Thompson v. Commissioner , 821 F.3d 1008 ( 2016 )

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 15-2329
___________________________
Randall J. Thompson, &; Karen G. Thompson
lllllllllllllllllllllAppellants
v.
Commissioner of Internal Revenue
lllllllllllllllllllllAppellee
____________
Appeal from the United States Tax Court
____________
Submitted: January 12, 2016
Filed: May 3, 2016
____________
Before WOLLMAN, MELLOY, and COLLOTON, Circuit Judges.
____________
WOLLMAN, Circuit Judge.
Randall and Karen Thompson appeal from an order of the United States Tax
1
Court that dismissed for lack of jurisdiction their petition challenging the Internal
Revenue Service’s (IRS) assessment of a penalty with respect to their 2001 joint tax
return. We affirm.
1
The Honorable Robert A. Wherry, United States Tax Court Judge.
This is the third appeal brought to challenge adjustments made by the IRS to
2001 tax returns filed by the Thompsons and a related partnership. See RJT Invs. X
v. Comm’r, 491 F.3d 732 (8th Cir. 2007) (partnership-level proceeding); Thompson
v. Comm’r, 729 F.3d 869 (8th Cir. 2013) (partner-level proceeding). We relate only
those general facts necessary to resolution of the jurisdictional issue presented here.
In 2001, Randall Thompson (Thompson) formed a partnership, RJT
Investments X, LLC (RJT), which he then used in an illegal tax-shelter transaction to
offset capital gains of approximately $21.5 million that otherwise would have been
taxable on his 2001 joint tax return. The IRS conducted an audit of RJT’s 2001
partnership tax return and determined that RJT was a sham, that it lacked economic
substance, and that it was formed so that Thompson could use the overstated basis he
claimed in his RJT partnership interest to offset the $21 million in capital gains. RJT
Invs. X, 491 F.3d at 735; Thompson, 729 F.3d at 871. The IRS disallowed all
deductions and losses reported by RJT on its 2001 partnership return. It also
determined that a 40-percent accuracy-related penalty for gross misstatement of
partnership basis would be applied to any underpayment of tax by RJT partners
resulting from the adjustments made to the RJT partnership return. RJT and
Thompson challenged these adjustments in a partnership-level proceeding before the
Tax Court, but the adjustments, including imposition of the penalty, were affirmed by
the Tax Court and by this court on appeal. RJT Invs. X, 491 F.3d at 738.
After the RJT partnership-level proceeding became final, the IRS initiated a
partner-level proceeding to determine the resulting effects of the partnership
adjustments on the Thompsons’ 2001 joint tax return. Because the IRS had previously
determined that RJT was a sham and must be disregarded for tax purposes, it further
determined that Thompson’s basis in his RJT partnership interest was zero and that
he could not use his basis in that interest to offset the $21 million capital gain reported
on his 2001 joint tax return. In addition to the tax assessed on this capital gain, the
-2-
IRS imposed the 40-percent accuracy-related penalty it had previously determined
was applicable in the RJT partnership-level proceeding.
The Thompsons filed a petition in the Tax Court to challenge both the tax
deficiency and the penalty. The IRS moved to dismiss the petition for lack of
jurisdiction, arguing that the Thompsons were not entitled to a prepayment hearing
before the Tax Court but were instead required to pay both the tax deficiency and the
penalty in full before they could challenge the adjustments in a tax-refund proceeding.
The Tax Court granted the IRS’s motion to dismiss the petition for lack of
jurisdiction. The Thompsons appealed to this court, and we reversed as to the Tax
Court’s jurisdiction over the tax deficiency. We observed that, although RJT was a
sham partnership, it did “not necessarily follow . . . that Thompson’s entire purported
basis” in RJT was overstated. Thompson, 729 F.3d at 873. Because the determination
of Thompson’s basis in his RJT partnership interest “must be determined at the partner
level,” we concluded that the Tax Court had jurisdiction in a partner-level proceeding
to determine Thompson’s basis and to consider his challenge to any tax deficiency
resulting from that determination. Id.
With respect to the Tax Court’s jurisdiction over the penalty issue, however, we
affirmed the Tax Court’s dismissal for lack of jurisdiction based on an express
abandonment of the issue by the Thompsons. In their brief, the Thompsons stated:
[T]he taxpayers are too late with this argument. The taxpayers agree that
they cannot here collaterally attack the jurisdiction of the Tax Court over
penalties in this case [i.e., the partner-level proceeding to adjust the tax
and penalty applicable to the Thompsons’ 2001 joint tax return]. The
earlier Tax Court Decision in [the] RJT [partnership-level proceeding]
is res judicata on the applicability of penalties here. . . . The decision of
the Tax Court dismissing this [partner-level proceeding] for lack of
jurisdiction should be reversed as to jurisdiction over the deficiency
determination.
-3-
J.A. 212. In addition to this direct concession, the Thompsons’ request for relief on
appeal was limited to a “revers[al] as to jurisdiction over the [tax-]deficiency
determination.” Id.
Relying on this express abandonment of any challenge to the penalty, we
concluded that the question of the Tax Court’s jurisdiction over the penalty issue was
moot:
As to the Tax Court’s jurisdiction over the penalties, the Thompsons
concede “that they cannot here collaterally attack the jurisdiction of the
Tax Court” because “[t]he earlier Tax Court Decision in [the] RJT
[partnership-level proceeding] is res judicata on the applicability of
penalties here.” Accordingly, this issue is moot.
Thompson, 729 F.3d at 872 n.3 (citation omitted). We then remanded the case to the
Tax Court for proceedings consistent with our opinion.
On remand, the parties stipulated to the amount of the tax deficiency, but the
Thompsons again attempted to argue that the Tax Court had jurisdiction over the
penalty issue. The IRS moved for entry of a decision limited to the stipulated tax
deficiency, asserting that the Thompsons had abandoned any challenge to the Tax
Court’s jurisdiction over the penalty issue and that revisiting that issue would exceed
the scope of this court’s mandate on remand.
The Tax Court agreed with the IRS, concluding that its decision in the RJT
partnership-level proceeding had resolved the penalty issue—a decision that had
become final and had acquired preclusive effect. The Tax Court specifically noted
that the Thompsons had conceded in their appeal to this court that the penalty issue
had been resolved by the final judgment in the RJT partnership-level proceeding and
was not subject to collateral attack in the partner-level proceeding. The Tax Court
concluded that the penalty could be “directly assessed” against the Thompsons under
-4-
I.R.C. §§ 6225(a)(2) and 6230(a)(1) and that they could raise any defenses they might
have against assessment of the penalty only in a “postpayment refund suit” under
I.R.C. § 6230(c)(1)(C). Thompson v. Comm’r, 108 T.C.M. 104, at *3 (2014). The
Tax Court accordingly granted the IRS’s motion to dismiss the penalty dispute for
lack of jurisdiction, a determination that we review de novo. See Thompson, 729 F.3d
at 872.
The IRS contends that the Thompsons are prohibited from challenging the Tax
Court’s jurisdiction over the penalty issue under the law-of-the-case doctrine, which
“prevents relitigation of a settled issue in a case and requires that courts follow
decisions made in earlier proceedings to insure uniformity of decisions, protect the
expectations of the parties[,] and promote judicial economy.” Klein v. Arkoma Prod.
Co., 73 F.3d 779, 784 (8th Cir.1996). Thus, when a case has been decided by an
appellate court and remanded for further proceedings, every question decided by the
appellate court, whether expressly or by necessary implication, is finally settled and
determined, and the court on remand is bound by the decree and must carry it into
execution according to the mandate. See id. at 784-85; see also Lamb Eng’g &
Constr. Co. v. Ne. Pub. Power Dist., 145 F.3d 996, 998 (8th Cir.1998) (“Under the
law of the case doctrine, the district court was bound on remand to obey the Eighth
Circuit’s mandate and not to re-examine issues already settled by our prior panel
opinion.”). “[T]he doctrine posits that when a court decides upon a rule of law, that
decision should continue to govern the same issues in subsequent stages in the same
case.” Gander Mountain Co. v. Cabela’s, Inc., 540 F.3d 827, 830 (8th Cir. 2008)
(citation omitted). Although a court should not reopen issues already decided, if a
prior decision “is clearly erroneous and would work a manifest injustice,” reopening
may be appropriate. Wong v. Wells Fargo Bank, N.A., 789 F.3d 889, 898 (8th Cir.)
(citation omitted), cert. denied, 136 S. Ct. 507 (2015).
As noted above, the Thompsons expressly withdrew their challenge to the Tax
Court’s jurisdiction over the IRS’s penalty determination in an earlier stage of this
-5-
partner-level litigation. The penalty issue thus became moot, Thompson, 729 F.3d at
872 n.3, and the Tax Court’s initial holding that it lacked jurisdiction over the penalty
became the law of the case. The Tax Court properly declined to revisit the issue on
remand. See In re Raynor, 617 F.3d 1065, 1068 (8th Cir. 2010) (“We have held that
when an appellate court remands a case . . . all issues decided by the appellate court
become the law of the case.” (alterations and citations omitted)). And given the fact
that the Thompsons expressly disclaimed this argument in their earlier appeal, no
manifest injustice would occur by holding them to that concession. See Wong, 789
F.3d at 898.
Nevertheless, the Thompsons now contend that they did not concede the
“individual” penalty issue in their earlier appeal. They argue that they conceded only
that the Tax Court’s penalty determination against RJT in the partnership-level
proceeding was res judicata such that they could not make a collateral attack on that
partnership determination in this partner-level proceeding. We disagree with this
characterization of the Thompsons’ earlier concession, for the Thompsons in their first
appeal in this partner-level proceeding expressly and unconditionally conceded the
penalty issue as it affected their 2001 joint tax return. See J.A. 212. In sum, we reject
the Thompsons’ attempt to revisit their argument regarding the Tax Court’s
jurisdiction over the penalty assessed on their 2001 joint tax return. The Tax Court
did not err by dismissing the penalty issue for lack of jurisdiction.
The judgment is affirmed.
______________________________
-6-