Question: How far will the Internal Revenue Service go to collect 48 cents?

Answer: Not as far as a Washington lawyer will go to hold onto it.

That sum, plus alleged penalties and interest, propelled the tax agency and attorney Jerome J. Norris into the U.S. Tax Court recently. And Norris, a Potomac resident who practices downtown, emerged with the money.

It's not clear from the court record why the IRS got so exercised over 48 cents, and why it piled on, as the court seemed to think it was doing, with penalties and interest. The agency, which had notified Norris it intended to "levy" (seize) his assets to satisfy the debt, denied in court that it was prompted by the 48 cents.

But the heart of the case appears to have been Norris's "rounding down" of the amount he agreed to pay in an installment agreement to satisfy a tax debt from 2002.

The issue arose after Norris, an intellectual-property lawyer, filed his 2002 return showing a balance due of $51,349, but he sent in only $26,305, the court said. That left an unpaid balance of $25,044.

Shortly thereafter, Norris and the IRS reached an agreement under which he was to make two payments of $13,348.24 each, one in June of 2003, the other in September of that year, to settle the outstanding debt.

Norris sent the payments in on time, but lopped off the 24 cents from each, making them an even $13,348. He was, he argued to the Tax Court, following a permitted rounding method.

Rounding down to the next lower dollar when there is less than 50 cents to the right of the decimal, and rounding up to the next highest dollar when there is 50 cents or more, is common practice among tax practitioners.

The IRS declined to comment last week, but the court seemed to accept Norris's rounding argument. "The only evidence presented shows that the petitioner's liability has been satisfied," it said.

In March of 2004, the IRS sent him a notice that he still had an outstanding balance of 48 cents for 2002. In addition, the agency said, he owed $175.44 as a late payment penalty and $264.08 in interest, for a total of a nice, even $440.

After fruitless negotiations, in which Norris argued that he had paid his obligation in full and that the notice represented "a colossal blunder," the IRS in September 2004 informed him it intended to enforce a levy to collect the money.

Norris went to court, representing himself.

Norris argued that the IRS's demand for $440 stemmed from the "phantom" 48 cents, which he argued had effectively been paid because of the allowable rounding.

The IRS replied that the 48 cents was not the cause of the deficiency, and that even if Norris had paid it he would still have owed $439.52 in penalties and interest because they would have accrued on the unpaid $25,044.

The Tax Court rolled its eyes at the dispute, but nevertheless gave it the same solemn treatment it accords disputes over millions of dollars.

"This case presents a controversy over de minimis amounts in which litigants persist in order to maintain principles they hold firm," the court said in an unsigned opinion. Noting that even though the $440 represented less than 1 percent of the original tax debt, the court said, "We must still decide this dispute even though the cost of the parties' pursuit of their principles will far exceed the amount in dispute."

Norris, reached at his office Friday, seconded that.

Though he won in court, his victory was "a Pyrrhic one, because it took time -- and it was totally unnecessary," he said. "I tried to convince them" of that in meetings before trial, he recalled, but "I guess they need the money."

"But they didn't get it," he added.

The court quickly concluded that trying to collect the 48 cents and the $439.52 was "an abuse of discretion" by the IRS.

It found that the IRS "presented no evidence concerning that calculation or timing of the disputed penalties and interest." The only thing that agency produced was "an abbreviated statement" that had been sent to Norris showing the penalties and interest but "without any specific underlying assessment data."

Further, "this document is not a statement of account and appears to be an unofficial document," the court said.

In fact, the total Norris had agreed to pay exceeded his original tax liability, "indicating that the agreed payments did include penalties and/or interest," the court reasoned. Indeed, the IRS "has not presented any evidence to refute [Norris's] testimony or to support the amounts in dispute," it said.

Beyond the absurdity of the IRS's position, the case raises important questions, one specific to taxes, the other broader.

First, the IRS appeared to argue in court that further penalties and interest can accrue even after the agency and a taxpayer agree on a schedule of payments designed to pay off a tax liability, and even if the payments are made on time and in full.

New interest and penalties can of course arise if the taxpayer doesn't adhere to the installment schedule, but in this case the IRS apparently argued that Norris would have owed the penalties and interest even if he had paid the 48 cents. The agency said the penalties and interest were based on the original $25,044 tax debt, not the 48 cents.

But if the agency in fact made that argument, either it is incorrect, and the IRS misstated the reason for the $439.52 charge, or it's correct and suggests that taxpayers on installment agreements cannot be sure they will not be pursued for more money even if they live up to their end of the deal. Neither alternative inspires confidence in the IRS.

The broader issue is one that extends beyond the IRS into government generally and the private sector as well. It is the power and willingness of agencies and companies to demand modest-sized payments from taxpayers and customers, knowing that the target either lacks the resources to fight or will find it cheaper to pay than to go to court.

Norris sees his case that way.

"They understand the nuisance value of it is such that you'll fold and pay," he said. "I knew that, too. I was just annoyed by it. It was a principle."

"I think the IRS is hustling a lot of taxpayers who are not savvy on this and are extorting money, really," he added.

Plus, Norris said, "I have been targeted for auditing for the first time in my life," something he sees as "retaliation" for "challenging and prevailing against the IRS."

If you've ever wondered where your income stacks up against your competitors' (i.e., everyone else in the country), the Congress's Joint Economic Committee, using IRS data, is happy to tell you, at least for 2003.

That year, if your adjusted gross income was $295,495 or more, you were in the top 1 percent of taxpayers. At $130,080, you were in the top 5 percent; at $94,891, the top 10 percent; at $57,343, the top 25 percent; and at $29,019, the top half.

The top half paid 96.54 percent of all federal income taxes that year, something Republicans tend to view as an outrageous distribution of taxes and Democrats as an outrageous distribution of income.

The IRS notes that recent changes in the law make it less painful for victims of Hurricane Katrina to tap their retirement accounts to help get themselves back on their feet.

Withdrawals from such accounts as IRAs and 401(k)s will not be subject to the 10 percent early withdrawal penalty, and, while the money will be taxable at regular rates, the income can be spread over three years. Further, if the taxpayer "recontributes" the amount to the original account or another eligible one within the three years, it will be treated as a nontaxable rollover.

To qualify for these benefits, the withdrawal must have been taken on or after Aug. 25 of this year and before Jan. 1, 2007, and the account holder must be someone whose principal residence was in the Hurricane Katrina disaster area on Aug. 28, 2005, and who suffered an economic loss from the storm. The benefit applies to withdrawals totaling not more than $100,000 for one person.