The plaintiff, a C corporation, filed a return for the year ending Aug. 31, 2008, reflecting a tax liability of "0.00." Based on the 2008 return, the plaintiff did not make any estimated tax payments for its 2009 tax year based on the exemption contained in I.R.C. Sec. 6655(d)(1)(B)(ii) which says that estimated tax penalty is 100 percent of the tax shown on the return for the preceding tax year (which would be zero). However, in 2011, the IRS levied a penalty of $94,671.53 plus interest of $301.34 (which ultimately grew to $1,284.70) for failure to pay estimated tax for the plaintiff's 2009 tax year. The matter ultimately went to an IRS appeals conference which did not resolve the matter. The plaintiff paid the tax and sued for refund. The IRS claimed that because the plaintiff did not file a tax return for tax year 2008 that showed a liability for tax, the plaintiff could not rely on the safe-harbor of I.R.C. Sec. 6655(d)(1)(B)(ii). The statutory language immediately after the safe-harbor states as follows: "Clause (ii) shall not apply if the...corporation did not file a return for such preceding taxable year showing a liability for tax." The plaintiff claimed that its 2008 return was a return that showed a liability for tax and that liability was zero. The IRS claimed that the return did not show any liability for tax which eliminated the safe-harbor. The court, based on a plain reading of the statute, agreed with the IRS. The court noted that S corporations and individuals need not file a return to take advantage of the safe-harbor, which indicated that the Congress intended to treat C corporations differently. The court reached this conclusion even though I.R.C. Sec. 6655(g)'s definition of "tax" for this Code section could result in "zero" meeting the definition, and the regulations do not provide otherwise. IRS has never issued any formal or informal guidance on the definition of "tax" for this purpose, but has taken this position with respect to C corporations in litigation. Nevertheless, the court gave the IRS position deference. As a result of the court's ruling, had the plaintiff's 2008 return showed a tax liability of one cent, the estimated tax penalty would have been zero. Cal Pure Pistachios, Inc. v. United States, No. CV 14-5237-DMG (PLAx) (C.D. Cal. Apr. 10, 2015).
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