Martin v. Commissioner, IRS , 38 F. App'x 980 ( 2002 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
ALFRED J. MARTIN, 
Petitioner-Appellant,
v.  No. 01-2436
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellee.

Appeal from the United States Tax Court.
(Tax Ct. No. 86-32146)
Argued: May 8, 2002
Decided: June 28, 2002
Before WIDENER, WILLIAMS, and TRAXLER, Circuit Judges.
Affirmed by unpublished per curiam opinion.
COUNSEL
ARGUED: Patricia Tucker, LAFLIN, LIEUWEN, TUCKER, PICK
& HEER, P.A., Albuquerque, New Mexico, for Appellant. Patricia
McDonald Bowman, Tax Division, UNITED STATES DEPART-
MENT OF JUSTICE, Washington, D.C., for Appellee. ON BRIEF:
Eileen J. O’Connor, Assistant Attorney General, Gilbert S. Rothen-
berg, Tax Division, UNITED STATES DEPARTMENT OF JUS-
TICE, Washington, D.C., for Appellee.
2 MARTIN v. COMMISSIONER OF INTERNAL REVENUE
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
Alfred J. Martin appeals from the tax court’s determination that a
$50,000 tax payment that he made in 1996 was credited properly by
the Internal Revenue Service (IRS) to his tax liability for 1980 rather
than for 1981 and 1982. Finding no error, we affirm.
I.
Martin was married to Amilu Rothhammer during 1980; they were
divorced in 1981. Martin and Rothhammer are both physicians. Prior
to 1980, they bought a limited partnership interest in Winchester Oil
& Gas, one of the "Manhattan group" of approximately 20 partner-
ships. (A. at 16.)1 The Manhattan partnerships were involved in a
group of tax court cases, the "Elektra-Hemisphere" cases. See Krause
v. Commissioner, 99 T.C. 132 (1992), aff’d sub nom. Hildebrand v.
Commissioner, 28 F.3d 1024 (10th Cir. 1994) (the "test case"). The
general partners of the Manhattan partnerships hired a law firm,
Mathias & Berg, to litigate the test case regarding the permissibility
of certain loss deductions claimed by the limited partners and also to
file petitions challenging tax determinations at the request of any of
the limited partners.
The IRS determined a joint deficiency against Martin and Roth-
hammer for the tax year 1980 in the amount of $56,771, as well as
a penalty in the amount of $16,085 for a valuation overstatement. For
1981 and 1982, Martin filed as a single taxpayer; the IRS determined
a deficiency against Martin alone for 1981 and 1982 in the amounts
of $14,827 and $298, respectively. For 1981 and 1982, the IRS also
1
References to the appendix provided by Martin will be denoted by the
abbreviation "A." References to the IRS’s supplemental appendix will be
denoted by "S.A."
MARTIN v. COMMISSIONER OF INTERNAL REVENUE 3
determined that Martin was liable for negligence and failure-to-file
penalties totaling approximately $1,100. On August 4, 1986, Mathias
& Berg filed a tax court petition on behalf of Martin and Rothham-
mer, disputing the IRS’s determinations for 1981 and 1982.2 On Sep-
tember 6, 1988, Mathias & Berg filed a petition on behalf of both
Martin and Rothhammer challenging the IRS’s 1980 deficiency deter-
mination. Resolution of each of these petitions was delayed by the
need to await the ruling in the test case. Hildebrand, 28 F.3d at 1026.
On August 9, 1996, Martin sent Mathias & Berg a check in the
amount of $50,000, payable to the IRS (the $50,000 payment), with
a cover letter referencing the docket number for the 1980 tax court
case and indicating that the payment was towards a "good faith settle-
ment" of Martin’s "half of the obligation." (A. at 33.) Martin also
enclosed a check in the amount of $500, payable to Mathias & Berg,
for their review of the IRS’s interest calculations, and stated in his
cover letter that Rothhammer should reimburse half of this review
fee. On August 14, 1996, Mathias & Berg wrote Martin and Roth-
hammer, stating that Martin’s $50,000 check had been sent to the IRS
for credit against the joint liability of Martin and Rothhammer for the
1980 tax year. On the same date, Mathias & Berg sent the check to
the IRS with express instructions to credit it against potential liability
for 1980. On November 18, 1996, Martin wrote Mathias & Berg, stat-
ing that he would not send any funds beyond the $50,000 he had paid
"until such time as my former wife has matched that amount." (S.A.
at 46.)
On Martin’s motion, the tax court dismissed the 1980 petition as
to him for lack of jurisdiction after it determined that he had never
authorized or ratified the filing of a petition on his behalf for the 1980
tax year.3 On June 20, 2001, the tax court entered its final decision
with respect to Martin’s returns for 1981 and 1982, finding Martin lia-
ble for a deficiency of $974 for 1981 and $135 for 1982, and rejecting
his argument that the $50,000 payment should be applied to his defi-
2
The petition erroneously included Rothhammer, who was not a party
to Martin’s 1981 and 1982 returns; Rothhammer filed a motion to dis-
miss and was removed as a party to the 1981 and 1982 litigation.
3
In 1998, Rothhammer settled all issues related to her 1980 liability
with the IRS.
4 MARTIN v. COMMISSIONER OF INTERNAL REVENUE
ciencies for 1981 rather than to his and Rothhammer’s joint defi-
ciency for 1980. Martin timely appealed to the United States Court of
Appeals for the Tenth Circuit. The Tenth Circuit granted an unop-
posed motion to transfer the case to this circuit on November 26, 2001.4
On appeal, Martin does not challenge the tax court’s deficiency deter-
minations for 1981 and 1982; instead, he contends only that the tax
court should have applied the $50,000 payment to his 1981 liability,
resulting in a determination that he had made a substantial overpay-
ment for that year.
II.
The IRS contends for the first time on appeal that because the peti-
tion for the 1980 tax year was dismissed as to Martin based upon his
insistence that he never authorized or ratified its filing, the tax court
lacked jurisdiction to "redetermine" Martin’s liability for the 1980 tax
year. It is our duty at the outset to examine de novo the question of
whether the tax court had jurisdiction to order the $50,000 payment
applied to Martin’s 1981 liability. Correia v. Commissioner, 58 F.3d
468, 469 (9th Cir. 1995).
The tax court is a court of limited jurisdiction, and it may exercise
jurisdiction only as expressly provided by statute. Commissioner v.
McCoy, 484 U.S. 3, 7 (1987). When the IRS has issued a notice of
deficiency for a given year and the taxpayer files a timely petition for
that year, the tax court obtains jurisdiction to determine whether there
is a deficiency for that year. Estate of Baumgardner v. Commissioner,
85 T.C. 445, 448 (1985). Once the tax court has jurisdiction to deter-
mine whether there is a deficiency for a given year, Congress has
authorized the tax court to determine whether a taxpayer has made an
overpayment of tax for that year. 26 U.S.C.A. § 6512(b) (West 1989);
Winn-Dixie Stores v. Commissioner, 110 T.C. 291, 294-95 (1998). An
overpayment is the excess of a taxpayer’s payments for the period at
issue over his liability for that period. Jones v. Liberty Glass Co., 332
U.S. 524, 531 (1947) ("overpayment" is "any payment in excess of
4
Because Martin lived in Virginia at the time his tax court petition was
filed, venue for appeal lies in this court. 26 U.S.C.A. § 7482 (West 1989)
(stating that appellate venue is based on a taxpayer’s residence at the
time a petition was filed).
MARTIN v. COMMISSIONER OF INTERNAL REVENUE 5
that which is properly due"). A determination of an overpayment for
the period at issue thus logically requires a determination of two facts:
the taxpayer’s liability for that period and the amount of the taxpay-
er’s payments applicable to that period. Accordingly, the tax court’s
overpayment jurisdiction includes the power to determine whether a
payment is applicable to the particular period for which the tax court
has jurisdiction to make a deficiency determination. Malachinski v.
Commissioner, 268 F.3d 497, 508 (7th Cir. 2001) (stating that the tax
court has jurisdiction to determine "whether a deposit payment is
applicable to a particular deficiency");5 Estate of Wilson v. Commis-
sioner, 78 T.C.M. (CCH) 35 (1999) (excercising the tax court’s over-
payment jurisdiction to review improper IRS application of a portion
of a payment specifically designated for the year under review to
other years); Hays v. Commissioner, 71 T.C.M. (CCH) 1754, 1757-58
(1996).6 Thus, the overpayment jurisdiction facially provided the tax
court with the authority to determine whether Martin’s $50,000 pay-
ment was properly attributable to 1981.
On appeal, the IRS points to several statutory provisions that, it
argues, strip the tax court of jurisdiction to determine whether a pay-
ment is applicable to a period at issue before the tax court, when the
IRS has credited the payment to another period that is not at issue
before the tax court. First, the IRS notes that the tax court has no
jurisdiction to determine whether the tax for any period not at issue
before it has been overpaid or underpaid. 26 U.S.C.A. § 6214(b)
(West 1989); Gooding v. Commissioner, 310 F.2d 501, 502 (4th Cir.
1962). Determinations of overpayment or underpayment for years not
before the tax court are impermissible because they necessarily
5
Malachinski ultimately concluded that the tax court could not order
a payment credited to a year at issue before the tax court where the IRS
had credited the payment to a year not at issue before the tax court, but
as the IRS notes, in Malachinski the payment at issue was made before
the initiation of tax court proceedings, while here, the $50,000 payment
was made during the pendency of proceedings in the tax court.
6
The tax court’s rules implicitly contemplate that factual disputes
regarding the timing and amount of payments will be resolved as part of
the tax court’s determination of the amount of "deficiency, liability or
overpayment." See Tax Court R. 155(b) (providing for the Tax Court to
resolve disputes regarding the computation of overpayments).
6 MARTIN v. COMMISSIONER OF INTERNAL REVENUE
involve a resolution of a taxpayer’s liability for those years. See
Rothensies v. Electric Storage Battery Co., 329 U.S. 296, 302 (1946)
(holding that a theory of recoupment of a prior overpayment may not
serve as a means to bring a time-barred refund claim due to finality
concerns regarding determinations of tax liability). In this case, how-
ever, Martin does not seek a redetermination as to whether his tax lia-
bility for 1980 has been overpaid or underpaid. He contends instead
that his $50,000 payment, in its entirety, was properly applicable to
1981 rather than 1980, and thus, that without regard to the relation-
ship between the $50,000 payment and his 1980 liability (i.e. any
overpayment or underpayment for 1980), the payment should be
applied to 1981. If the tax court granted him the relief that he seeks,
it would not be determining any deficiency or liability for 1980.
Second, the IRS notes that it is authorized to credit the amount of
any overpayment against any tax liability of the taxpayer. 26
U.S.C.A. § 6402 (West 1989). In turn, the tax court may not "restrain
or review any credit or reduction made by" the IRS under the author-
ity of § 6402. 26 U.S.C.A. § 6512 (West Supp. 2001); Savage v. Com-
missioner, 112 T.C. 46, 51 (1999) (noting the tax court’s lack of
jurisdiction to review the IRS’s credit of an overpayment). The IRS
suggests that the relief Martin seeks in this case would involve forbid-
den tax court interference with the IRS’s decision to credit an over-
payment against another year’s tax liability pursuant to § 6402. As we
have noted above, however, Martin does not contend that he has over-
paid his 1980 tax liability and that the excess of the $50,000 payment
over his 1980 liability should be credited to his 1981 liability, as
opposed to some other liability of the IRS’s choosing. Instead, he
contends that the entire $50,000 payment is properly attributable to
1981.7 Consequently, Martin does not seek to "restrain or review" the
7
Section 6512’s limitation on the tax court’s jurisdiction could have
become relevant in this case had Martin prevailed on the merits of his
claim that the $50,000 payment was applicable to 1981. In that circum-
stance, the resulting overpayment of approximately $49,000 for 1981
could have been credited to Martin’s 1980 liabilities by the IRS, and the
tax court would lack jurisdiction to restrain or review the IRS’s decision
to so credit the overpayment. 26 U.S.C.A. §§ 6402, 6512; Belloff v. Com-
missioner, 996 F.2d 607, 612 (2d Cir. 1993) (noting the IRS’s power to
apply an overpayment determined by the tax court to a taxpayer’s liabil-
ity for another tax year, thus defeating a refund claim).
MARTIN v. COMMISSIONER OF INTERNAL REVENUE 7
8
IRS’s credit of an overpayment to another year’s liability.
Accordingly, we conclude that the tax court’s overpayment juris-
diction allowed it to determine whether the $50,000 payment properly
was attributable to 1981. We now turn to an examination of the merits
of the tax court’s determination that the payment was not attributable
to 1981.
III.
The tax court determined that Martin in fact authorized Mathias &
Berg to remit the $50,000 payment relative to his 1980 liability. We
review this factual finding for clear error. Eren v. Commissioner, 180
F.3d 594, 596 (4th Cir. 1999). We resolve questions of law de novo.
Estate of Godley v. Commissioner, 286 F.3d 210, 213 (4th Cir. 2002).
At the outset, Martin concedes that Mathias & Berg had apparent
authority to direct the application of the $50,000 payment.9 It is ele-
mental that objective manifestations, and not subjective intentions,
govern the proper application of funds, for tax debts as for other
debts. See Cindy’s Inc. v. United States, 740 F.2d 851, 852 (11th Cir.
1984) (holding that the taxpayer’s manifest, not subjective, intent
controls). Indeed, unless a taxpayer provides specific written instruc-
tions for the application of a voluntary payment, the IRS may apply
the payment as it wishes. See, e.g., Rev. Proc. 2002-26, 2002-15
I.R.B. 746 (providing that the IRS may apply a payment to any tax
year unless the taxpayer provides express written instructions direct-
ing its application to a particular year); Muntwyler v. United States,
703 F.2d 1030, 1032 (7th Cir. 1983) (approving of this principle); see
8
The IRS also suggests that Martin’s claim is a de facto refund action
and is barred by the two-year statute of limitations provided by 26
U.S.C.A. § 6511(b)(2)(B) (West 1989). As we have noted above, how-
ever, a determination of overpayment would not necessarily result in a
refund; the IRS could apply any overpayment against another year’s lia-
bility pursuant to 26 U.S.C.A. § 6402. Savage v. Commissioner, 112 T.C.
46, 51 (1999).
9
The IRS treats this concession as relevant to the jurisdictional issue
discussed in Part II above; we believe it is more appropriately considered
relative to the merits of Martin’s claim.
8 MARTIN v. COMMISSIONER OF INTERNAL REVENUE
also In re DuCharmes, 852 F.2d 194, 195 (6th Cir. 1988) (noting that
an exception arises to the IRS’s ability to credit a payment as it deems
appropriate when a taxpayer expressly designates a voluntary pay-
ment as applicable to a particular liability); In re Technical Knockout
Graphics, 833 F.2d 797, 800 (9th Cir. 1987) (same); O’Dell v. United
States, 326 F.2d 451, 456 (10th Cir. 1964) (same). Here, Martin’s
attorneys explicitly directed the IRS to apply the $50,000 payment to
Martin’s 1980 liability. In order to establish that the payment should
have been credited to his 1981 and 1982 liability, Martin would have
to show that he provided the IRS with contemporaneous express
instructions to that effect; he does not contend that he could make
such a showing. The IRS cannot reasonably be expected to look
behind the express instructions of a taxpayer’s actually or apparently
authorized representatives in crediting a payment.
Despite Martin’s assertions that he was confused and intended to
remit the $50,000 payment relative to his 1981 liability, the tax court
did not clearly err in finding that he actually authorized Mathias &
Berg to remit the payment against his 1980 liabilities. Ample evi-
dence supports the tax court’s finding to this effect. For example,
Martin’s August 9, 1996 letter accompanying the $50,000 payment
stated that it was a partial payment of a joint liability. Martin and
Rothhammer were divorced during the 1981 and 1982 tax years and
had no joint liability for those years. Further, on August 14, 1996,
shortly after Martin sent the $50,000 payment to Mathias & Berg,
Mathias & Berg wrote both Martin and Rothhammer, noting that the
$50,000 payment had been sent to the IRS for credit against Martin
and Rothhammer’s joint 1980 liability. No record evidence indicates
that Martin timely communicated to Mathias & Berg that such appli-
cation of the payment was improper. Several months after the August
14 letter was sent, Martin wrote to Mathias & Berg, stating that he
would not be making payments additional to the $50,000 payment
until Rothhammer had "matched that amount." (S.A. at 46.)
Finally, Martin claims that the law of the case doctrine precluded
the tax court from finding that he authorized Mathias & Berg to for-
ward the $50,000 payment relative to 1980, because the tax court ear-
lier found that he did not authorize the filing of a tax court petition
for that year. This argument fails because there is no inconsistency
between a finding that Martin did not authorize the filing of the 1980
MARTIN v. COMMISSIONER OF INTERNAL REVENUE 9
petition and a finding that he did authorize the forwarding of the
$50,000 payment relative to 1980. Martin need not have challenged
his 1980 liability to have made a payment towards that liability.
The IRS properly credited Martin’s $50,000 payment to his 1980
liability based upon his attorney’s express instructions. While the tax
court had jurisdiction to entertain Martin’s claim that the payment
was properly applicable to his 1981 liability, the governing law
squarely precludes Martin’s contentions on the merits. The judgment
of the tax court is therefore
AFFIRMED.