Estate of Gordon H. Bartels, Sally A. Jouris and Thomas G. Bartels, Executors, and Estate of Violet J. Bartels, Sally A. Jouris and Thomas G. Bartels, Executors v. Commissioner , 106 T.C. No. 24 ( 1996 )

106 T.C. No. 24UNITED STATES TAX COURT
ESTATE OF GORDON H. BARTELS, DECEASED, SALLY A. JOURIS AND THOMAS
G. BARTELS, EXECUTORS, AND ESTATE OF VIOLET J. BARTELS, DECEASED,
SALLY A. JOURIS AND THOMAS G. BARTELS, EXECUTORS, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 13886-90. Filed June 11, 1996.
Both parties moved for summary judgment based
solely on the issue whether this Court has jurisdiction
to allow, by way of equitable recoupment, an offset of
a barred estate tax overpayment resulting from the
deductibility of the stipulated income tax deficiency
herein as a debt of the decedent, Gordon Bartels.
Held, this Court has such jurisdiction. Estate of
Mueller v. Commissioner, 101 T.C. 551 (1993),
reaffirmed and applied.
John E. Pfau, for petitioners.
John F. Eiman and Thomas L. Fenner, for respondent.
OPINION
TANNENWALD, Judge: Respondent determined deficiencies in,
and additions to, the decedents' Federal income taxes as follows:
Additions to Tax Under I.R.C. Secs.
Year Deficiency 6653(a)(1) 6653(a)(2) 6659
1
1981 $55,681 $2,784 $16,704
1
1982 60,047 3,002 18,041
1
Addition to tax is 50 percent of the interest due on the
portion of the underpayment due to negligence.
After concessions by both parties, the issue remaining for
decision is whether, under the doctrine of equitable recoupment,
petitioners may offset against their Federal income tax liability
an overpayment of estate tax, the claim for which is barred by
the statute of limitations.
The case is before us on cross-motions for summary judgment.
All the facts have been stipulated. The stipulation of
facts and attached exhibits are incorporated herein by this
reference. There being no dispute as to any material fact, this
case is ripe for disposition in accordance with the cross-motions
of the parties for summary judgment. Rule 1211; Brotman v.
Commissioner, 105 T.C. 141 (1995). For the purpose of such
disposition, we set forth the relevant facts.
Petitioners are the estates of Violet J. Bartels (Mrs.
Bartels) and Gordon H. Bartels (Mr. Bartels). At the date of
1
All statutory references are to the Internal Revenue Code in
effect for the years at issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
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Mrs. Bartels' death, October 4, 1982, she was a resident of
Rockford, Illinois. At the date of Mr. Bartels' death, May 16,
1989, he was also a resident of Rockford, Illinois.
Sally A. Jouris and Thomas G. Bartels are the duly appointed
executors of both estates. They maintained their legal address
in Rockford, Illinois, at the time the petition was filed.
Mr. and Mrs. Bartels timely filed a joint U.S. individual
income tax return for the 1981 tax year. Following Mrs. Bartels'
death in 1982, Mr. Bartels timely filed a joint U.S. individual
income tax return for the 1982 tax year, pursuant to section
6013(d)(1).2
On March 28, 1990, respondent issued a notice of deficiency
for the 1981 and 1982 tax years. The petition herein in respect
of such notice was timely filed.
Pursuant to a stipulation of settled issues, petitioners
concede liability for the deficiency for the 1981 and 1982 tax
years as determined by respondent.
2
Sec. 6013(d)(1) allows taxpayers to file a joint return
although one spouse dies before the close of the taxable year of
the other.
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Estate Tax
The estate of Mr. Bartels filed a U.S. Estate and
Generation-Skipping Transfer Tax Return, Form 706, with the
Internal Revenue Service at Kansas City, Missouri, on
February 21, 1990. It reported a total estate tax liability of
$3,582,245, which was paid as follows:
February 20, 1990 $3,312,643
February 20, 1990 109,602
February 20, 1990 80,000
February 21, 1990 80,000
Total Payments $3,582,245
Respondent assessed the estate tax liability, in the amount
of $3,582,245, on April 9, 1990.
On November 18, 1991, respondent assessed a deficiency in
estate tax of $94,364, plus statutory interest of $17,094.88.
Both amounts were fully paid on September 18, 1991.
On the original estate tax return, the estate did not claim
any deduction for debts of the decedent, Mr. Bartels, to
respondent for income tax liabilities for the 1981 and 1982 tax
years. Thus, on September 14, 1993, the estate filed an amended
estate tax return, claiming deductions from the taxable estate
for the following:
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1981 Federal income tax and interest $132,776.23
1982 Federal income tax and interest 126,385.98
1981 State income tax and interest 3,657.86
1982 State income tax and interest 4,885.50
Total $267,705.57
As a result of the deductions, the amended return showed an
overpayment of estate tax in the amount of $108,689.
Since the amended return was filed more than 3 years after
the original return, respondent allowed a claim for refund only
to the extent of estate tax paid within 2 years before the
amended estate tax return was filed. See sec. 6511(a).
Respondent thus refunded $94,364 but not the remaining $14,325 of
the overpayment, which she determined to be barred by the statute
of limitations.
With respect to the overpayment in estate tax that has not
been refunded, $7,086.58 is attributable to the deduction for
1981 Federal income tax liability and $6,781.45 is attributable
to the deduction for 1982 Federal income tax liability.3
Petitioners argue that, under the doctrine of equitable
recoupment, the amount of the Federal income tax deficiencies
should be reduced by the time-barred overpayment of estate tax
resulting from the deductibility of such deficiencies. The
3
Petitioners concede they may not offset the deficiencies in
this case with overpayments due to deductions for State income
tax liability for 1981 and 1982.
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parties have framed their respective motions solely in terms of
the jurisdiction of this Court, petitioners arguing that we have
such jurisdiction and respondent arguing that we do not.4
The jurisdictional status of equitable recoupment in this
Court has had a long history, which we have recently reviewed
with painstaking care in Estate of Mueller v. Commissioner, 101
T.C. 551 (1993) (Court reviewed). We see no need to reiterate
that history. Rather, we turn directly to the statutory
provision upon which respondent relies, section 6214(b), which
provides as follows:
(b) Jurisdiction Over Other Years and Quarters.--
The Tax Court in redetermining a deficiency of income
tax for any taxable year or of gift tax for any
calendar year or calendar quarter shall consider such
facts with relation to the taxes for other years or
calendar quarters as may be necessary correctly to
redetermine the amount of such deficiency, but in so
doing shall have no jurisdiction to determine whether
or not the tax for any other year or calendar quarter
has been overpaid or underpaid.
4
Respondent has raised no question in respect of the
requirements of the "same transaction" concept upon which the
doctrine of equitable recoupment rests presumably because, aside
from the question of the jurisdiction of this Court, she has
taken the position that equitable recoupment is available under
the circumstances of this case in a ruling that she does not seek
to disavow herein. Rev. Rul. 71-56, 1971-1 C.B. 404; see O'Brien
v. United States, 766 F.2d 1038, 1047-1051 (7th Cir. 1985);
compare United States v. Bowcut, 287 F.2d 654 (9th Cir. 1961),
and United States v. Herring, 240 F.2d 225 (4th Cir. 1957), with
Wilmington Trust Co. v. United States, 221 Ct. Cl. 686, 610 F.2d
703 (1979); see also Andrews, "Modern-Day Equitable Recoupment
and the 'Two Tax Effect': Avoidance of the Statutes of Limitation
in Federal Tax Controversies," 28 Ariz. L. Rev. 595 (1986).
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In Estate of Mueller v. Commissioner, supra, we concluded
that, because the foundation of our jurisdiction was an estate
tax deficiency, the case did not fall within the scope of section
6214(b), which speaks only in terms of determinations of "a
deficiency of income tax for any taxable year or of gift tax for
any calendar year or calendar quarter". Under these
circumstances, we held that we had jurisdiction to permit the
petitioner to offset a barred income tax overpayment.
Respondent urges us to overrule Estate of Mueller and return
to the historical picture that evolved from Commissioner v. Gooch
Milling & Elevator Co., 320 U.S. 418 (1943), and reflected a
consistent denial of our jurisdiction to allow equitable
recoupment. This we will not do.
Alternatively, respondent argues that because income tax
deficiencies are the basis of our jurisdiction herein, Estate of
Mueller is distinguishable and section 6214(b) clearly applies.
We disagree. In focusing on the opening language of section
6214(b), respondent ignores the concluding language of the
section, which speaks in terms of our not having "jurisdiction to
determine whether or not the tax for any other year or calendar
quarter has been overpaid or underpaid" (emphasis added). We
think this language means that, at most, section 6214(b) may
operate to preclude us from determining the income tax or gift
tax for any prior period. In this connection, we note that in
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Estate of Mueller we indicated that equitable recoupment might,
in any event, apply in a "same transaction" situation, see supra
note 4, even where an income tax or gift tax for a prior period
is involved, when we stated:
we interpret Gooch Milling as not preventing the Tax
Court from considering the affirmative defense of
equitable recoupment when it is properly raised in a
timely suit for redetermination of a tax deficiency
over which we have jurisdiction. * * * [Estate of
Mueller v. Commissioner, 101 T.C. at 560; emphasis
added.]
The same reasoning that led to our holding in Estate of
Mueller v. Commissioner, supra, leads us to conclude that
equitable recoupment of the estate tax overpayment against the
income tax deficiencies herein is not precluded by section
6214(b).
Our conclusion finds support in the legislative development
of section 6214(b). That section originated with the inclusion
of section 274(g) in the income tax provisions of the Revenue Act
of 1926, ch. 27, 44 Stat. 56. No comparable section was included
in the estate tax provisions of that Act. No mention was made of
the gift tax because that tax did not come into existence until
the Revenue Act of 1932. In enacting the gift tax provisions of
the 1932 Act, Congress included section 512(g) of the Revenue Act
of 1932, ch. 209, 47 Stat. 250, which was, except for the
designated tax, a verbatim version of section 274(g) of the
Revenue Act of 1926; no reference to section 512(g) appears in
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the committee reports accompanying the 1932 Act. No comparable
section was included in the estate tax provisions of the 1932
Act.
Sections 274(g) and 512(g) were incorporated into the
Internal Revenue Code of 1939 by section 272(g) (relating to the
income tax) and section 1012(g) (relating to the gift tax); again
no comparable section was included in the estate tax provisions
of the 1939 Code. This situation remained until the enactment of
the 1954 Code when sections 272(g) and 1012(g) were combined into
section 6214(b). The only legislative history in respect of this
action is the identical comment in the committee reports that
"This section represents no change in existing law". H. Rept.
1337, 83d Cong., 2d Sess. A405 (1954); S. Rept. 1622, 83d Cong.,
2d Sess. 573 (1954). Of interest is the fact that section
6214(b) speaks only of an income tax or gift tax deficiency
although it is included in subchapter B of chapter 63 entitled
"Deficiency Procedures in the Case of Income, Estate, Gift * * *
Taxes".
Granted that there is no legislative explanation as to why
the limitation of the authority of this Court by section 6214(b)
or its antecedents did not extend to the estate tax, the
foregoing analysis of legislative action reinforces our
interpretation that the words "the tax" in section 6214(b) are
limited to income and gift taxes and therefore do not preclude us
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from allowing equitable recoupment of an estate tax overpayment
against an income tax deficiency. In this connection, we note
that what is involved herein is a question of our authority and
not a question of our jurisdiction since we already have
jurisdiction by virtue of the income tax deficiency notice and
the timely petition filed in response thereto. Thus, the cases
articulating a principle that the jurisdiction of this Court is
limited to that conferred upon it by Congress represented by
Commissioner v. Gooch Milling & Elevator Co., supra, and its
progeny, have no application. See Estate of Mueller v.
Commissioner, 101 T.C. at 553, 560.
In sum, we hold that petitioners are entitled to recoup the
barred estate tax overpayment against the stipulated income tax
deficiencies. Thus, we shall grant petitioners' motion and deny
respondent's motion for summary judgment.
To take into account our conclusion herein and the
stipulation of settled issues,
An appropriate order will be
issued, and decision will be entered
under Rule 155.