Larry G. and Maria A. Walton Mitchell v. Commissioner ( 2008 )

131 T.C. No. 15UNITED STATES TAX COURT
LARRY G. AND MARIA A. WALTON MITCHELL, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 2518-04. Filed December 15, 2008.
P-W received distributions during 2001 made pursuant to
a QDRO after her ex-husband retired from the U.S. Air Force.
Ps did not include the 2001 distribution in income when they
filed their joint 2001 Federal tax return. R issued a
notice of deficiency in which he determined that Ps were
liable for income tax on the distribution.
Held: Distributions received by P-W are income to P-W
and are includable in petitioners’ taxable income.
Larry G. and Maria A. Walton Mitchell, pro se.
Michael R. Skutley, for respondent.
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OPINION
GOEKE, Judge:1 Respondent determined a deficiency of $1,471
in petitioners’ Federal tax for 2001. The issue for decision is
whether $5,126 received by petitioner Maria A. Walton Mitchell
(petitioner) for her interest in her former husband’s military
retired pay is includable in her gross income. For the reasons
stated herein, we hold that it is.
Background
The following facts are stipulated or are not disputed by
the parties. The parties’ stipulation of facts and the
accompanying exhibits are incorporated herein by this reference.
Petitioners resided in California at the time that the
petition was filed.
Before her marriage to Larry G. Mitchell, petitioner was
married to Bobbie Leon Walton. At the time of their marriage,
Mr. Walton was on active duty in the U.S. Air Force (USAF). Mr.
Walton and petitioner separated in 1985. Pursuant to a final
judgment entered by the Superior Court of the State of California
(superior court) their divorce became final on August 29, 1986.
On August 1, 1990, Mr. Walton retired from the USAF after 26
years on active duty and began receiving military retired pay.
Petitioner subsequently petitioned the superior court with
1
This case was reassigned to Judge Joseph R. Goeke by order
of the Chief Judge.
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respect to her interest in Mr. Walton’s military retired pay. On
January 2, 1991, the superior court entered an order (order)
which stated in pertinent part:
2. Servicemember [Mr. Walton] retired from the United
States Air Force on August 1, 1990, with fully vested
retirement rights and benefits, a portion of which are
community property of Servicemember and of Servicemember’s
former spouse,
* * * * * * *
4. * * * [Petitioner] is now entitled to an order
dividing the military retirement to the extent same was
earned by Servicemember during the marriage to * * * [her].
* * * * * * *
8. * * * [Petitioner] shall be awarded as her sole and
separate property, one-half (1/2) of the community property
interest in Servicemember’s net disposable military
retirement pay as set forth in the California case of
Mansell v. Mansell decided by the U.S. Supreme Court on May
30, 1989, wherein the net disposable military retirement pay
is defined as the net after deducting (a) amounts owned
[sic] by the military member to the United States; (b)
required by law to be deducted from total pay, including
employment taxes, and fines and forfeitures ordered by
courts-martial; (c) properly deducted from Federal, State
and [sic] income taxes; (d) withheld pursuant to other
provisions under the Internal Revenue Code; (e) deducted to
pay government life insurance premiums; and (f) deducted to
create an annuity for the former spouse (10 U.S.C. #1408
(a)-(4)-(A)-(F)).
9. The community property interest in the
Servicemember’s net disposable retirement pay is determined
to be 48.7%.
10. * * * [Petitioner’s] interest in Servicemember’s
net disposable retirement pay is determined to be 24.35%.
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Attached to the order was a factsheet titled “DIRECT
PAYMENTS FROM U.S. AIR FORCE RETIRED PAY PURSUANT TO THE
UNIFORMED SERVICES FORMER SPOUSES’ PROTECTION ACT” (factsheet).
The factsheet stated in pertinent part:
j. Taxes may be held only from the Air Force retiree’s
pay. Funds may not be held for taxes from the ex-spouses
portion. For further information, we refer you to the
nearest Internal Revenue Service office.
Sometime in 1991 petitioner began receiving monthly payments
from the Defense Finance and Accounting Service (DFAS) for her
interest in Mr. Walton’s military retired pay pursuant to the
order. For the taxable year 2001 she received payments from DFAS
in the aggregate amount of $5,126. DFAS issued to petitioner a
Form 1099-R, Distributions From Pensions, Annuities, Retirement
or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., for the
taxable year 2001 which reported both the gross distribution and
the taxable amount as $5,126 and the amount of Federal income tax
withheld as zero.
Petitioners timely filed a joint Form 1040, U.S. Individual
Income Tax Return, for 2001 but did not report the $5,126
distribution that petitioner received from DFAS. On November 10,
2003, respondent issued to petitioners a notice of deficiency for
the taxable year 2001. In the notice respondent determined that
petitioners failed to report the $5,126 in their gross income.
On February 9, 2004, petitioners filed an imperfect
petition. On March 26, 2004, petitioners filed an amended
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petition alleging that taxes were to be taken into account before
petitioner was issued her share of Mr. Walton’s retirement
benefits and that if petitioner’s share were taxed, it would be
subject to double taxation.
A trial was held on June 24, 2005, in Los Angeles,
California.
Discussion
Petitioners argue that taxes should have been withheld on
the entire amount of the pension payments disbursed to Mr. Walton
before petitioner was paid her share. Petitioners maintain that
if petitioner is required to pay Federal income tax on her share,
then Mr. Walton’s pension is being subject to double taxation,
both on disbursement to Mr. Walton and again when petitioner
receives her share. Respondent argues that tax was withheld only
on Mr. Walton’s share of the military pay, not on petitioner’s
share.2
Petitioner’s interest in the military retired pay was
determined according to the laws of the State of California. In
the State of California, community property principles apply in
2
On Nov. 23, 2004, this Court issued an opinion in Mitchell
v. Commissioner, T.C. Summary Opinion 2004-160. That dealt with
a substantially similar issue for petitioners’ 2000 tax year.
Respondent also raised collateral estoppel several weeks before
trial, relying on that case. Because this case was tried and
presents a legal issue on the basis of largely uncontested facts,
we decide the case on the merits and do not reach respondent’s
collateral estoppel argument.
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divorce proceedings. Consistent with these principles, each
spouse is considered to have a one-half ownership interest in all
property earned by either spouse during the marriage. See Cal.
Fam. Code sec. 2550 (West 2004). In McCarty v. McCarty, 453 U.S.
210 (1981), the Supreme Court held that the Federal statutes then
governing military retirement pay prevented State courts from
treating military retirement pay as community property. In
response to McCarty, Congress enacted in 1982 the Department of
Defense Authorization Act, 1983, Pub. L. 97-252, sec. 1002, 96
Stat. 730 (1982), which added section 1408 to title 10 of the
United States Code. Under 10 U.S.C. sec. 1408(c)(1) (2006), a
State court may treat disposable military retired pay in a
divorce proceeding either as property solely of the servicemember
or as property of the military retiree and his or her spouse in
accordance with the law of the jurisdiction of the court. If a
divorce was effective before February 3, 1991, only the
disposable retired pay, which is the total monthly retired pay to
which a member is entitled less, inter alia, amounts properly
withheld for Federal, State, or local income taxes, may be
treated as the property of the member and his spouse. 10 U.S.C.
sec. 1408(a)(4) (1988); National Defense Authorization Act for
Fiscal Year 1991 (NDAA), Pub. L. 101-510, sec. 555(b)(3), (e)(2),
104 Stat. 1569, 1570 (1990).
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Under California law post-McCarty, military retirement
benefits earned during marriage are community property. Casas v.
Thompson, 720 P.2d 921, 925 (Cal. 1986); see Gillmore v.
Gillmore, 629 P.2d 1, 3 (Cal. 1981).
While State law determines the nature of a property
interest, Federal law determines the Federal taxation of that
property interest. United States v. Mitchell, 403 U.S. 190(1971). Furthermore, the tax liability for income from property
attaches to the owner of the property. Eatinger v. Commissioner,
T.C. Memo. 1990-310 (citing Helvering v. Clifford, 309 U.S. 331,
334 (1940), Blair v. Commissioner, 300 U.S. 5, 12 (1937), Poe v.
Seaborn, 282 U.S. 101 (1930), and Lucas v. Earl, 281 U.S. 111(1930)).
As a general rule, the Internal Revenue Code imposes a tax
on the taxable income of every individual. See Sec. 1. For
purposes of calculating taxable income, section 61(a) defines
gross income as “all income from whatever source derived” unless
otherwise specifically excluded. Gross income specifically
includes amounts derived from pensions. Sec. 61(a)(11).
Military retired pay constitutes a pension within the meaning of
that section. See Eatinger v. Commissioner, supra (“A military
retirement pension, like other pensions, is simply a right to
receive a future income stream from the retiree’s employer.”);
sec. 1.61-2(a)(1), Income Tax Regs.; sec. 1.61-11(a), Income Tax
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Regs. (“Pensions and retirement allowances paid either by the
Government or by private persons constitute gross income unless
excluded by law.”); see also 10 U.S.C. 1461(a) (2006) (defining
the Department of Defense Military Retirement Fund).
Under section 402(a) a pension distribution is normally
taxed to the distributee. Pursuant to section 402(e)(1)(A), the
spouse or former spouse is treated as the distributee with
respect to distributions allocated to that spouse pursuant to a
qualified domestic relations order (QDRO), and such distributions
therefore become taxable income to that spouse. The spouse
receiving the distribution pursuant to the QDRO is also known as
an “alternate payee”. Secs. 402(e)(1)(A), 414(p)(8).
A domestic relations order (DRO) qualifies as a QDRO only if
it: (1) Creates or recognizes the existence of an alternate
payee’s right to, or assigns to an alternate payee the right to,
receive all or a portion of the benefits payable with respect to
a participant under a plan; (2) clearly specifies facts required
by section 414(p)(2); and (3) does not alter the amount or form
of the plan benefits. Sec. 414(p)(1)-(3). In addition, the DRO
must be presented to the plan administrator, who must determine
whether it is a QDRO. Sec. 414(p)(6). Finally, under section
402(e)(1)(A) an alternate payee is treated as the distributee of
a distribution from a qualifying plan only if the distribution is
made to the alternate payee under a QDRO. The parties do not
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dispute that the order constitutes a QDRO, and we agree that the
order satisfies the requirements of section 414(p).
Nonetheless, even if the superior court order had not
constituted a QDRO under section 414(p), petitioner’s interest in
the military retired pay would be taxable income to her on the
basis of community property law. See Powell v. Commissioner, 101
T.C. 489, 498 (1993); Eatinger v. Commissioner, supra.
Petitioners do not dispute that the superior court awarded
petitioner a community property interest in Mr. Walton’s military
retired pay and that she received $5,126 pursuant to the QDRO.
Instead, petitioners argue that the payments petitioner received
for her interest in Mr. Walton’s military retired pay are not
subject to income tax because the QDRO specified that all taxes
should have been withheld from the military retirement pay before
it was divided and distributed. Petitioner draws support for
this argument from a paragraph in the factsheet attached to the
QDRO which stated in pertinent part:
i. The amount payable to a spouse or former spouse
under this law is limited to 50 percent of the disposable
retired pay. Please see 10 U.S.C. sec. 1408(a)(2)(C) and
(e)(1). [Emphasis added.]
The QDRO defined “net disposable military retirement pay” as “the
net after deducting * * * properly deducted Federal, State and
[sic] income taxes”. This definition is consistent with the
plain language of 10 U.S.C. sec. 1408(a)(4)(C) (1988), as it was
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in effect when the superior court entered both the final judgment
and the QDRO.
Congress recognized that subtracting tax withholdings from
the computation of disposable retired pay created unfairness to
the service member’s spouse. H. Rept. 101-665, at 279-280
(1990). Accordingly, Congress amended the definition of
“disposable retired pay” such that the disposable retired pay is
not reduced by income taxes withheld. 10 U.S.C. sec. 1408(a)(4)
(Supp. III 1991); NDAA sec. 555(b)(3), (e)(2). This amendment,
however, is effective only for divorces entered into on or after
February 3, 1991, which is after both petitioner’s final judgment
and the QDRO and is therefore not applicable in the instant case.
See 10 U.S.C. sec. 1408(a)(4) (Supp. III 1991); NDAA sec.
555(b)(3), (e)(2).
The calculation of disposable retired pay, however, does
not mean that petitioner’s allotment is not taxable, nor does it
mean that petitioner’s allotment is exempt from tax because tax
was already withheld on Mr. Walton’s allotment. Title 10 U.S.C.
sec. 1408(a)(4) (2006) merely defines petitioner’s property
rights in the military retired pay, not the tax consequences of
her receipt of the benefit. Because the State of California is a
community property State, petitioner is treated as having earned
the distributions she is currently receiving. Accordingly,
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petitioner is liable for tax on those distributions, regardless
of the terms of the QDRO.
Petitioner essentially argues that her disbursement is being
subjected to double taxation. Petitioner, however, did not
produce any evidence, and the record is void of any evidence,
that double taxation occurred. Petitioner did not provide any
evidence about the amount of the pension which was included in
Mr. Walton’s taxable income. Moreover, there is nothing in the
QDRO stating that petitioner’s interest in Mr. Walton’s military
retired pay is not taxable or has already been subject to tax.
As indicated above, the factsheet provides in pertinent part that
“Taxes may be held only from the Air Force retiree’s pay. Funds
may not be held for taxes from the ex-spouses [sic] portion.”
This supports respondent’s argument that taxes were not withheld
on petitioner’s portion of the military retired pay.
On the basis of the law as it was in effect on the date of
petitioner’s final judgment and the date of the QDRO,
petitioner’s interest is calculated on Mr. Walton’s military
retired pay less income tax withheld. Petitioner provided no
evidence that income taxes were withheld from her portion of the
military retired pay. As explained earlier, petitioner’s
interest is taxable. Accordingly, we conclude that the $5,126
petitioner received in 2001 for her interest in Mr. Walton’s
military retired pay is includable in petitioners’ gross income.
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To reflect the foregoing,
Decision will be entered
for respondent.
Reviewed by the Court.
COLVIN, COHEN, WELLS, FOLEY, VASQUEZ, GALE, THORNTON,
MARVEL, HAINES, WHERRY, KROUPA, GUSTAFSON, and PARIS, JJ., agree
with this majority opinion.
MORRISON, J., did not participate in the consideration of
this opinion.
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HOLMES, J., concurring: Dear Reader--if you have made it
this far, you may reasonably ask “Where’s the beef?” Why did the
Tax Court assemble in conference to decide unanimously that
payments under a divorce agreement were taxable income to Maria
Mitchell--a question already resolved on a nearly identical
record for the immediately preceding tax year?
Tucked away in footnote 2 is the answer: A solid majority
of the Court does not wish to address the question of whether our
decision in a small tax case collaterally estops future
litigation of the same issue between the same parties in a later-
filed regular tax case. Our opinion today technically avoids the
issue, but in doing so throws into question at least three
summary opinions,1 two of our Rules,2 and one memorandum opinion3
where we have given or said we would give S-case decisions
collateral-estoppel effect. It should, I think, be construed by
those who read and rely on our opinions as standing for the
proposition that half our Court’s caseload--cases leading to
1
See Voss v. Commissioner, T.C. Summ. Op. 1978-288 at 6
(collateral estoppel “in no way conflicts with the ‘no precedent’
provisions of section 7463(b)”); Wilkerson v. Commissioner, T.C.
Summ. Op. 2004-99 at 6 n.7 (section 7463(b) doesn’t “necessarily
preclude application of the doctrines of res judicata and
collateral estoppel”); Gilmore v. Commissioner, T.C. Summ. Op.
2005-38 at 1 n.1 (applying collateral estoppel despite section
7463(b)).
2
Rules 50(g),152(c).
3
Ginalski v. Commissioner, T.C. Memo. 2004-104.
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decisions in S cases--are like a “restricted railroad ticket,
good for this day and train only.”4 All agree that the Code
makes S-case decisions nonprecedential, but today’s opinion may
suggest more radically that they are without effect on future
litigation at all.
I write separately to explain the issue that we are avoiding
today, and how I think it should have been resolved.5
I.
The facts in this case were largely undisputed and, as the
trial judge who heard the case, I do not disagree with the
majority’s recitation of them here. But the case doesn’t really
begin with Mitchell’s 2001 taxes. Mitchell began receiving the
pension payments due under the QDRO in 1991. She consistently
reported none of them on her tax returns until 2002, when the IRS
sent her a notice of deficiency challenging her failure to report
the payments on her 2000 tax return.
Mitchell began a case in our Court, and chose for it to be a
small tax case (S case) under section 7463. One of our Court’s
special trial judges heard Mitchell’s S case and, as the
majority’s footnote 2 mentions, we issued the opinion as Mitchell
4
Smith v. Allwright, 321 U.S. 649, 669 (1944) (Roberts, J.
dissenting).
5
See Ballard v. Commissioner, 544 U.S. 40, 63 (2005) (“To
the extent that the individual judge disagrees with his
colleagues, he is free to file a dissenting opinion repeating or
borrowing from his initial decision.”).
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v. Commissioner, T.C. Summ. Op. 2004-160 (Mitchell I). In
language strikingly similar to that used by the majority today,
we held that the QDRO didn’t actually say that Mitchell’s portion
of Walton’s retirement pay was nontaxable, only that her share of
it was to be computed after Walton’s own taxes on the full amount
were withheld. Finding nothing in the Code that would have
excluded the payments from Mitchell’s gross income, we concluded
then as now that Mitchell had to pay tax on them.
When Mitchell filed her 2001 joint income tax return with
her second husband (which, I want to note, she filed well before
we issued Mitchell I), she again did not include the pension
payments that she had received under the QDRO. After receiving
another notice of deficiency, she again filed a petition with
this Court. This time, she specifically designated her case a
“regular” one under section 7453, subject to the full set of
rules, procedures, and appeal rights as all other regular cases.
Once the decision in Mitchell I became final, the
Commissioner amended his answer in this case and asserted
collateral estoppel as an affirmative defense. This squarely
placed at issue a question left open more than a quarter century
ago by Sherwood v. Commissioner, T.C. Memo. 1979-149: Does our
Court’s decision in an S case collaterally estop the losing party
in later litigation? A bit of research showed that we had
addressed the issue before in summary opinions, and at least
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obliquely in one memorandum opinion. And we seemed to have
answered the question by rule when it came to S cases decided by
bench opinions or dispositive orders. It seemed reasonable to
view this second Mitchell case as a good opportunity to provide
citable precedent on the collateral-estoppel effect of S cases
decided by summary opinion. We asked both parties to brief the
issue, and gave the Commissioner’s counsel enough time to seek
review from the IRS National Office to make certain that the
views he presented reflected the IRS’s considered opinion.
The transcript of the trial consists of 30 pages, only 11 of
which show testimony or the receipt of evidence. The only really
important question was the first one:
The Court: Now, are there any differences between this
tax year, which is for 2001, and the tax year that [the
special trial judge] wrote about?
* * * * * * *
Mr. Mitchell: The only thing I think that may have changed
is there may be a little slight difference in the amount
that she received. But I don’t think so.
II.
A.
I begin by outlining the key characteristics of S cases.
One of the most important is that S status is voluntary. When
Mitchell filed her first petition in our Court, she used a form
we had specifically designed for small cases, but with a box that
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she had only to check to choose regular-case status.6 Either
party may also ask that we remove this designation any time
before trial. Rule 171(c).7 But if the case remains an S case
all the way to a final decision, neither party is allowed to
appeal it to a United States Court of Appeals as he could if it
were a decision in a regular case. Sec. 7481(b).
Congress considered this point carefully before giving
taxpayers the option of choosing S-status for their cases. The
S designation has benefits for taxpayers who choose it--they get
relaxed rules of evidence and procedure, a longer list of cities
from which to choose a place of trial, and usually a speedier
decision. See S. Rept. 91-552, at 302-304 (1969), 1969-3 C.B.
423, 614-15. And each of these features makes access to the
court system easier and less costly for taxpayers with small
claims, a category into which most Tax Court cases currently
fall. But increasing access to Tax Court for these taxpayers
increases the likelihood that sometimes unforeseen but
6
We recently adopted a new form that requires a taxpayer to
choose between small-case and regular-case procedures. If he
doesn’t, the default rule is to designate his case a regular one.
Tax Court Form 2 (March 2008).
7
We also must remove the S designation after trial begins
but before the decision becomes final if the case no longer meets
the jurisdictional requirements. Sec. 7463(d). And Rule 173(b)
now requires the Commissioner to file an answer in S cases, which
also increases the probability that we will notice small cases
raising novel legal issues and move them to a regular-case track
under section 7463(d).
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complicated questions of tax law might be decided incorrectly,
especially when the volume of cases increases and they are not
often tried on both sides by professionals. By enacting section
7463, Congress chose to balance these competing effects on
accuracy and cost by allowing easier access for taxpayers and
eliminating the right of appeal--making the stakes lower for the
IRS by eliminating any precedential effect an S case might
otherwise have. See id. at 303, 1969-3 C.B. at 615.
But any increase in the probability of error is reduced by
our Rules. Apart from the elimination of the right of appeal and
precedential effect, we decide S cases very much like regular
cases. In an S case, just as in a regular case, the judge has to
prepare an oral or written “summary of the facts and reasons for
the proposed disposition of the case.” Rules 182(a), 152. A
summary opinion like the one in Mitchell I is submitted to the
chief judge (or his designee) for review before decision is
entered. Rule 182 (a). This review gives time for the chief
judge to direct that “such report shall be reviewed by the Tax
Court.” Section 7460(b). If so, the opinion would be considered
and voted on by all the Court’s presidentially appointed judges
in active service. And whether the opinion in an S case is
written or oral, the decision in the case becomes final 90 days
after it is entered. Section 7481(b). During this time, either
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party may file a motion to vacate or a motion to revise the
decision. Rule 162.
B.
Issue preclusion or collateral estoppel is a doctrine with
deep roots in our legal system. The doctrine is easy to state:
“when an issue of fact or law is actually litigated and
determined by a valid and final judgment, and the determination
is essential to the judgment, the determination is conclusive in
a subsequent action between the parties, whether on the same or
different claim.” 1 Restatement, Judgments 2d, sec. 27 (1982).
It stems from the understandable policy that a dispute once
resolved should stay resolved. It promotes judicial economy and,
if justice consists in part of reaching the same result in
similar cases, it is also an instrument of justice. In Peck v.
Commissioner, 90 T.C. 162, 166-67 (1988), affd. 904 F.2d 525 (9th
Cir. 1990), we listed the requirements for applying collateral
estoppel:
(1) The issue in the second suit must be
identical in all respects with the one
decided in the first suit.
(2) There must be a final judgment
rendered by a court of competent jurisdiction.
(3) Collateral estoppel may be invoked
against parties and their privies to the
prior judgment.
(4) The parties must actually have litigated
the issues and the resolution of these issues must
have been essential to the prior decision.
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(5) The controlling facts and applicable
legal rules must remain unchanged from those in the
prior litigation.
See Montana v. United States, 440 U.S. 147, 155 (1979) (listing
similar elements).
Mitchell I seems to have them all:
• The issue is the same;
• the decision in Mitchell I is final;
• the parties are identical;
• the issue was actually litigated and was
essential to the outcome; and
• neither the terms of the QDRO nor the
relevant law changed from one year to
the next.
The Supreme Court told us just earlier this year that “[t]he
preclusive effect of a federal-court judgment is determined by
federal common law.” Taylor v. Sturgell 128 S. Ct. 2161, 2171-
72, n.6 (2008). We look to caselaw, the Restatement, and
treatises for sources of that law. And, as with most common-law
doctrines, there are exceptions to the general rule against
relitigation of a decided issue. One that is relevant here
denies estoppel when “[t]he party against whom preclusion is
sought could not, as a matter of law, have obtained review of the
judgment in the initial action.” 1 Restatement, Judgments 2d,
sec. 28(1) (1982). The Ninth Circuit--the circuit to which this
case is appealable--has construed the availability of review
specifically to mean “the possibility of a chain of appellate
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review.” Wehrli v. County of Orange, 175 F.3d 692, 695 (9th Cir.
1999) (citation omitted). If collateral estoppel applied in
cases with no possibility of appellate review, the court
reasoned, it would be too easy for a party to become bound by an
arbitrary or incorrect decision not just in that specific case,
but in any future litigation as well. Id. And a leading
treatise on the subject flatly states that “inability to obtain
appellate review * * * does prevent preclusion.” 18 Moore,
Moore’s Federal Practice, par. 132.03[4][k][i], at 132-122
(3d ed. 1997).
This means that the Commissioner has a problem--Congress, by
enacting section 7463(b), has shattered whatever chain of
appellate review might otherwise have been available to the
Mitchells after our Court decided Mitchell I. And it might
conceivably be argued that section 7463's prohibition on treating
decisions in S cases “as a precedent” itself somehow bars using
those decisions as the basis for defenses of collateral estoppel
or res judicata or law of the case.
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I will therefore sort the possible objections8 to giving
collateral-estoppel effect to our decisions in S cases into three
parts:
• Section 7463;
• the absence of appealability; and
• the peculiar problem of applying collateral
estoppel in a case appealable to the Ninth
Circuit because of Wehrli.
III.
A.
Section 7463(b) states that a “decision entered in any case
in which the proceedings are conducted under this section shall
not be reviewed in any other court, and shall not be treated as a
precedent for any other case.” This language is prominently
8
The majority’s stated explanation is that it won’t address
the Commissioner’s collateral-estoppel defense “because this case
was tried and presents a legal issue.” Majority op. note 2.
Neither of these is very persuasive. Collateral estoppel is an
affirmative defense, not a defect in pleading of the sort that’s
waived if not raised before trial. Cf. Fed. R. Civ. P. 12(h).
It’s also a defense that can be raised for the first time on
appeal, during oral argument, even in a supplemental appellate
brief--so “long as it is raised at the first reasonable
opportunity after the rendering of the decision having the
preclusive effect.” Aetna Cas. & Sur. Co. v. Gen. Dynamics
Corp., 968 F.2d 707, 711 (8th Cir. 1992). Nor should the fact
that the key issue is a question of law, rather than a question
of fact, make any difference. Collateral estoppel applies “when
an issue of fact or law is actually litigated and determined by a
valid and final judgment...” 1 Restatement, Judgments 2d, sec. 27
(1982) (emphasis added). And we have said the same thing
ourselves. Bertoli v. Commissioner, 103 T.C. 501, 508 (1994);
Meier v. Commissioner, 91 T.C. 273, 283 (1988).
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quoted in every summary opinion we issue, putting both parties on
notice that they can’t appeal.
But what exactly does the phrase “shall not be treated as a
precedent for any other case” mean? One possible reading is to
look at section 7436(c), which provides that our decisions in S
cases at the end of proceedings to determine employment status
“shall not be treated as precedent for any other case not
involving the same petitioner and the same determinations.” And
then one might consider the language of local rules in many
circuit courts that prohibit citation of unpublished or
nonprecedential opinions (at least for cases decided before
2007).9 The Ninth Circuit’s Rule 36-3(c) is typical:10
Unpublished dispositions and orders of this
Court issued before January 1, 2007 may not
be cited to the courts of this circuit,
except in the following circumstances.
(i) They may be cited to this Court or to or
by any other court in this circuit when
relevant under the doctrine of law of the
case or rules of claim preclusion or issue
preclusion.
9
Federal Rule of Appellate Procedure 32.1 restricts courts
from forbidding the citation of unpublished or nonprecedential
opinions. However, the advisory committee noted that this rule
does not say anything about the precedential weight of such
opinions.
10
See Cooper, “Citability and the Nature of Precedent in
the Courts of Appeals: A Response to Dean Robel”, 35 Ind. L. Rev.
423, 432-33 (2002).
-24-
One might argue, on the principle of inclusio unius est
exclusio alterius, or the duty to refrain from reading into the
statute a phrase that Congress has left out,11 that this makes
the best reading of section 7463(b) one that would make our
summary opinions uncitable even for purposes of res judicata,
collateral estoppel, law of the case, or the other purposes
listed by the Ninth Circuit.
I think such a reading is wrong. First, barring something
unusual in the context or the structure of the Code, legal terms
like “precedent”--even when used in the Internal Revenue Code--
should be read as having their ordinary meaning to lawyers.
Kornman & Associates, Inc. v. United States, 527 F.3d 443, 451
(5th Cir. 2008). And “treating a case as precedent” means, to a
lawyer, not a prohibition on citing it altogether, but on citing
it as stating “a point or principle of law * * * decided or
settled by the ruling of a competent court in a case in which it
is directly and necessarily involved,” Black’s Law Dictionary
1443 (8th ed. 2004), or considering the case “as furnishing a
rule or authority for the determination of an identical or
similar case afterwards arising, or of a similar question of
law.” Id. at 1214.
11
See Russello v. United States, 464 U.S. 16, 23 (1983),
(also saying that where Congress has included a phrase in one
section of a statute that it omitted in another we should presume
that it acted intentionally in the disparate inclusion or
exclusion).
-25-
A good illustration of this is our opinion in Ginalski v.
Commissioner, T.C. Memo. 2004-104.12 In that case, the taxpayer
filed an S case to contest the Commissioner’s determination of a
deficiency in her 1993 and 1994 taxes. She lost, for reasons
explained in a summary opinion. The Commissioner came to
collect, and she demanded a collection due process hearing. The
Commissioner argued that she was barred from again challenging
her underlying liability at the hearing, but she thought she
could trump him by citing section 7463. We disagreed:
Summary Opinions of this Court contain the
caveat: “[The] case was heard pursuant to
the provisions of section 7463 of the
Internal Revenue Code in effect at the time
that the petition was filed. The decision to
be entered is not reviewable by any other
court, and this opinion should not be cited
as authority.” Petitioner has mistakenly
interpreted that caveat to mean that the
outcome of her Tax Court proceeding involving
the same taxable years (1993 and 1994) is not
binding with respect to her proceeding under
sections 6320 and 6330. Although this
Court’s decision for petitioner’s 1993 and
1994 tax years is not precedential for any
other case, it is final and determinative as
it relates to petitioner’s liability for
those years. It appears that petitioner
believes that the limitation on citing
Summary Opinions as precedent deprives them
of the effect of res judicata. * * * [Id.]
Consider as well the Third Circuit’s rule on citing
nonprecedential opinions, which seems to be unique among the
12
See also Gilliam v. U.S., 216 Ct. Cl. 464, 578 F.2d 1389(1978) (an unpublished decision noting that res judicata bars
relitigation of a claim decided in an S case in our Court).
-26-
circuit courts13 in stating only that “[t]he Court by tradition
does not cite to its not precedential opinions as authority.
Such opinions are not regarded as precedents that bind the
Court.” 3d Cir. Int. Op. Proc. 5.7. That court, too, gave
little time to an argument that a refusal to treat an unpublished
opinion as precedent meant that it couldn’t be relied on in later
litigation between the same parties:
We recognize that an unpublished opinion has
no precedential value and should not be cited
as authority in a subsequent case. * * *
The reference made here is necessary,
however, to record the law of this case.
Edge v. Schweiker, 814 F.2d 125, 127 n.1 (3d Cir. 1987); see also
Green v. Commissioner, 201 F.3d 447 (10th Cir. 1999)(noting in
dicta that “ §7463(b) does not alter traditional principles of
collateral estoppel”), affg. without published opinion T.C. Memo.
1998-274.
There would also be some perverse consequences of construing
the phrase “not be treated as a precedent” in section 7463(b) as
a bar on subsequent citation for purposes of res judicata,
collateral estoppel, and law of the case. Section 6512 generally
deprives other federal courts of jurisdiction over refund cases
for tax years that have been the subject of deficiency cases in
our Court. But there are exceptions: Section 6512(a)(2), for
13
Cooper, supra note 10, at 431.
-27-
example, allows a refund claim for the same year “as to any
amount collected in excess of an amount computed in accordance
with the decision of the Tax Court which has become final.” Are
courts to read section 7463(b) as prohibiting the use of our
decisions in S cases to establish this jurisdictional
prerequisite when those decisions are explained by summary
opinions? The answer is “no.” Section 7463(b) has no effect on
rules of collateral estoppel and res judicata, because they are
rules about the finality of judgments, not rules on the weight or
binding authority of precedent.
And this leads to a point making the majority’s reluctance
to decide the issue even odder: Two of our own rules parallel
pretty closely the noncitation rules of the circuit courts--with
no exclusion for S cases. Rule 50(g) prohibits treating
dispositive unpublished orders as precedents, and Rule 152(c)
does the same for unpublished oral opinions, except “for purposes
of the application of the doctrine of res judicata, collateral
estoppel, or law of the case.”14 (The quotation is from Rule
152(c); Rule 50(g) puts the list in a different order and throws
14
Rule 152 expressly governs cases where a special trial
judge is “authorized to make the decision of the Court pursuant
to Code section * * * 7443A(b)(2).” And section 7443A(b)(2)
refers to any proceeding under section 7463--precisely the
section that describes our S cases. Rule 152(c) also doesn’t
distinguish between oral opinions in regular and S cases--it
encompasses both with the phrase “Opinions stated orally in
accordance with paragraph (a) of this Rule.”
-28-
in “or other similar doctrine.”) Even if we silently rue the
adoption of those rules, they remain in effect--leaving today’s
opinion to throw into question only the use of our written-and-
released-on-the-internet summary opinions--presumably the most
thoughtfully constructed S-case decisions--as a basis for
collateral estoppel.15
But even if section 7463(b) is no bar to applying collateral
estoppel to decisions in S cases explained by summary opinions,
would “the principles of federal common law” balk at using
Mitchell I to collaterally estop Mitchell when she had no right
to appeal our decision?
B.
15
Consider how the result today might affect a case like
Ginalski. The Commissioner in that case had to show that
Ginalski had had a prior opportunity to contest her deficiency.
One way would be to show a certified mailing list of notices of
deficiency with her name on it; another would be to put on a
credible eyewitness to testify that Ginalski had actually
received the notice. But a perfectly reasonable (and much more
efficient) way ought to be by showing via citing a Summary
Opinion that Ginalski had actually litigated a deficiency case
for the tax year in question--there being no way to start a
deficiency case without actually receiving a notice of
deficiency. And that seems to have been what the Commissioner
was doing: Thus our reference to Ginalski’s having received a
deficiency notice, filed a petition, and had a final decision
entered against her. Ginalski, T.C. Memo 2004-104. In Ginalski,
where the taxpayer was contesting the same liability for the same
tax year, the legal pigeonhole was res judicata; I can’t see any
reason we should treat collateral estoppel differently.
-29-
As I’ve already noted, one of the exceptions to the general
rule giving earlier judgments collateral-estoppel effect in later
litigation is if “[t]he party against whom preclusion is sought
could not, as a matter of law, have obtained review of the
judgment in the initial action.” 1 Restatement, Judgments 2d,
sec. 28(1). That leads to three related questions:
• When those authorities ask whether a
party could not “as a matter of law”
obtain review, do they mean that a party
choosing a procedure without a right of
appeal cannot be collaterally estopped?
• Are there exceptions to the Restatement’s
requirement of reviewability that are
analogous to our S cases?
• Does “reviewability” mean the same as
“appealability”?
Because our Court hasn’t answered these questions before, we
should be looking to analogous procedures in other areas of law
where simplified litigation often comes attached to limited
rights of appeal. Most of these spring from arbitration and
administrative law.
Begin with arbitration. Cases discussing the collateral-
estoppel effect of arbitration awards are especially interesting
because arbitration awards, like our decisions in S cases, are
typically not appealable. Learning whether they give rise to
collateral estoppel may well answer the first question that we
posed: Can a party choosing a procedure without a right of
-30-
appeal be collaterally estopped? In answering this question,
courts generally look at what the parties intended. This is no
surprise since most arbitration agreements are “creature[s] of
contract,” and participants in them voluntarily accept limited
judicial review over the issues they agree will be arbitrated.
Convalescent Ctr., Inc. v. Dept. of Income Maint., 544 A.2d 604,
609-10 (Conn. 1988). Courts reason that when the parties
themselves agree that a decision will be final, the decision
should be given the same weight as a court-rendered judgment.16
Corey v. Avco-Lycoming Div., 307 A.2d 155, 160-61 (Conn. 1972);
see also Benjamin v. Traffic Executive Association E. R.R., 869
F.2d 107, 113 (2d Cir. 1989) (collateral estoppel of arbitration
decision allowed in part because parties agreed to the
procedures).
There is an important exception to this default rule: The
courts have sometimes denied collateral estoppel when a party
tries to use an unappealed arbitration award to preclude a
federal statutory civil-rights claim. See, e.g., Alexander v.
Gardner-Denver Co., 415 U.S. 36 (1974); McDonald v. City of West
Branch, 466 U.S. 284 (1984) (no collateral estoppel over claim
16
This is only true, however, in future litigation between
the same parties. Because of the informal nature of arbitration,
nonmutual collateral estoppel--where a nonparty uses the prior
decision against one of the parties to that decision--is
generally not available for arbitration decisions. E.g.,
Vandenberg v. Superior Court, 982 P.2d 229, 239-40 (Cal. 1999).
-31-
brought under 42 U.S.C. section 1983. But see Mitsubishi Motors
Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985)
(arbitration presumptively competent to resolve certain other
statutory claims). Such cases remind us that rules about
preclusion are usually judge-made default rules--rules that can
be upended when “Congress itself has evinced an intention to
preclude a waiver of judicial remedies for the statutory rights
at issue.” Id. at 628.
Courts follow a similar approach in cases analyzing the
collateral-estoppel effect of administrative-agency decisions.
There the same principle applies: Collateral estoppel of a
decision with limited or nonexistent judicial review should be
allowed only when the parties voluntarily decide to submit their
dispute to the agency for decision. See Convalescent Center, 544
A.2d at 611.
These cases strongly suggest that petitioners who choose
S-case status should be treated the same as parties who opt to
arbitrate disputes or take them to an administrative agency--it
is their choice that deprives them of the right to seek appellate
review, not (to use the Restatement’s careful formulation) “a
matter of law.” Seen with this parallel in mind, S-case
petitioners like Mitchell should not be able to defeat the
affirmative defense of collateral estoppel because they
themselves chose to give up their right of appeal.
-32-
What makes this analogy less than perfect is that the choice
of S-case status is left up to the petitioner, and not the mutual
agreement of the petitioner and the Commissioner. Our rules do
give the Commissioner the right to move for an order deleting the
S-case designation, Rule 171(c), and of course in this case it is
the petitioner against whom the doctrine of collateral estoppel
is being urged. But in Wehrli, the election of an administrative
hearing was likewise the free choice of the party against whom
collateral estoppel was later invoked. Wehrli, 175 F.3d at 693.
So, while I think we should view the voluntary choice of S-
case status as a strong argument in favor of allowing decisions
in S cases to collaterally estop later litigation, it’s not
necessarily a clinching one. I’d therefore move on to the second
question: Are there exceptions to the Restatement’s requirement
of reviewability for situations analogous to our S cases?
The comments to the Restatement make the scope of this
requirement seem quite broad:
“There is a need for an * * * exception to the rule of
preclusion when the determination of an issue is plainly
essential to the judgment but the party who lost on that
issue is, for some other reason, disabled as a matter of law
from obtaining review by appeal or, where appeal does not
lie, by injunction, extraordinary writ, or statutory review
procedure.”
1 Restatement, Judgments 2d, sec. 28(1), cmt. a (1982).17
17
See Peterson v. Cal. Dept. of Corr. & Rehab., 451 F.
Supp. 2d 1092, 1104 (E.D. Cal. 2006) (writ of mandamus is
(continued...)
-33-
In a gentle criticism of this comment, however, a leading
treatise distinguished between decisions of a sort that
ordinarily cannot be appealed and decisions that are ineligible
for appeal only because of some special circumstance (e.g. a
particular case’s becoming moot while on appeal):
Quite different calculations attend the
question whether issue preclusion can rest on
a judgment that falls into a category that
cannot generally be appealed. Although it is
tempting to suggest a broad general principle
that preclusion is never appropriate, [and
here the treatise cites to the Restatement]
the matter is not so simple. At most, the
unavailability of appeal may count as an
important factor in contemplating preclusion,
and even that view must be approached with
caution * * *.
18A Wright & Miller, Federal Practice and Procedure, Jurisdiction
2d sec. 4433, at 108-09 (2002) (fn. refs. omitted).
The treatise gives two counterexamples to the “broad general
principle” of the Restatement. The first is peculiar to a very
small set of cases--those within the original jurisdiction of the
Supreme Court. Though collateral estoppel might not be exactly
the right pigeonhole in which to put that Court’s deference to
its own previous findings of fact, a recognition of the benefits
of rules of finality means that “[t]his Court does not reopen an
17
(...continued)
satisfactory method of review); M.J. Woods, Inc. v. Conopco Inc.,
271 F. Supp. 2d 576, 582 (S.D.N.Y. 2003) (judicial review of
arbitration award for legality and general fairness is adequate).
-34-
adjudication in an original action to reconsider whether initial
factual determinations were correctly made.” Arizona v.
California, 460 U.S. 605, 623-24 (1983).
The second counterexample--though flowing from the same
spring of judicial desire for finality and consistency--is closer
to what we have here. In the old case of Johnson Co. v. Wharton,
Jr., & Co., 152 U.S. 252 (1894), the Supreme Court faced a
question exceptionally similar to ours: Wharton had won a
judgment against the Johnson Company for infringing its patent,
but the Johnson Company had no right to appeal because the amount
involved was under a jurisdictional limit. When Wharton sued
again--this time for a larger amount--and tried to use the first
judgment to collaterally estop the Johnson Company from
challenging the fact of infringement, the Johnson Company
squawked that the absence of even the possibility of appellate
review in the first case made estoppel improper.
The Supreme Court disagreed. The doctrine of collateral
estoppel,
so essential to an orderly and effective
administration of justice, would lose much of
its value if it were held to be inapplicable
to those judgments in the Circuit Courts of
the United States which, by reason of the
limited amount involved, could not be
reviewed by this court.
-35-
* * * Nor can the possibility that a party
may legitimately or properly divide his
causes of action, so as to have the matter in
dispute between him and his adversary
adjudged in a suit that cannot, after
judgment, and by reason of the limited amount
involved, be carried to a higher court,
affect the application of the general rule
* * *.
Id. at 261; see Winters v. Lavine, 574 F.2d 46, 62 (2d Cir. 1978)
(Johnson Co. still good law).
We thus answer the second question that we posed by
concluding that there are indeed situations where the “full chain
of appellate review” is not necessary to give an earlier decision
collateral-estoppel effect.
But we don’t rest entirely on this old, and not-very-often-
cited precedent,18 nor on Mitchell’s voluntary choice of S-case
status for Mitchell I. We rely as well on the peculiar nature of
our Court’s internal system for reviewing the work of individual
judges.
S cases--even though not appealable--are reviewable.
Section 7443A(c) authorizes special trial judges to issue
decisions, subject to “such conditions and review as the court
may provide.” Long ago, Chief Judge Drennen issued General Order
No. 2, 54 T.C. VI (1970), exercising his authority under section
18
One must recognize that, despite its antiquity, Johnson
Co. is a Supreme Court precedent that is on point. I’d therefore
follow it even if the Restatement disagreed--in matters of
federal common law, higher-court caselaw is the law we have to
follow.
-36-
7444(c) to create a Small Tax Case Division to have “supervision
of commissioners of the Court.” The order went on to delegate
“to the judge in charge of the Small Tax Case Division the
authority to review and, in his discretion, approve the proposed
findings of fact and opinion in any small tax case in which the
trial is conducted by a commissioner of the court, and to sign in
his name the decision to be entered therein.”
Over the years, of course, commissioners became special
trial judges and our chief judges received, and promptly
exercised the power to delegate to them the authority to enter
decisions in S cases. See Delegation Order No. 11, 86 T.C. VII
(1986). But the parallel treatment of summary opinions and
reports from the regular divisions continued. Delegation Order
No. 11 directed (except in cases decided by bench opinion) that
decisions be made only “after the Special Trial Judge prepares a
summary of the facts and reasons for the proposed disposition of
the case and submits said summary to the Chief Judge, or to
another Judge designated by the Chief Judge.” Our current Rule
182 directs the summary to be submitted in exactly the same way.
All this seems to be very similar to the procedure in regular
cases, or S cases tried by regular judges, cf. section 7459, in
that the report is submitted before the decision is entered.
Given General Order No. 2's creation of a Small Tax Division
under section 7444(c), the most straightforward reading of the
-37-
relevant provisions is that a report in the form of a summary
opinion, like a report in the form of a memorandum opinion or
proposed division opinion in a regular case, can be referred to
the Court for review.
In any event, the purpose of reviewing summary opinions,
whether drafted by special or regular or senior judges, surely is
the same as the purpose of reviewing regular Tax Court opinions
--more eyes to check for typos or infelicities of expression or
bits of illogic of the “oh-of-course-how-could-I-have-overlooked-
it” variety. And, very occasionally, for suggestions of legal
questions to refer to the full Court to increase the uniform and
accurate application of tax law in the country.19
We thus answer the third question that we posed by
concluding that appealability is not synonymous with
reviewability.
Mitchell I was not appealable. That’s true. But its
nonappealability, as in the arbitration cases, was a choice made
19
Some S cases have even produced T.C. opinions. See,
e.g., Kallich v. Commissioner, 89 T.C. 676 (1987) (decision on
motion to reinstate S designation); Carstenson v. Commissioner,
57 T.C. 542 (1972) (relation back of amended petition to original
filing date); Dressler v. Commissioner, 56 T.C. 210 (1971)
(denying Commissioner’s request to have S designation removed);.
These opinions are certainly not appealable given section
7463(b)’s proscription on review by any other court. Their
rarity suggests that our system for filtering out of the S-case
channel any cases with keen precedential significance, set up
decades ago by our ancestors in office, has actually worked
pretty well.
-38-
by a party and not imposed by law. Mitchell I was also not
reviewable by a higher court, said by the Restatement to be a
requirement for collateral estoppel. But if reviewability by a
higher court is a requirement, it’s a requirement with some
exceptions, one of which--supported by some seemingly good
precedent--is the absence of appealability because of
jurisdictional limits imposed by statute on the appellate courts.
And Mitchell I (or any of our S cases) was, even if not
appealable, still reviewable. See secs. 7443A(c), 7460(b).
Unlike much of tax law, with its detailed if tangled skein
of statute, regulation, and administrative procedure, the rules
of collateral estoppel in federal courts are generally fashioned
by judges guided by reasonableness and precedent. Though the
majority opinion ensures there will continue to be no precedent
quite on point, I don’t think that the absence of appealability
by itself should prevent the decision in an S case from
collaterally estopping relitigation of the same issue.
C.
Even if the majority had gone along with me this far, there
still would have been one last obstacle: Wehrli’s plain
statement that preclusion requires the availability of appellate
review. Wehrli, 175 F.3d at 695. The case before us is
appealable to the Ninth Circuit, and under Golsen v.
Commissioner, 54 T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir.
-39-
1971), we do not enter decisions that will surely be reversed.
Lardas v. Commissioner, 99 T.C. 490, 495 (1992).
But I am confident that Wehrli would have been
distinguishable. The Ninth Circuit was particularly concerned
about the possible arbitrariness of an unreviewable
administrative decisionmaker: “individual hearing officers are
capable of occasional arbitrary action even if they are judges.”
Wehrli, 175 F.3d at 695. But there was nothing in the
administrative process that Wehrli chose that is remotely similar
to the review of reports in our Court, already described at
length in the previous section, that is an effective check on
arbitrariness.
And, as the Ninth Circuit also emphasized, the decision in
Wehrli was the decision of an administrative agency. Id. The
rules of preclusion are somewhat different for decisions of
administrative agencies, and one significant way they are
different is the importance of judicial review as a check on
agency arbitrariness. See United States v. Utah Constr. & Mining
Co., 384 U.S. 394, 422 (1966). Mitchell I was, in contrast,
itself a decision of a court exercising judicial, not “executive,
legislative, or administrative, power.” Freytag v. Commissioner,
501 U.S. 868, 890-91 (1991).
Another difference is that the decision discussed in Wehrli
was the result of a very informal process--the hearing involved
-40-
was not even recorded. Courts have often held that there must be
a record, whether of administrative or judicial decisionmaking,
for there to be preclusion in later litigation. This requirement
developed out of the Supreme Court caselaw setting the minimum
requirements for an administrative decision to have collateral-
estoppel effect: The agency must have acted in a judicial
capacity, the issues decided must have been properly before the
agency, and the parties must have had an adequate opportunity to
litigate those matters. Utah Constr. & Mining Co., 384 U.S. at
422. Part of the adequate-opportunity-to-litigate requirement is
that there be some sort of review of the decision, which in turn
requires a record of the proceedings. Wehrli, 175 F.3d at 695.
The record need not be written--a tape recording is enough,
Peterson v. Cal. Dept. of Corr. & Rehab., 451 F. Supp. 2d 1092,
1105-07 (E.D. Cal. 2006)--but it does need to exist so that there
is some way for a reviewer to review, and of course for a court
in a later case to figure out exactly what issues were decided
and how.
Our S cases come with a complete record of the proceedings.
Every S case starts with a petition listing the issues in
dispute. If an S case goes to trial, there is a transcript.
Rule 150(a). The parties might even submit briefs. Rule 151(a).
And no matter how small, every decision in an S case is explained
by a judge who must prepare a summary of his reasoning. Section
-41-
7463(a). This means that every S case has a record enabling the
judge in a later case to easily see what issues were actually
litigated and how they were decided.
I would conclude from this that Wehrli is distinguishable
and would use this case to hold that decisions in S cases
collaterally estop relitigation. Holding to the contrary only
encourages duplication of effort. And although there may be some
case some day that would warrant an exception to the usual rule
against that vice, giving preclusive effect to our decisions in S
cases would be more consistent with precedents in other areas,
and similarly conserve--if only at the margin--judicial
resources.
IV.
Our tax system requires an annual reporting of income and
deductions and, for most people, this requires annual reporting
for each calendar year separately. But there are many questions
that, answered for one year, might affect many later years--are
payments from an ex-spouse made under a divorce decree deductible
alimony or a nondeductible property settlement? Is the interest
on a bond issued by a public authority tax exempt or taxable?
What is the depreciable cost of a particular capital asset?
This gives rise to cases like Jacobs v. Commissioner, T.C.
Summ. Op. 1971-22 (resolving issue for 1966, 1967, and 1968 tax
years), followed by Jacobs v. Commissioner, T.C. Memo. 1977-1-42-
(deciding the same issue the same way again for the 1972 and 1973
tax years, plus deciding a new issue), followed by Jacobs v.
Commissioner, T.C. Memo. 1980-308 (deciding that no-longer-so-new
issue from the second case the same way it had already been
decided for the 1974, 1975, and 1976 tax years), followed by
Jacobs v. Commissioner, T.C. Memo. 1982-198 (shutting another
revisitation of the same issues from the prior cases for the
1977, 1978, and 1979 tax years by using collateral estoppel--and,
by that point, section 6673), followed by Jacobs v. Commissioner,
T.C. Memo. 1983-490 (applying collateral estoppel yet again on
the same issues decided in the preceding cases for 1980, and
again imposing damages under section 6673 for abuse of judicial
resources.)
There’s no reason to encourage this sort of thing. As the
Supreme Court has repeatedly noted: “A fundamental precept of
common-law adjudication, embodied in the related doctrines of
collateral estoppel and res judicata, is that a ‘right, question
or fact distinctly put in issue and directly determined by a
court of competent jurisdiction . . . cannot be disputed in a
subsequent suit between the same parties or their privies.’”
Montana, 440 U.S. at 153 (quoting Southern Pac. R. R. v. United
States, 168 U.S. 1, 48-49 (1897)). These doctrines come with
general rules limited by exceptions, but the presumption in our
-43-
system is that a party can’t keep trying the same issue over and
over again.
This case gave us a chance to fit the estoppel effect of our
summary opinions into the already quite extensive caselaw on the
effect of judgments generally. We should have taken it.
HALPERN, J., agrees with this concurring opinion.