DeCrescenzo v. Comm'r of Internal Revenue

12-3956 (L)
DeCrescenzo v. Comm’r of Internal Revenue
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER
FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE
PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A
DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN
ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING TO A SUMMARY
ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the
30th day of April, two thousand fourteen.
PRESENT:
JOHN M. WALKER, JR.,
PETER W. HALL,
Circuit Judges,
J. GARVAN MURTHA,*
District Judge.
_____________________________________
Joseph DeCrescenzo,
Petitioner-Appellant,
v. 12-3956(L), 13-509 (Con)
Commissioner of Internal Revenue,
Respondent-Appellee.
_____________________________________
FOR PETITIONER-APPELLANT: Joseph DeCrescenzo, pro se, Mount
Vernon, NY.
*
Judge J. Garvan Murtha, of the United States District Court for the District of Vermont,
sitting by designation.
FOR RESPONDENT-APPELLEE: Thomas J. Clark, Joseph B. Syverson, for
Kathryn Keneally, Assistant Attorney
General, Department of Justice,
Washington, D.C.
Appeal from orders of the United States Tax Court (Marvel, J., Kerrigan, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND
DECREED that the orders of the Tax Court are AFFIRMED.
Joseph DeCrescenzo, pro se, a self-employed accountant, did not file tax returns in 2005
or 2006. The Internal Revenue Service mailed notices of deficiency to DeCrescenzo, and he
petitioned the tax court to contest the deficiencies. The issues on appeal are whether: (1) the
notices of deficiencies were timely and contained sufficiently particularized determinations of
the taxes DeCrescenzo owed; (2) the tax court properly imposed a failure-to-pay penalty; and (3)
DeCrescenzo was entitled to a certain deduction from his self-employment income (the “net
operating loss carryforward”). We assume the parties’ familiarity with the underlying facts, the
procedural history of the case, and the issues on appeal.
This Court reviews a tax court’s conclusions of law de novo, its findings of fact for clear
error, and its application of its procedural rules for abuse of discretion. Sunik v. Comm'r, 321
F.3d 335, 337 (2d Cir. 2003); 26 U.S.C. § 7482(a)(1) (tax court decisions reviewed in same
manner as decisions from district courts in civil cases).
a. Notices of Deficiency
Relying heavily on Scar v. Comm'r, 814 F.2d 1363 (9th Cir. 1987), DeCrescenzo argues
that the IRS failed to “determine” his 2005 and 2006 deficiencies as required by I.R.C. §
6212(a). In Scar, the taxpayers received notices of deficiency that “contained an explanation of
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a tax shelter completely unrelated to their return, contained no adjustments to tax based on their
return as filed, and stated affirmatively that the taxpayers’[] return is ‘unavailable at this time.’”
Id. at 1366. Holding that the IRS had failed to “determine” the deficiency within the meaning of
§ 6212(a), the Ninth Circuit concluded that the IRS “must consider information that relates to a
particular taxpayer before it can be said that [it] has ‘determined’ a ‘deficiency’ in respect to that
taxpayer.” Id. at 1368.
By contrast, the IRS did so here. The notices of deficiency were calculated based on
information from third parties’ Forms 1099 regarding payments made to DeCrescenzo during
2005 and 2006. Scar is therefore inapposite. See Sunik, 321 F.3d at 336-37 (distinguishing Scar
where IRS determined deficiency on the basis of information reported to the IRS by taxpayers’
state tax agency); Andrew Crispo Gallery, Inc. v. Comm’r, 16 F.3d 1336, 1340-41 (2d Cir. 1994)
(distinguishing Scar because the IRS had examined the taxpayer’s return for the tax year at
issue).
DeCrescenzo challenges the notices of deficiency as untimely. He is incorrect. It is
undisputed that he failed to file tax returns in 2005 and 2006. The Internal Revenue Code
unequivocally states that, if a taxpayer fails to file a return, the tax may be assessed at any time.
I.R.C. § 6501(c)(3); see also § 6213(a) (stating that no assessment of deficiency shall be made
until “such notice has been mailed to the taxpayer”).
b. Failure-to-Pay Penalty
Further, DeCrescenzo argues that I.R.C. § 6651(a)(2) (providing for a penalty for failure
“to pay the amount shown as tax on [a tax return]”) was inapplicable to him because he did not
file tax returns. The penalty applied because the IRS completed returns for him for 2005 and
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2006, and those returns are “treated as the return[s] filed by the taxpayer for purposes of
determining” the penalty under § 6651(a)(2). I.R.C. § 6651(g)(2).
c. Net Operating Loss Carryover
DeCrescenzo raises three arguments regarding net operating loss carryovers: (1) the
parties stipulated to a net operating loss carryover deduction in the 2006 case, so the IRS was
collaterally estopped from challenging the deduction in the 2005 case; (2) the IRS untimely
raised the issue of whether he could reduce his 2006 self-employment income with the net
operating loss carryover; and (3) § 1402(a)(4) (which excludes net operating loss carryovers
from the calculation of self-employment income) was inapplicable to his case.
The 2006 stipulation did not collaterally estop the IRS. In it, the parties stipulated that,
“for purposes of computing [DeCrescenzo’s] income tax liability for the year 2006,” his income
was reduced by a net operating loss carryover. The stipulation was expressly “for settlement
purposes only and without examination” by the IRS. Generally, “a fact established in prior
litigation by stipulation, rather than by judicial resolution, has not been ‘actually litigated’” for
collateral estoppel purposes. Uzdavines v. Weeks Marine, Inc., 418 F.3d 138, 146 (2d Cir.
2005). However, “where parties intend a stipulation to be binding in future litigation, issues to
which the parties have stipulated will be considered ‘actually litigated.’” Id. Here, the net
operating loss carryover stipulation was clearly not intended to be binding in future litigation: it
expressly noted that it was “for settlement purposes only.” Further, the stipulation stated that the
net operating loss carryforward deduction applied “for purposes of computing [his] income tax
liability for the year 2006” – that is, his income tax, not his self-employment tax.
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DeCrescenzo argues that the IRS did not timely raise the issue of whether he could
reduce his 2006 self-employment income with the net operating loss carryover. The tax court
generally may “refuse[] to consider an untimely raised issue when the opposing party is unfairly
surprised and prejudiced because his defense against the issue requires the presentation of
evidence different from the evidence relevant to the identified issues in the case.” Rolfs v.
Comm’r, 135 T.C. 471, 484 (2010). The tax court did not abuse its discretion in holding that
DeCrescenzo was not unfairly surprised or prejudiced because he agreed to litigate the net
operating loss carryover issue when the parties filed their stipulation of settled issues.
Finally, DeCrescenzo argues that I.R.C. § 1402(a)(4) does not apply to him. That section
provides that the deduction for net operating losses “shall not be allowed” when calculating net
earnings from self employment. He argues that the exclusion applies only to partnerships
because the following paragraph in the section (§ 1402(a)(5)) concerns partnerships. Each
numbered paragraph of § 1402(a) contains a separate rule for computing net earnings from self
employment. Section 1402(a)(4) is a stand-alone provision, and expressly excludes net
operating loss carryovers from the calculation of self-employment income. See, e.g., Laney v.
Comm’r, No. 24510-90, 74 T.C.M. 507, at *1 n.3 (T.C. 1997), aff’d, 168 F.3d 482 (4th
Cir. 1999) (noting that “for purposes of self-employment taxes [§ 1402(a)(4)] expressly
disallows net operating loss deductions in computing net earnings from self-employment”).
Accordingly, we AFFIRM the orders of the Tax Court.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk
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