NY Giants Football v. Commissioner IRS ( 2003 )

Opinions of the United
2003 Decisions States Court of Appeals
for the Third Circuit
11-5-2003
NY Giants Football v. Commissioner IRS
Precedential or Non-Precedential: Precedential
Docket No. 02-4392
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PRECEDENTIAL
Filed November 4, 2003
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No.: 02-4392
NEW YORK FOOTBALL GIANTS, INC.,
Appellant
v.
COMMISSIONER OF INTERNAL REVENUE
On Appeal From The United States Tax Court
(No. 8563-00)
Tax Judge: The Honorable John O. Colvin
Argued September 19, 2003
BEFORE: McKEE, SMITH, Circuit Judges,
and SCHILLER,* District Judge.
(Opinion Filed: November 4, 2003)
Michael A. Guariglia [Argued]
Margaret C. Wilson
McCarter & English, LLP
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102
Counsel for Appellant
* Honorable Berle M. Schiller, District Judge for the United States
District Court for the Eastern District of Pennsylvania, sitting by
designation.
2
Eileen J. O’Connor
Kenneth L. Greene
Bridget M. Rowan [Argued]
Tax Division
Department of Justice
Post Office Box 502
Washington, D.C. 20044
Counsel for Appellee
OPINION OF THE COURT
SMITH, Circuit Judge:
This case presents a question of our jurisdiction to review
orders of the Tax Court under 28 U.S.C. § 7482(a)(1).
Appellant New York Football Giants, Inc. (the “Giants”)
appeals from an order of the Tax Court dismissing its
petition with respect to some, but not all, of the tax years
at issue. The Tax Court determined that it lacked
jurisdiction over the Giants’ petition with respect to those
years. The Tax Court did not make, nor was it asked to
make, a determination of finality under Fed. R. Civ. P. 54(b)
with respect to any particular tax year. We conclude that
the Tax Court’s order is not a final decision and that we
lack jurisdiction over the Giants’ appeal under section
7482(a)(1). We therefore do not reach the Giants’ argument
that the Tax Court had jurisdiction over its petition.
I.
The Giants own and operate a professional football
franchise in the National Football League (“NFL”). In 1993,
the Giants elected to be treated as an S corporation under
26 U.S.C. (I.R.C.) §§ 1361 and 1362. The Internal Revenue
Service (“IRS”) audited the Giants and determined that the
Giants owed taxes on built-in gains1 accruing to it from the
1. Section 1374 of the Internal Revenue Code imposes a corporate level
tax on certain “built-in gains,” i.e., gains recognized by the S corporation
on the disposition of an asset during a 10-year period after the
corporation becomes an S corporation. Built-in gain is measured by the
appreciation of the asset that accrued prior to conversion to an S
corporation. I.R.C. §§ 1374(a), (d)(3), (7); see, e.g., Colo. Gas Compression,
Inc. v. Comm’r, 116 T.C. 1, 2-3 (2001).
3
expansion of the NFL in 1993. The IRS issued a Notice of
Deficiency to the Giants on May 18, 2000 for Fiscal Years
Ending (“FYEs”) 1996, 1997, and 1998. The Giants filed a
petition in the United States Tax Court challenging the
Notice of Deficiency for each of those years. In addition to
disputing the recognition of built-in gains, the Giants
alleged that, as to FYE 1997, the three-year statute of
limitations under I.R.C. § 6501 had run.
The IRS conceded that the statute of limitations under
I.R.C. § 6501 had expired. However, rather than accept
judgment in favor of the Giants as to FYE 1997, the IRS
moved to dismiss the Giants’ petition with respect to FYE
1996 and 1997 for lack of jurisdiction. The IRS argued that
its own Notice of Deficiency as to those years was invalid
because the built-in gains tax liability had to be determined
in a unified audit proceeding under I.R.C. §§ 6241-45.
Under the unified procedures, the IRS must issue notice of
final administrative adjustment before judicial review may
be had in the Tax Court. I.R.C. §§ 6226, 6244. The Giants
opposed the IRS’s motion and cross-moved for entry of
judgment as to FYE 1997.
The Tax Court agreed with the IRS that the built-in gains
tax liability for FYEs 1996 and 1997 were subject to unified
audit procedures. New York Football Giants, Inc. v. Comm’r,
117 T.C. 152 (2001). Because the IRS had not issued a
notice of final administrative adjustment, the Tax Court
entered an order dismissing the Giants’ petition with
respect to FYEs 1996 and 1997. However, the petition with
respect to FYE 1998 was not affected because the statutes
establishing the unified procedures were repealed, effective
for tax years beginning after Dec. 31, 1996, by the Small
Business Job Protection Act of 1996, Pub. L. No. 104-188
§ 1307(c)(1), 110 Stat. 1781. Thus, the Giants’ petition with
respect to FYE 1998 is presently before the Tax Court.
The Tax Court denied the Giants’ motion to reconsider
the partial dismissal. Thereafter, the Giants moved the Tax
Court to certify the partial dismissal for interlocutory
appeal, reserving its contention that the dismissal was a
final and immediately appealable judgment. The Tax Court
denied the Giants’ motion, concluding that “immediate
appeal of the issues in this case will not materially advance
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the ultimate termination of this case.” New York Football
Giants, Inc. v. Comm’r, 85 T.C.M. (CCH) 810 (2003).
The Giants now appeal the partial dismissal of their
petition to this court. The Giants argue that the built-in
gains tax liability for FYEs 1996 and 1997 is not subject to
the unified audit procedures. Instead, the Giants maintain
that these liabilities can only be determined through a
notice of deficiency and that the Giants properly challenged
the IRS’s Notice of Deficiency in their petition.
Although not directly implicated in this appeal, a primary
concern of the parties is the statute of limitations issue.
During the audit, the IRS requested that the Giants and the
Giants’ shareholders execute separate agreements
extending the limitations periods for the assessment of
taxes for FYE 1997. Although the shareholders’
representative agreed to an extension, the Giants refused to
execute an agreement extending the statute of limitations.
The IRS takes the position that, under the unified audit
procedures, the extension agreed to by the shareholders
extended the statute of limitations for both the
shareholders and the Giants. If, however, the unified
procedures do not apply and jurisdiction over the Giants’
petition is proper, the Giants believe that they are entitled
to judgment in their favor based on the running of the
statute of limitations.
II.
Appellate jurisdiction over Tax Court orders is
established by I.R.C. 7482(a)(1), which provides: “The
United States Courts of Appeals . . . shall have exclusive
jurisdiction to review the decisions of the Tax Court . . . in
the same manner and to the same extent as decisions of
the district courts in civil actions tried without a jury . . . .”
Jurisdiction under section 7482(a)(1), like our jurisdiction
over district court decisions under 28 U.S.C. § 1291,
extends only to a “final decision” of the tax court. Ryan v.
Comm’r, 680 F.2d 324, 326 (3d Cir. 1982) (holding that
denial of summary judgment motion is not final and
appealable under section 7482(a)(1)); Estate of Smith v.
Comm’r, 638 F.2d 665, 668 (3d Cir. 1981) (holding that
5
order denying intervention was final and appealable
because, as in a district court proceeding, “[n]othing further
would remain to be done on her petition and recourse, if
any, would be through appeal”).
A “final decision” generally is one that “ends the litigation
on the merits and leaves nothing for the court to do but
execute the judgment.” Coopers & Lybrand v. Livesay, 437
U.S. 463, 467 (1978). Finality generally requires that a
judgment dispose of all of the claims in a given case before
an appeal may be taken. E.g., Berckeley Inv. Group, Ltd. v.
Colkitt, 259 F.3d 135, 140 (3d Cir. 2001). This requirement
reflects a long-recognized policy against “piecemeal
litigation,” i.e., “[t]he case is not to be sent up in
fragments.” Catlin v. United States, 324 U.S. 229, 233
(1945); see also Coopers & Lybrand, 437 U.S. at 471 (“The
finality requirement in § 1291 evinces a legislative judgment
that [r]estricting appellate review to ‘final decisions’
prevents the debilitating effect on judicial administration
caused by piecemeal appeal disposition of what is, in
practical consequence, but a single controversy.” (internal
quotations omitted)).
In civil cases before the district courts, Federal Rule of
Civil Procedure 54(b) relaxes the finality requirement “to
avoid the possible injustice of a delay in judgment of a
distinctly separate claim to await adjudication of the entire
case.” Fed. R. Civ. P. 54(b) advisory committee’s note; see
Berckeley, 259 F.3d at 140. Rule 54(b) provides:
When more than one claim for relief is presented in an
action, whether as a claim, counterclaim, cross-claim,
or third-party claim, or when multiple parties are
involved, the court may direct the entry of a final
judgment as to one or more but fewer than all of the
claims or parties only upon an express determination
that there is no just reason for delay and upon an
express direction for the entry of judgment. In the
absence of such determination and direction, any order
or other form of decision, however designated, which
adjudicates fewer than all the claims or the rights and
liabilities of fewer than all the parties shall not
terminate the action as to any of the claims or parties,
and the order or other form of decision is subject to
6
revision at any time before the entry of judgment
adjudicating all the claims and the rights and liabilities
of all the parties.
Absent a Rule 54(b) determination, a district court decision
dismissing some, but not all, of the claims before the court
is not a “final” order that can be appealed. E.g., Maritime
Elec. Co., Inc. v. United Jersey Bank, 959 F.2d 1194, 1208-
09 (3d Cir. 1991).
Rule 54(b) reflects a considered policy that the trial court
is often in the best position to assess the finality of its own
judgments and should therefore be relied on as a
“dispatcher.” Sears, Roebuck & Co. v. Mackey, 351 U.S.
427, 435 (1956) (“To meet the demonstrated need for
flexibility, the District Court is used as a ‘dispatcher.’ ”).
Discretion to determine whether an immediate appeal
should be allowed is, “with good reason, vested by the rule
primarily in the discretion of the District Court as the one
most likely to be familiar with the case and with any
justifiable reasons for delay.” Id. at 437.
The question raised in this appeal is whether a court of
appeals has jurisdiction to review an order of the Tax Court
dismissing some, but not all, of the disputed years in a
petition. Although this is a question of first impression in
this circuit, it has been addressed by several of our sister
circuits, resulting in three distinct approaches. The D.C.
Circuit permits appellate review of orders that finally
dispose of any particular claims. InverWorld v. Comm’r, 979
F.2d 868, 875 (D.C. Cir. 1992). The Fifth, Seventh, and
Ninth Circuits permit appellate review of orders dispensing
of claims only where the Tax Court makes a Rule 54(b)
determination that judgment as to those claims is final and
immediately appealable. Nixon v. Comm’r, 167 F.3d 920(5th Cir. 1999) (per curiam); Brookes v. Comm’r, 163 F.3d
1124 (9th Cir. 1998); Shepherd v. Comm’r, 147 F.3d 633(7th Cir. 1998). Finally, the Second and Sixth Circuits do
not permit appellate review of an order that does not
dispose of the entire case. Schrader v. Comm’r, 916 F.2d
361, 363 (6th Cir. 1990) (per curiam); Estate of Yaeger, 801
F.2d 96, 97 (2d Cir. 1986).
Both the Giants and the IRS urge us to adopt the
position of the D.C. Circuit in InverWorld and to exercise
7
jurisdiction over this appeal. The parties argue that the tax
liability for each fiscal year establishes a separate cause of
action, Sunnen v. Comm’r, 333 U.S. 591, 598 (1948), the
disposition of which should be immediately final and
appealable though the entire case is not concluded.
Our consideration of the three approaches taken by the
various circuits that have addressed this issue leads us to
the conclusion that the Seventh Circuit’s decision in
Shepherd provides the correct approach. Accord Nixon, 167
F.3d at 920 (“[W]e expressly adopt the sound reasoning
articulated in Judge Posner’s decision for the Seventh
Circuit in Shepherd.”); Brookes, 163 F.3d at 1128 (“We view
the holding in Shepherd as the most definitive
interpretation of Tax Court jurisdiction . . . .”). We believe
that, if we are to exercise jurisdiction under section
7482(a)(1) “in the same manner and to the same extent” as
under section 1291, a judgment disposing of less than all
claims is not appealable unless it is accompanied by a
determination that the order is final and that there is no
just reason to delay. Shepherd, 147 F.3d at 635 (holding
that, absent such a determination, “we do not have
jurisdiction if our appellate jurisdiction over decisions by
the Tax Court is to be modeled closely on our appellate
jurisdiction over decisions by district courts”). We hold that,
without such a determination, a judgment disposing of less
than all claims is not final and appealable under section
7482(a)(1).
As a threshold matter, the parties’ observation that each
fiscal year provides a separate cause of action does not
establish finality. In non-tax cases, multiple claims arising
from distinct causes of action are routinely joined in a
single complaint. Finality, however, generally requires that
a judgment dispose of all of the claims in a given case
before an appeal may be taken. E.g., Berckeley, 259 F.3d at
140.
The D.C. Circuit’s decision in InverWorld, which the
parties urge us to follow, is premised on that court’s belief
that there is no analog to Rule 54(b) in the Tax Court and,
hence, no basis for “judicially imposing Rule 54(b) on the
Tax Court.” 979 F.2d at 875.2 The D.C. Circuit therefore
2. The court in InverWorld did state emphatically that “[W]e do not find
the absence of a Tax Court rule similar to Rule 54(b) at all relevant to
8
assumed the task of determining, in the first instance,
whether a given order is immediately appealable.3
InverWorld held that jurisdiction was appropriate in the
case before it because “the injustice to the taxpayer (as well
as the inconvenience to the Commissioner and the Tax
Court) caused by delaying an appeal from what is
essentially a dismissal of InverWorld’s claim far outweighs
the possible inconvenience to an appellate court in hearing
two separate appeals.” 976 F.2d at 873.
We do not agree with the premise of InverWorld. As the
Seventh Circuit emphasized in Shepherd, Rule 1(a) of the
Rules of Practice and Procedure of the United States Tax
Court provides that “where in any instance there is no
applicable rule of procedure, the [Tax] Court or the Judge
[of that court] before whom the matter is pending may
prescribe the procedure, giving particular weight to the
Federal Rules of Civil Procedure to the extent that they are
suitably adaptable to govern the matter at hand.” Shepherd,
147 F.3d at 635 (quoting Tax Court Rule of Practice and
Procedure 1(a)). The Tax Court thus has ample authority to
make the sort of determination called for in Fed. R. Civ. P.
54(b). Brookes, 163 F.3d at 1128. We note that the Ninth
Circuit, which had previously taken an approach similar to
our finality determination.” 979 F.2d at 874. This statement, however,
was made to reject the argument that Rule 54(b) altered the legal
doctrine of finality: “Rule 54(b) does not ‘create’ finality under § 1291
where it does not already exist, it merely allows a district court formally
to decree a decision final . . . . Thus, Rule 54(b) has no impact on
whether a decision is sufficiently final to allow review.” Id.
3. The court stated:
Under Rule 54(b), we rely on the district court to act as a
“dispatcher”—releasing some final decisions during the course of a
proceeding, and holding some up for later review at the end of the
entire proceeding. . . . [A]bsent such a dispatcher, an immediate
appeal of the Tax Court decision here will differ in some aspects
from the way in which a district court appeal is processed. . . . Yet,
we believe that the more liberal appeal rule we have chosen is
broadly consistent with Congress’ intent to allow appeals from final
decisions where there is ‘no just reason for delay.
979 F.2d at 874-75.
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InverWorld, later changed course in light of Shepherd. See
Brookes, 163 F.3d at 1128-29 (holding that Wilson v.
Comm’r, 564 F.2d 1317 (9th Cir. 1989) (per curiam), “which
allowed appellate reviewability of separate tax years in a
multiyear claim without any certification as to the finality of
the order,” was contrary to the “clear reasoning” of
Shepherd).4
Requiring such a determination from the Tax Court in
the first instance ensures that jurisdiction under section
7482(a)(1) is exercised “in the same manner and to the
same extent” as under section 1291. I.R.C. § 7482(a)(1); see
Brookes, 163 F.3d at 1128-29; Shepherd, 147 F.3d at 635.
Moreover, the parties offer no reason why the policy
considerations underlying Rule 54(b) do not apply with
equal force to decisions of the Tax Court. Shepherd, 147
F.3d at 635-36. The Tax Court, like the district courts,
enjoys a familiarity with the underlying case that the courts
of appeals do not—particularly with respect to whether, “ ‘in
the interest of sound judicial administration’ ” there is no
just reason for delay. Curtiss-Wright Corp. v. Gen. Elec. Co.,
446 U.S. 1, 8, 10 (1980) (quoting Sears, Roebuck & Co.,
351 U.S. at 437). The Tax Court demonstrated its uniquely
informed perspective when it denied the Giants’ request to
certify its decision for interlocutory appeal.5 The Tax Court
expressed its intention to consolidate the Giants’ remaining
claim with other cases filed by the Giants and the Giants’
shareholders in order to dispose of the built-in gains tax
issue raised in each case. Indeed, a favorable ruling for the
Giants on their liability for the built-in gains tax may
render the Tax Courts’ dismissal of FYEs 1996 and 1997
moot. Under Rule 54(b), it is the district courts, in the first
instance, that weigh the impact of immediate appeal on the
4. We further note that the D.C. Circuit’s opinion in InverWorld relies on
the now-discarded analysis of Wilson. InverWorld, 979 F.2d at 873, 875.
5. The Tax Court refused to certify its order for interlocutory appeal
under I.R.C. § 7482(a)(2)(A). That provision, which is nearly identical to
28 U.S.C. § 1292(b), requires the consideration of issues similar to those
relevant to Rule 54(b). See generally Gen. Acquisition, Inc. v. GenCorp,
Inc., 23 F.3d 1022, 1032 (6th Cir. 1994). It therefore appears likely that
the Tax Court would have declined to make a Rule 54(b) determination
had it been asked to do so.
10
issues that remain and predict the likelihood of successive
appeals. We see no reason why the Tax Court should not
perform the same function.
For these same reasons, we decline to follow the per se
rule adopted by the Second and Sixth Circuits that orders
disposing of some, but not all, tax years are never final and
appealable. Schrader v. Comm’r, 916 F.2d 361, 363 (6th
Cir. 1999); Estate of Yaeger v. Comm’r, 801 F.2d 96, 97 (2d
Cir. 1986). Neither the Second nor the Sixth Circuits has
addressed the issue since Shepherd; however, both courts
recognized that “[i]f the order in question, dealing with only
one of several tax years, were that of a district court, it
would, absent certification under Fed. R. Civ. P. 54(b), be
an unappealable interlocutory order.” Estate of Yeager, 801
F.2d at 97; accord Schrader, 916 F.2d at 362. We believe
that this observation is dispositive of our jurisdiction under
section 7482(a)(1).
III.
Here, the Tax Court’s order did not dispose of all of
petitioner’s claims. Nor did the court make any
determination that its order dismissing the Giants’ claims
with respect to FYEs 1996 and 1997 was final, or that there
was no just reason to delay an appeal. Accordingly, under
the rule that we adopt herein, the Tax Court’s order is not
a final decision reviewable under section 7482(a)(1) and this
Court is presently without jurisdiction to hear appeals
relating to that order. We will therefore dismiss the Giants’
appeal.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit