Beery v. Commissioner ( 2005 )

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
MAY 12 2005
FOR THE TENTH CIRCUIT
PATRICK FISHER
Clerk
JOYCE E. BEERY and JEROME G.
BEERY,
Petitioners-Appellants,
No. 04-9005
v. (T.C. No. 12113-01)
(Tax Court)
COMMISSIONER OF INTERNAL
REVENUE,
Respondent-Appellee.
ORDER AND JUDGMENT *
Before LUCERO , PORFILIO , and BALDOCK , Circuit Judges.
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument.
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
Appellants Joyce and Jerome Beery petition this court for review of a
decision of the United States Tax Court sustaining the assessment of tax
deficiencies and penalties against them for the years of 1998 and 1999 by the
Commissioner of the Internal Revenue Service. Appellants raise five issues in
their two-page opening brief alleging tax court error. As will be shown in detail
below, the appellants’ allegations are premised on misrepresentation or
mischaracterization of the tax court record and misunderstanding of the legal
principles at issue. Consequently, we exercise our jurisdiction under 26 U.S.C.
§ 7482(a)(1) and affirm.
BACKGROUND
Mr. Beery filed a chapter 11 bankruptcy petition in the U.S. Bankruptcy
Court for the District of Kansas on January 16, 1976 (“Kansas Bankruptcy”). 1
The Kansas Bankruptcy was finally closed on December 2, 1993. On September
29, 1987, the trustee in the Kansas Bankruptcy filed Form 1041 income tax
returns (fiduciary income tax return forms) on behalf of the estate for the years
1976-1980 and 1982-1986. A review of these returns reveals that, on some, the
1
The Kansas Bankruptcy was subsequently converted to a chapter 7
liquidation.
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trustee deducted net operating losses (NOLs) from the years 1975 and 1976 on
behalf of the estate. 2
Appellants also attempted to deduct NOLs from 1975 on the joint personal
returns they filed for 1978-1999. The NOLS for 1978-1988 were apparently not
disputed, and it appears that the government failed to audit the appellants’ returns
for some, if not all, of those years. The government did, however, disallow the
NOL deductions claimed in the 1989-1991 tax returns. Appellants challenged this
decision. In 1994, while the case was pending before the tax court, Mr. Beery
filed another chapter 7 bankruptcy petition in the United States Bankruptcy Court
for the District of New Mexico (“New Mexico Bankruptcy”). In 1996, the tax
court in Beery I sustained the government’s determination disallowing the NOL
deductions claimed in the 1989-1991 tax returns. The tax court held that the NOL
from 1975 could not be carried forward to offset income for more than five years
after the loss arose. Beery , 72 T.C.M. (CCH) at 1017-18.
The government also disallowed the NOL deductions claimed by appellants
on the 1992-1994 tax returns and appellants again petitioned the tax court for
2
“[D]uring 1975, [Mr. Beery] owned and managed in Colby, Kansas, two
businesses as sole proprietorships–a farm and a grain distributorship. Also during
1975, [Mr. Beery] owned an managed in Colby, Kansas, a branch of
Mayer-Gelbort-Leslie, Inc., a commodities trading firm based in Chicago, and
[Mr. Beery] made investments in commodities.” Beery v. Comm’r , 72 T.C.M.
(CCH) 1013, 1014, 1996 WL 591939 (1996) (“ Beery I ”).
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review of that deficiency. On April 9, 1997, the tax court issued an order
partially granting the government’s motion for summary judgment in regard to the
1992-1994 tax returns, again finding that the appellants were not allowed to
deduct a NOL from 1975 on those returns (“ Beery II ”). As Mr. Beery explained
to the tax court in the matter at hand: “The judge [in Beery II ] simply looked at
the first case [ Beery I ] and said he didn’t have to hear it on the merits since it was
the same issue, and issued an order.” R., Doc. 10 at 17. The court in Beery II ,
therefore, ordered a decisional document to be submitted to reflect its partial
grant of summary judgment.
On October 24, 1997, however, before the decisional document was
entered, the tax court dismissed Mr. Beery from Beery II on the ground that the
petition he had filed violated the automatic stay arising from the New Mexico
Bankruptcy. 3
The same potential problem existed with Beery I . On March 19,
1998, the court in the New Mexico Bankruptcy, however, entered an order
granting the government retroactive relief from the automatic stay to permit “the
United States Tax Court to take all steps necessary to enter a Decision in [ Beery
I] and conclude its case and to permit the IRS to assess [appellants’] additional
tax liabilities for the years 1989, 1990 and 1991.” R., Exs. 26-J and 27-J.
3
The order remained applicable to Mrs. Beery, however.
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No audits were performed on the appellants’ tax returns from the years
1995-1997, so the NOL deductions for those years were not disallowed. The
returns for 1998 and 1999 were audited, however, and the NOL deductions were
disallowed, resulting in the deficiencies and penalties at issue.
The appellants filed their petition for review in the tax court arguing that
the NOL deductions were available in 1998 and 1999 because they were “entitled
to [an] NOL carryforward from [the Kansas Bankruptcy].” R., Doc. 1 at 1.
Appellants claimed that the trustee in the Kansas Bankruptcy did not deduct the
entire NOL from 1975, that they should have been allowed to carry forward that
loss for more than five years, and that the decision in Beery I was entered in
violation of the automatic stay in the New Mexico Bankruptcy, despite the
retroactive relief from stay granted by the court in that bankruptcy. The tax court
found that the appellants’ NOL deductions on their 1998 and 1999 returns were
improper, that the issue had been settled in Beery I , that the holding in Beery I
was not a violation of the stay, and that the only proof presented that the 1975
NOL had not been fully exhausted by 1998 was Mr. Beery’s self-serving
testimony. The tax court sustained the government’s determination as to the
deficiencies and penalties, and the appellants appealed.
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ANALYSIS
“[We] review the tax court’s decision ‘in the same manner and to the same
extent as decisions of the district courts . . . tried without a jury.’” Estate of True
v. Comm’r , 390 F.3d 1210, 1217 (10th Cir. 2004) (quoting 26 U.S.C.
§ 7482(a)(1)). “Therefore, we review legal questions de novo and factual
questions for clear error.” Id.
The appellants’ first issue on appeal reads:
The Court apparently overlooked or ignored the disputed stipulations
and incorporated them in the opinion as findings of fact. The
respondent offered no evidence at trial regarding the disputed
stipulations. They were therefore incorrectly taken as findings of
fact.
Aplt. Opening Br. at 1. On April 8, 2003, the parties filed a Stipulation of Facts
with the tax court setting forth a number of uncontested facts and submitting a
number of exhibits but, in certain sections, pointing out that the parties disagreed
about the conclusions to be drawn from those facts and exhibits. 4
For example, of
the six “disputed” stipulations relevant to this appeal, the first three submitted
copies of past income tax returns and referenced the amounts of the NOLs
deducted on those returns. Id. at 2-3, paras. 5-7 (submitting Exs. 4-J through
22-J). These stipulations also reflected that appellants disputed the amounts set
4
Although Mr. Beery refers to these as “disputed” stipulations, he does not
argue that the actual content of the stipulations is incorrect.
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forth in the returns. Id. The fourth “disputed” stipulation recognized the
existence of the ruling in Beery I , but stated that the appellants disputed the
validity of that ruling. Id. at 4, para. 10. The fifth “disputed” stipulation agreed
that an order for retroactive relief had been entered allowing Beery I to stand, but
recognized that the appellants disputed the validity of that order. Id. at 4-5,
para. 11 (submitting Exs. 26-J through 28-J). The final “disputed” stipulation
involved Beery II and reflected that the appellants contended that the decision in
Beery II was invalid. Id. at 5, para. 13.
Appellants’ first point is meritless. In the tax court’s Memorandum
Findings of Fact and Opinion, the court stated “[s]ome of the facts have been
stipulated and are so found. The stipulation of facts is incorporated herein by this
reference.” R. Doc. 13 at 2. Appellants’ interpretation of these statements as
evidence the trial court “overlooked” or “ignored” appellants’ disagreements with
the documentary evidence outright, Aplt. Opening Br. at 1, is inconsistent both
with the tax court’s findings and with the proceedings at trial. When the
stipulation was presented to the tax court, the government directed the court’s
attention to the fact that appellants disputed the amounts set forth in some of the
admitted documents. R., Doc. 10 at 4. The court responded, “I noticed that when
I went through it,” then turned to Mr. Beery and stated: “Mr. Beery, is that
correct? No reserved objections [to the stipulation or documents], however you
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do dispute the accuracy of certain of the information contained in the documents,
is that right?” Id. Mr. Beery responded: “That’s correct, Your Honor.” Id. The
court then entered the exhibits into evidence and filed the stipulation in the
record. Id. at 5.
The tax court, therefore, had before it documentary evidence, the existence
of which was undisputed by the parties. Also undisputed was the fact that the
appellants questioned the correctness or validity of some of that evidence. The
fact that the tax court made findings consistent with the content of the
documentary evidence does not mean that appellants’ argument against such
content was “overlooked or ignored,” Aplt. Opening Br. at 1; it simply means that
appellants’ argument was not persuasive.
Appellants’ second point on appeal reads: “[Mr.] Beery’s testimony was
offered under oath and not disputed by the respondent, therefore the court has no
option, it must accept it as factual.” Id. This case turned mostly on the holding
in Beery I that a NOL could not be carried forward for more than five years. The
New Mexico Bankruptcy court granted retroactive relief from the automatic stay
to allow the decision in Berry I . The fact that Mr. Beery testified that he
disagreed with Beery I and with the granting of retroactive relief from the stay
does not mean that his testimony on these points was “not disputed” or that the
tax court was required to believe his testimony over the documentary evidence.
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Appellants’ third point on appeal reads:
On page 8 of the opinion the Court states “[Appellants] do not
contend that Section 7491(a) applies to this case.” The Court must
apply the burden of proof whether or not the [Appellants] bring up
the issue. It is, after all, the law. Without the disputed stipulations
being included as findings of fact the respondent has failed to meet
the burden of proof standard. Beery’s testimony establishes that the
NOL deductions are legitimate.
Aplt. Opening Br. at 1-2. In its ruling, the tax court recognized that a taxpayer
has the burden of proving entitlement to a deduction but also stated:
[w]here the taxpayer produces credible evidence with respect to any
factual issue relevant to ascertaining the tax liability of the taxpayer,
[under § 7491(a)] the burden of proof shifts to the Secretary, but only
if the taxpayer has complied with substantiation requirements,
maintained all required records, and has cooperated with reasonable
requests by the Secretary for witnesses, information, documents,
meetings, and interviews. Sec. 7491(a). Petitioners do not contend
that sec. 7491(a) applies to this case.
R., Doc. 13 at 8 n.7. Again, we disagree with the appellants’ interpretation of the
tax court’s ruling. The ruling does not imply that the burden would have been
shifted to the government if appellants had made such an argument. The tax court
simply recognized that in some cases the burden may shift to the government,
implicitly found that the appellants in this case did not produce enough evidence
to shift the burden, and noted that the appellants had not even argued that enough
evidence had been presented to do so. The tax court’s comment on appellants’
failure to argue the issue was inconsequential.
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The appellants’ fourth point on appeal reads:
On page 15 of the opinion is the statement by the Court that “The
record does not contain one iota of credible evidence that
[]petitioners had a reasonable basis for claiming the disputed NOL
carryforward deductions or that they acted in good faith by doing
so.” To the contrary, Beery testified that the IRS, after questioning
the deduction for previous years, had allowed the NOL deduction.
That was the only evidence presented to the court regarding whether
the petitioners had a reasonable basis for using the NOL. The
respondent presented no evidence of any kind that the IRS has not
allowed the deduction for previous years. In the case of accuracy-
related penalties the IRS has the burden of proof and they failed to
meet that burden.
Aplt. Opening Br. at 2. 5
Once again, appellants misstate the record. It is clear
that there were years when the government did not question the appellants’ NOL
deductions. The evidence before the tax court, however, showed that Beery I
disallowed appellants’ attempts to deduct NOLs from 1975 on their 1989, 1990
and 1991 returns. While the appellants dispute the validity of this decision, they
do not dispute its existence. Similarly, evidence regarding the ruling in Beery II
that the deductions would not be allowed was also before the court. Again,
although the appellants contest the validity of this decision, they do not contest
the existence of the order. Although Mr. Beery was dismissed from the case after
the government’s motion for summary judgment was granted, the judgment
5
U.S.C. § 6664(c)(1) provides that the accuracy-related penalties at issue in
the case at hand shall not be imposed “to any portion of an underpayment if it is
shown that there was a reasonable cause for such portion and that the taxpayer
acted in good faith with respect to such portion.”
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remained applicable to Mrs. Beery and Mr. Beery must have been aware of the
ruling.
It is clear, therefore, that at the time they filed the contested income tax
returns the appellants were aware that the claimed deductions had been
disallowed on previous returns because of the five-year cut-off. The tax court
evidently found Mr. Beery’s testimony that the government had previously
accepted NOL deductions, that the appellants therefore had a reasonable basis for
claiming the disputed NOL carryforward deductions, and that they acted in good
faith by doing so, not to be credible, stating “[appellants’] entire course of
conduct reflects a determined effort to claim undocumented and/or unuseable
NOL carryforwards from 1975 over a period of many years while ignoring
applicable law and relevant facts.” R., Doc. 13 at 15. Credibility
determinations, like other findings of fact, are the province of the tax court unless
clearly erroneous. Estate of True v. Comm’r, 390 F.3d 1210, 1217 (10th Cir.
2004); Merchs. Nat’l Bank of Topeka v. Comm’r , 554 F.2d 412, 416 (10th Cir.
1977) ( “[T]he credibility to be given a witness is a matter for the tax court.”).
Appellants’ fifth and final point on appeal reads:
The petitioners were not allowed to present any legal arguments at
trial, see transcript at page 37, line 20. This in spite of the fact that
the respondent made numerous legal arguments, including at least
one citation, throughout the trial. Transcript, page 10, line 14.
Further the petitioner deferred an opening statement until the
conclusion and was not allowed to give that statement.
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Aplt. Opening Br. at 2. Appellants’ fifth point appears to be an attempt to raise a
due process argument. Once again, the appellants’ factual description fails to
accurately represent the reality of the tax court proceedings. A review of the
transcript reveals that at the beginning of the hearing the court noted, and
Mr. Beery confirmed, that Mr. Beery had not filed a trial memorandum in the
case. R., Doc. 10 at 5. Mr. Beery asked the court to allow him to defer his
opening statement until the close of the case, to which the court responded:
That’s fine. Wait, except, Mr. Beery, don’t assume you’re going to
have an opportunity to say anything at the end of the case. We’ll talk
about what transpires at the end of the case, whether there are filing
briefs or closing argument of some kind . . . .
....
I will, however, permit you to make an opening statement–if you
wish to do so, you don’t have to–after Respondent makes his opening
statement.
Id. at 5-6. Mr. Beery responded: “Thank you, Your Honor, I understand.” Id. at
6. Following the respondent’s opening statement, the judge asked “Mr. Beery, do
you wish to make any statement?” Id. at 13. Mr. Beery said that he did, was
sworn in as a witness, and proceeded to present his argument. Contrary to his
allegations, Mr. Beery did present legal arguments during the hearing. When he
attempted to quote case law supporting these arguments, however, the tax court
judge told him that “[t]he purpose of this proceeding right now is to take any
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factual testimony . . . that you wish to give.” R., Doc. 10 at 17. 6
Later in the
proceeding, Mr. Beery again asked to quote case law to support his legal
argument that Beery I was invalid on the basis that “instead of asking for the stay
to be annulled, [the government] asked for it to be lifted.” Id. at 22. The court
refused his request, stating “I’ll give you an opportunity to make a post-trial
filing.” Id. Mr. Beery subsequently asked: “At what point am I allowed to make
legal arguments, Your Honor?” to which the court replied, “I’m going to talk with
you about that once the evidence is completed in this case.” Id. at 23. At the end
of the presentation of evidence, the court closed the evidentiary record and then,
after a lengthy discussion, gave the parties ninety days to file simultaneous post-
trial opening briefs, with forty-five days allowed thereafter for reply briefs, a
schedule to which Mr. Beery did not object. The tax court was extremely clear
with Mr. Beery as to what it was requesting:
What I’m interested in hearing from you is–I want, whatever you file,
I want proposed findings of fact that are predicated on the factual
record in this case, which is very slim. And which tells me basically
what you would have me find as facts in this case, with a–at least
some indication of where I would find support for it in the record.
And then a statement of your legal position, making whatever
argument you wish to make. You know what Respondent’s
arguments are because they were laid out in the trial memoranda.
6
The judge spent a large part of the hearing attempting to determine if
Mr. Beery had any evidence, other than his own testimony, that a NOL from 1975
existed.
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And your task, as far as I’m concerned, is to give me a coherent,
intelligible explanation of why you think Respondent’s position is
wrong.
Id. at 36-37. After giving these instructions, the tax court began to stand in recess
but was interrupted by Mr. Beery, again inquiring about when he would have the
opportunity to discuss case law. Id. at 37. The tax court patiently explained that
Mr. Beery could discuss case law in his post-trial briefs, stating:
[L]et me just explain. I’m more than happy to talk to the parties in
many cases, but because we do have a post-trial filing process that
permits parties to give their legal arguments in writing, it generally
makes for a more coherent presentation of the argument than simply
standing up and citing cases.
So, I really don’t feel a need for oral argument, given the fact that I
am permitting you to file post-trial arguments in writing.
Id. at 38. Appellants failed to file an opening post-trial brief, nor did they file a
response to the opening post-trial brief filed by the government.
Appellants, therefore, have no room to complain on appeal. Mr. Beery was
told that he could only defer his opening statement until after respondent gave his
statement. This is what occurred. Further, appellants squandered their
opportunity to present legal argument to the court when they failed to file either a
trial memorandum or, after the tax court went out of its way to explain the
briefing process in detail, the ordered post-trial briefs.
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Consequently, the appellants’ petition for review of the December 4, 2003,
decision of the tax court is DENIED. The mandate shall issue forthwith.
Entered for the Court
Bobby R. Baldock
Circuit Judge
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