Steven Yari v. Commissioner, 143 T.C. No. 7

Background

Petitioner used a Roth IRA to hold an S‑corporation (Faryar, Inc.), which received management fees from related entities, producing large untaxed income because the IRA was the S‑corp shareholder.
Petitioner filed a joint 2004 return that did not disclose participation in the listed Roth‑IRA transaction; the IRS later determined $482,912 should have been included in 2004 income, increasing tax liability.
Petitioner filed amended 2004 returns during the audit process that reported the $482,912 and later claimed an NOL carryback; the Court entered stipulated deficiency decisions reflecting those adjustments.
The IRS assessed a section 6707A penalty of $100,000 (for failure to disclose a listed transaction) for 2004 and issued a notice of intent to levy; petitioner timely requested a CDP hearing.
While the CDP hearing was pending, Congress (SBJA 2010) changed the method for calculating 6707A penalties retroactively for penalties assessed after 2006; petitioner asked the IRS to recalculate the penalty using tax shown on later amended returns, but the IRS refused and issued a Notice of Determination sustaining the collection action.
Petitioner conceded liability for a 6707A penalty but argued the penalty should be calculated using the tax shown on the subsequent amended returns (yielding the $5,000 statutory minimum); the Tax Court reviewed the calculation de novo and addressed jurisdiction under section 6330.

Issues

Issue	Plaintiff's Argument (Yari)	Defendant's Argument (Commissioner)	Held
What tax amount controls the 6707A listed‑transaction penalty calculation?	Use tax shown on subsequent amended returns (actual tax due); penalty should reflect actual tax savings, producing the $5,000 minimum.	Use tax shown on the return that gave rise to the disclosure obligation (the originally filed return); penalty is based on that tax, so $100,000 stands.	Penalty is calculated by reference to the tax shown on the return that triggered the disclosure obligation (original return); decision for respondent.
Does Tax Court have jurisdiction to review the 6707A penalty in a CDP proceeding?	Implicit: CDP review should permit redetermination of penalty amount.	Same: statute as amended allows review of collection actions even when underlying liability is a penalty not subject to deficiency jurisdiction.	Court has jurisdiction under sec. 6330 to redetermine the amount of the penalty in the CDP context.
Standard of review for the penalty‑amount determination in CDP?	De novo review because underlying liability (penalty amount) is properly at issue.	Same.	Court applies de novo review.
Whether legislative history or absurdity doctrine requires calculating penalty by reference to actual tax due rather than tax shown on original return	Legislative history (Blue Book, Congressional concerns about harshness) supports tying penalty to tax savings and thus to actual tax; otherwise result can be harsh.	Plain statutory text links penalty to “decrease in tax shown on the return”; Congress chose that language and did not adopt provisions tying penalty to tax actually required to be shown.	Statute is unambiguous: the penalty is based on the tax shown on the return giving rise to the disclosure obligation; legislative history does not overcome the plain meaning.

Key Cases Cited

Arbaugh v. Y & H Corp., 546 U.S. 500 (statutory‑jurisdictional limitations cannot be waived by parties)
Adkison v. Commissioner, 592 F.3d 1050 (9th Cir. 2010) (describing Tax Court’s limited jurisdiction)
Smith v. Commissioner, 133 T.C. 424 (Tax Ct. 2009) (no deficiency jurisdiction to redetermine section 6707A penalty)
Sego v. Commissioner, 114 T.C. 604 (Tax Ct. 2000) (standard of review in CDP cases)
Goza v. Commissioner, 114 T.C. 176 (Tax Ct. 2000) (CDP review framework)
Reves v. Ernst & Young, 507 U.S. 170 (plain statutory language controls absent clear contrary intent)
FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (statutes interpreted in context of overall statutory scheme)