bonds and Treasury bills.
Section 7485 requires a bond ‘to protect the United States during the pendency of an appeal so that when the appeal becomes final, there will be adequate security for collection of the amounts finally determined to be owed. ‘ Estate of Kahn v. Commissioner, 60 T.C. 964, 967 (1973). Our customary practice is to set the appeal bond at the amount of the deficiency for which review is sought, plus additions to tax and interest running from the date the return was filed to a date 2- 1/2 years after the appeal is required to be filed, limited of course by the statutory cap of twice the deficiency. Barnes Theater Ticket Service, Inc. v. Commissioner, 50 T.C. 28, 29 (1968). Any departure from this customary practice ‘must provide a means whereby the Internal Revenue Service is certain that it can collect the approved deficiency.‘ 50 T.C. at 29.
Reducing the amount of the bond because petitioners have claims for refund pending with respondent would not be in keeping with the requirement of certainty. While it may well be that petitioners' claims, which are based on a step up in basis under section 1015 for gift taxes paid (which were required by our prior decisions, Poinier, Transferee v. Commissioner, 86 T.C. 478 (1986)), are meritorious, we cannot be certain that that is the case. The right to such refunds does not flow automatically from our prior decisions. Respondent would still be entitled to audit the returns for the years covered by the claims for refund in order to determine the correctness of the reported costs and sales proceeds of the securities whose basis would be stepped up, whether there might be other items of omitted income for the years involved and whether the claimed deductions for those years are allowable. Lewis v. Reynolds, 284 U.S. 281 (1932). Furthermore, respondent would appear to be entitled to offset against any refunds otherwise due petitioners, the amount of other taxes or other amounts owed by petitioners to the Government, the collection of which is not barred by the statute of limitations. Section 6402. See 28 U.S.C. secs. 1346(c) and 1503; Cherry Cotton Mills, Inc. v. United States, 168 Ct.Cl. 86, 88-89, 327 U.S. 536 (1946); Missouri Pacific Railroad v. United States, 338 F.2d 668, 670 (Ct. Cl. 1964); Luther v. United States, 225 F.2d 495, 498 (10th Cir. 1954). Finally, there may be other grounds upon which respondent could challenge the validity of petitioners' refund claims. Under the foregoing circumstances, we hold that the amount for which an appeal bond is required in this case may not be reduced by the amount of the claimed refunds of income taxes.