Computations
Obtaining computations prior to the time a compromise or
concession is approved is most desirable. The results of a computation
can, on occasion, be surprising -- what you may think is a 50% Government
concession may turn out to be a 90% Government concession because of the
vagaries of the computation, limitations kicking in, etc.
A relatively easy way to approach this, particularly in cases where the
taxpayer is a large corporation or a substantial amount is at issue, is to
ask taxpayer's counsel to submit a computation together with the offer.
Or, if an unsolicited offer is received, and it is worthy of serious
consideration, this request can be made at that time. The taxpayer's
computation should then be checked either by the Service or by the Tax
Division's recomputation specialist.
Please bear in mind that, while the Trial Attorney may not be
responsible for the arithmetic involved in a complex computation, the
Trial Attorney is responsible for ensuring that the computation is
conceptually sound and eyeballing it to ascertain that it is reasonably
correct. This is true, also, of computations prepared by Government
personnel, which still require review. For example, there have been
instances in which an agent, calculating an overpayment in an estate tax
case, has picked up, instead of the figure for the gross estate as
determined on audit, the figure for the taxable estate, and then proceeded
to deduct a second time the amount allowable in going from the gross
estate to the taxable estate. Unless attention is paid to the correctness
of the computations, settlements which appear greatly to the Government's
best interests, when described in terms of litigation hazards, may prove
greatly to the Government's detriment when the check is cut.
Be aware that there can be hidden variance problems which can be
injected into a case in the course of a computation process. It is
possible that a well-informed person preparing a recomputation may
perceive issues in making the computation (whether pursuant to settlement
or judgment) which had not previously been addressed. If the case were
litigated, and the Government won, of course the taxpayer could not
recover with respect to an issue not raised in the complaint or claim for
refund. Similarly, if we lost, the taxpayer could not prevail on an issue
which had not been involved in the litigation. Accordingly, recomputations
must be scrutinized to be sure that they do not address issues that the
taxpayer has not raised in its refund claim or suit.
