Charles W. King v. Commissioner of Internal Revenue

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 15‐2439
C HARLES W. KING ,
Petitioner‐Appellee,
v.
C OMMISSIONER OF INTERNAL R EVENUE ,
Respondent‐Appellant.
____________________
Appeal from the United States Tax Court.
No. 6374‐11L — Elizabeth Crewson Paris, Judge.
____________________
A RGUED MAY 27, 2016 — D ECIDED J ULY 20, 2016
____________________
Before P OSNER and FLAUM, Circuit Judges, and A LONSO,
District Judge. *
P OSNER , Circuit Judge. The late Charles King was a lawyer
who for several years had failed to pay his quarterly payroll
taxes (employment taxes that an employer pays directly to
the government). After the Internal Revenue Service notified
King of his delinquency he asked permission to pay his
* Of the Northern District of Illinois, sitting by designation.

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2 No. 15‐2439
overdue payroll taxes in installments, and the IRS replied
that it would be “happy to honor [his] request for an in‐
stallment payment plan.” But after formally assessing the
taxes and penalties that King owed, as well as the interest on
those taxes, the IRS told him that he’d have to provide cer‐
tain additional financial information before his eligibility for
an installment plan could be determined. Eventually the IRS
decided that King’s income and assets were too high to justi‐
fy an installment program; he had had enough income and
assets to pay the payroll taxes when they were due, together
with any penalties and interest that had accrued by that
date.
He paid the taxes in October 2011 but requested abate‐
ment of (that is, not having to pay) of interest that had ac‐
crued after March 5, 2009, the date on which the IRS had told
him it would honor his request for an installment payment
plan. He argued that had the IRS informed him from the
outset that he would not be allowed an installment plan, he
would have paid the payroll taxes sooner and as a result
would have owed less or maybe no interest for having de‐
layed paying the taxes.
The IRS turned him down. Although 26 U.S.C. § 6404(a)
allows abatement of “the unpaid portion of the assessment
of any tax or any liability in respect thereof, which—(1) is
excessive in amount, or (2) is assessed after the expiration of
the period of limitation properly applicable thereto, or (3) is
erroneously or illegally assessed,” the Service told King that
the interest he’d been charged was “not exces[s]ive[,] having
been calculated according to IDRS [acronym for “Integrated
Data Retrieval System”, a computer system used by the IRS]
as per usual and customary changes in governing interest

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No. 15‐2439 3
rate.” The Service added that King hadn’t said it was exces‐
sive, and also that it had been timely assessed and “was not
erroneously or illegally assessed.” Oddly, the precise
amount of interest King sought to abate is not in the appel‐
late record. The total interest that King owed and ultimately
paid, including but not limited to the amount he had sought
to be abated, was about $6,300, of which $500 is estimated to
be the amount of interest that the Tax Court was ordering
abated.
Other provisions of 26 U.S.C. § 6404, besides subsection
(a), provide other grounds for abatement—notably (e)
(“abatement of interest attributable to unreasonable errors
and delays by Internal Revenue Service”), but (e) doesn’t
apply to payroll taxes. Scanlon White, Inc. v. Commissioner,
472 F.3d 1173, 1176–77 (10th Cir. 2006); see also 26 C.F.R.
§ 301.6404–2(a)(1)(i), Treas. Reg. § 301.6404–2(a)(1)(i).
In his suit for abatement, King asked the Tax Court to re‐
view the IRS’s rejection of his claim, arguing that the interest
it had charged was excessive. The court conducted a trial at
the conclusion of which it ruled that the Internal Revenue
Service’s authority to abate interest that is “excessive in
amount” (the ground of abatement in section 6404(a)(1) of
the Internal Revenue Code) must incorporate “a concept of
unfairness under all of the facts and circumstances” (quoting
Law Offices of Michael B.L. Hepps v. Commissioner, T.C. Memo.
2005‐138, at *10), and that the IRS’s “failure to communicate
to [King] the deficiencies of his proposed installment agree‐
ment was unfair to [him] under all the facts and circum‐
stances.” The interest that had accrued to the government as
a result of this unfairness was therefore “excessive,” and the

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4 No. 15‐2439
government’s denial of King’s request to abate the excessive
interest was “an abuse of discretion.”
The result was not a complete victory for King, because
the Tax Court found him entitled to abatement only of inter‐
est that had accrued during the two‐month period after the
IRS had assessed the amount King owed, after which King
“knew or should have known the requirements for submit‐
ting an installment agreement.”
Despite the small cost of King’s victory to the federal fisc,
the Internal Revenue Service appealed. King died shortly af‐
ter the appeal was filed. We asked his widow whether she
wanted to participate in the appeal (whether in person or by
a lawyer), but she did not respond to our invitation; and so
the only brief filed in the appeal was filed by the IRS and the
only oral argument was by a lawyer from the Justice De‐
partment’s Tax Division. The status report mentioned later
in this opinion suggests that the widow was interested in the
money but didn’t want to pay for a lawyer or proceed pro
se. She may have thought that since her husband had pre‐
vailed in the Tax Court, our court was likely to affirm and in
that event she would get to keep the interest that the suit
sought abatement of without having incurred any expense.
There are also indications that, distraught by her husband’s
death, which had been sudden, she felt overwhelmed by
having to deal with the Internal Revenue Service.
But the consequence is that there is no appellee, and an
appeal without an appellee is problematic, so we must con‐
sider carefully whether we have jurisdiction.
The IRS learned of King’s death on September 8, 2015,
and before the end of the day wrote the clerk of the Seventh

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No. 15‐2439 5
Circuit to tell us the news. His appeal had been docketed
two months earlier. A lawyer, who had represented himself
in the Tax Court, King presumably would have continued to
represent himself in our court had he lived.
After learning of King’s death we asked the IRS for a sta‐
tus report “regarding any information it has received about
whether an estate has been opened for the appellee and how
this appeal should proceed.” The Service responded that no
personal representative had been appointed for the estate,
but that the appeal had not become moot because King’s
widow still had an interest in the refund even if she chose
not to participate in the appeal. She could complete IRS
Form 1310 (“Statement of Person Claiming Refund Due a
Deceased Taxpayer”) and submit it to the IRS. The IRS also
said we could appoint someone to be the personal repre‐
sentative of the estate for purposes of the appeal. We asked
King’s widow to respond to the status report, but she never
did, and in March of this year, before the oral argument of
the appeal, we issued an order that given her lack of re‐
sponse the appeal would be submitted for decision without
a brief or oral argument on behalf of the appellee. And so it
was.
The case is not moot. The Internal Revenue Service, the
appellant, does not want to give up, whether to the widow
or anyone else who might make a claim, the interest that
King sought to abate and that the Tax Court ordered the IRS
to abate. The IRS will have to forgo the interest unless it suc‐
ceeds in overturning the Tax Court’s decision. Its claim is
therefore cognizable by this court and the case very much
alive. The consequences of an affirmance are somewhat un‐
certain, but it’s a fair guess that if the Tax Court’s decision

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6 No. 15‐2439
were upheld the widow or some other relative of King, or
perhaps his favorite charity, invoking cy près, would show
up to claim the money. But the important point is that a par‐
ty’s failure to appear cannot be permitted to defeat a valid
claim of the opposing party, which in this case is the Internal
Revenue Service, the appellant.
So we proceed at last to the merits. The Service in our
view was on sound ground in refusing to abate (i.e., forgive)
interest King owed the government on his overdue payroll
taxes. There are three reasons for our conclusion. The first is
the vagueness of “unfairness” as a criterion for abatement;
the word is an invitation to arbitrary, protracted, and incon‐
clusive litigation. Second, extending as it does an invitation
to taxpayers to delay paying taxes, the nebulous standard of
“unfairness” could result in a significant loss of tax reve‐
nues. And third, we’ll see that the Tax Court’s approach is
inconsistent with a valid regulation promulgated by the
Treasury Department.
Elaborating the first point briefly, we note the embroi‐
dery that the Tax Court, quoting from its earlier opinion in
H & H Trim & Upholstery Co. v. Commissioner, T.C. Memo.
2003‐9, at *2, wove into its opinion in the present case on the
basis of its touchstone of “unfairness under all of the facts
and circumstances”—its belief that the “word ‘excessive’
takes into account the concept of what is fair, or more ap‐
propriate here, unfair,” and its approving references to a dic‐
tionary’s definition of “excessive” as “whatever notably ex‐
ceeds the reasonable, usual, proper, necessary, just, or en‐
durable” (what on earth is “endurable” doing in this list?)
and to “just” as meaning “equitable” and “equitable” as
meaning “fair.” This terminological potpourri can provide

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No. 15‐2439 7
no guidance to taxpayers, their advisers, IRS agents, or the
Tax Court. It’s a monkey wrench tossed into the machinery
of tax collection.
Regarding our third reason for rejecting the Tax Court’s
analysis, a tax regulation entitled “Abatements,” 26 C.F.R.
§ 301.6404–1(a), Treas. Reg. § 301.6404–1(a), while generally
tracking 26 U.S.C. § 6404(a), restates “excessive in amount”
as “in excess of the correct tax liability.” The restatement
eliminates the vagueness of “excessive” and leaves no room
for basing interest abatements on “unfairness.” The Tax
Court’s opinion dismissed the regulation as “less‐than‐
illuminating” and insufficient to overcome what it deemed
the “unambiguous, plain meaning of ‘excessive.’” But as
construed by the Tax Court “excessive” is vague because it
incorporates the nebulous concept of “unfairness.” See Chev‐
ron U.S.A. Inc. v. National Resources Defense Council, Inc., 467
U.S. 837, 842–43 (1984). “In excess of the correct tax liability”
is both precise and a plausible, as well as a sensible, interpre‐
tation of “excessive,” an ambiguous statutory term. “In ex‐
cess of the correct tax liability” makes clear that the business
of the federal taxing authorities is numbers, not kindliness,
generosity, or sensitivity.
The Supreme Court has said that “filling gaps in the In‐
ternal Revenue Code plainly requires the Treasury Depart‐
ment to make interpretive choices for statutory implementa‐
tion at least as complex as the ones other agencies must
make in administering their statutes.” Mayo Foundation for
Medical Education & Research v. United States, 562 U.S. 44, 56
(2011). The interpretive choice in this case is found in the
regulation defining the statutory term “excessive in amount”
to mean “in excess of the correct tax liability.” 26 C.F.R.

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8 No. 15‐2439
§ 301.6404–1(a), Treas. Reg. § 301.6404–1(a). As there is no
indication that the IRS is misinterpreting its regulation, there
is no need for us to consider the possible inroads that recent
Supreme Court decisions have made into “Auer deference”
(judicial deference to agencies’ interpretations of their own
regulations), inroads discussed for example in Michael P.
Healy, “The Past, Present and Future of Auer Deference:
Mead, Form and Function in Judicial Review of Agency In‐
terpretations of Regulations,” 62 Kansas Law Review 633
(2014).
The judgment of the Tax Court is reversed with instruc‐
tions to dismiss King’s petition.
R EVERSED

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