Malachinski, Leon S. v. CIR

In the
United States Court of Appeals
For the Seventh Circuit
No. 99-3323
LEON S. MALACHINSKI,
Petitioner-Appellant,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellee.
Appeal from the United States Tax Court.
No. 13501-94--Joseph H. Gale, Judge.
ARGUED FEBRUARY 14, 2001--DECIDED October 4, 2001
Before POSNER, COFFEY and RIPPLE, Circuit
Judges.
RIPPLE, Circuit Judge. The Internal
Revenue Service determined that Leon
Malachinski was deficient in the payment
of his federal income taxes for the year
1980. Dr. Malachinski contested the
assessment in the United States Tax
Court. He contended (1) that his
signature on a consent form to extend the
statute of limitations on assessment had
been forged and (2) that if any
deficiency were assessed, he was entitled
to credit against it the $20,400 he
previously had remitted to the IRS in
1984. The tax court ruled in favor of the
IRS; it found that Dr. Malachinski’s
signature on the consent form was
genuine. It further concluded that it
lacked jurisdiction to determine whether
Dr. Malachinski was entitled to a credit
for the $20,400 remittance. For the
reasons set forth in the following
opinion, we affirm the decision of the
tax court.
I
BACKGROUND
A. Facts
Dr. Malachinski and his now ex-wife
Wynne Superson were married in May 1980.
The couple filed a joint federal income
tax return for the year 1980 on April 15,
1981. In late 1982 or early 1983, the IRS
contacted the Malachinskis regarding the
1980 tax return, and Dr. Malachinski
sought the advice of Vincent Arnone, his
tax return preparer. The Malachinskis
granted power of attorney to Arnone and
to attorney Eugene LaPorte in March 1983.
Superson filed for divorce in March 1983
but did not tell Dr. Malachinski until a
month later. On May 23, 1983, IRS agent
Alan Neubauer sent a letter addressed to
the Malachinskis that asked them to sign
and return Form 872-A, "Special Consent
to Extend the Time to Assess Tax," with
respect to their 1980 income taxes. The
form permitted the IRS to extend the time
period in which it had to assess any
deficiencies. On or about June 8, 1983,
the IRS received the form, which had been
dated June 1, 1983, and bore what
purported to be the signatures of both
Dr. Malachinski and Superson. An IRS
official countersigned the form on June
8, 1983.
Three days later, on June 11, 1983, Dr.
Malachinski and Superson granted another
power of attorney to John Ostrand and
Stephen Mack, certified public
accountants. The power of attorney was
originally prepared on May 23, 1983.
Superson, however, issued a separate
power of attorney on September 1, 1983,
naming as her representatives two
attorneys, Anthony Scariano and Justino
Petrarca, and a certified public
accountant, Michael Moxley.
The Malachinskis were divorced in March
1984. Also in March 1984, Dr. Malachinski
filed a separate tax return for his
taxable year 1982. In April, acting on
advice from one of his advisors, he sent
to the IRS a $20,400 remittance to reduce
any potential tax obligations for 1980.
The IRS received the funds and prepared a
voucher; the voucher contained a
handwritten entry that described the
payment as a "cash bond." Further, a
section of the voucher was checked,
indicating that the amount was an
"Advance payment on deficiency." The
voucher did not have a separate section
to indicate that the remittance was in
the nature of a cash bond or deposit.
Mack, Dr. Malachinski’s representative,
met with Neubauer on June 29, 1984. The
IRS subsequently issued an examination
report to Dr. Malachinski and Superson
that indicated, in relevant part, that
the two had a deficiency in income tax of
$91,086 for the year 1980. Dr.
Malachinski then executed a third power
of attorney, naming Glenn Acquino, a
certified public accountant, as his
representative. Acquino duly filed a
protest with the IRS on the Malachinskis’
behalf.
In April 1988, the IRS transferred the
$20,400 remittance from the 1980 joint
account of Dr. Malachinski and Superson
to Dr. Malachinski’s 1982 individual tax
account. In October 1988, for reasons not
indicated in the record, the IRS refunded
the $20,400 plus $902 in interest; Dr.
Malachinski claims, however, that he
never received the money. The IRS does
not have a copy of the refund check nor
does it have any supporting
documentation. It is the IRS’ policy to
destroy such records after six years.
Dr. Malachinski executed a fourth power
of attorney in December 1988, authorizing
attorney Michael Boylan to represent him
before the IRS. Boylan wrote to the IRS
in August 1999, informing the agency that
Dr. Malachinski had not been able to
secure Superson’s approval of a proposed
settlement.
In late 1989, Superson began to complain
bitterly about Dr. Malachinski to a
friend and co-worker, Claudine
Mellerke./1 Mellerke became concerned
that Superson might carry out the various
threats she had made against her ex-
husband’s life. These concerns came to
the attention of local police, and
Superson ultimately was convicted of
violating 18 U.S.C. sec. 1958, use of
interstate commerce facilities in the
commission of murder for hire. (Dr.
Malachinski was the intended victim of
Superson’s scheme.) At the time of trial
in this tax matter, Superson was
incarcerated in Chicago and awaiting
sentencing.
On May 3, 1994, the IRS issued a notice
of deficiency to Dr. Malachinski and
Superson regarding their 1980 taxes, and
Dr. Malachinski timely filed a petition
in the tax court. He later filed an
amended petition that asserted that the
statute of limitations on assessment had
expired before the notice of deficiency
was mailed. He maintained that his
signature on the form that purported to
extend the limitations period had been
forged, presumably by Superson. Dr.
Malachinski’s counsel deposed Superson in
this case, but she refused to answer any
questions, citing her privilege against
self-incrimination.
B. Tax Court Proceedings
At trial, Dr. Malachinski testified that
he had not signed the consent form nor
had he seen the form until 1995. He
believed that Superson either had signed
it or had someone else sign his name to
it, but he never had authorized her to do
so nor had he given her a power of
attorney to act for him. To bolster these
arguments, Dr. Malachinski offered the
testimony of Superson’s former friend and
co-worker, Mellerke, who testified that
Superson had told her that "she had done
something to get even" with Dr.
Malachinski; she had "contacted the IRS
and had reported Dr. Malachinski for
several things that he had not done, and
also she provided a document to the IRS
shortly before they were divorced that he
was not aware of." R.48 at 116. According
to Mellerke, Superson claimed that the
document was so damaging that Dr.
Malachinski would be "feeling the effects
of it for the rest of his life." Id. at
116-17. Although the Commissioner
objected to Mellerke’s testimony as
hearsay, the court reserved ruling on its
admissibility.
Dr. Malachinski also introduced the
expert report of Diana Marsh, a board-
certified forensic document examiner.
After examining twenty exemplars of Dr.
Malachinski’s signature, Marsh made the
following conclusion in a written report:
After an examination of all the documents
submitted, it is my opinion that Dr.
Malachinski did not write the name "L.S.
Malachinski" on the document at issue,
the IRS Consent Form dated June 1, 1983.
In addition, it is my opinion that the
same individual wrote both dates of
"6/1/83."
Ex.24.
Dr. Malachinski attempted at trial to
elicit from Marsh the factual basis for
her conclusion that he had not signed the
form, but the IRS objected that the
questions solicited information beyond
the scope of the report. The court
sustained the IRS’ objection and
restricted Marsh’s testimony to the
material contained in the written
documentation. The court explained that
Tax Court Rule 143(f) provides that the
facts, data, and analysis that form the
basis for an expert’s conclusion are
admissible only to the extent that they
are set forth in a written report.
The court nonetheless permitted Dr.
Malachinski to proffer additional
testimony from Marsh regarding the basis
and reasons for her conclusion. In the
proffer, Marsh related her concerns about
the letter formations in the questioned
signature. Specifically, she noted
characteristics of the loop on the "L" of
Dr. Malachinski’s first name, the angle
of the bottom of the "S" in his middle
name, and the absence of a loop at the
end of his signature.
In response, the IRS offered the report
and testimony of James Davidson, also a
board-certified forensic document
examiner and chief of the Questioned-
Document Section of the IRS Criminal
Investigation Division’s National
Forensic Laboratory in Chicago. Davidson
compared the signature on the consent
form to 26 known exemplars of Dr.
Malachinski’s signature. He noted that
the exemplars fell into categories: 13
exemplars were "quickly written
abbreviated last names;" 10 were
"formally written with distinct letter
definition;" and three were "shortened,
quickly written signatures." Ex.AA at 2-
3. Davidson found that the exemplars from
the first two categories were of "minimal
value" in making the comparison and that
the signature on the consent form was
most similar to the third category. Id.
at 3. He was, however, unable to
determine whether the signature on the
form was genuine; in his opinion, the
three signatures in the third category
were "not enough of a representative
sample of the writer for [him] to make
any determinations." Id.
Regarding the $20,400 remittance, Dr.
Malachinski testified that he had never
requested the payment to be transferred
to his account for 1982 or refunded. He
also denied having received a refund of
that payment in 1988. On cross-
examination, he indicated that he had
never checked his bank records to
determine whether he had deposited a
similar amount at the time because he had
not understood that it was the IRS’
contention that the payment had been
refunded. Dr. Malachinski’s witness,
Mellerke, testified that Superson had
told her that she had received a refund
from the IRS that was intended for her
ex-husband but that she had cashed it and
kept the money. The Commissioner objected
to this testimony as hearsay, but the
court again reserved ruling on its
admissibility.
In a memorandum opinion filed after
trial, the tax court determined that the
notice of deficiency was not barred by
the statute of limitations. Because the
notice had been mailed more than 10 years
after the 1980 return was filed-- and the
statute of limitations on assessment is
typically three years from the filing of
the return--the court concluded that Dr.
Malachinski had made a prima facie
showing that the notice was untimely. The
burden, therefore, fell on the IRS to
establish that the bar was inapplicable.
In the court’s view, the IRS had met that
burden by producing a facially valid Form
872-A indicating a waiver of the
limitations period. Dr. Malachinski then
was required to show that the agreement
was invalid, a difficult task because, as
the court noted, an individual’s
signature on a document is prima facie
evidence that the individual actually
signed it.
Although Dr. Malachinski had attempted
to overcome this statutory presumption by
presenting Marsh’s testimony that his
signature was forged, the court found
that Marsh’s report did not adequately
set forth the facts and reasons
supporting Marsh’s conclusions. The court
also noted that no showing had been made
that the failure to include these
materials in the report was due to good
cause; it concluded, therefore, that
allowing Marsh to provide additional
direct testimony would have unduly
prejudiced the IRS’ ability to cross-
examine her. It accordingly sustained the
IRS’ objection and restricted Marsh’s
direct testimony to the material set
forth in her written report.
The tax court also explained that
Davidson, the Commissioner’s expert, had
determined that the exemplars were not
sufficiently representative to permit him
to render an opinion regarding the
authenticity of the signature. After
considering both expert opinions and
scrutinizing the documents itself, the
court found that the signature was not a
forgery. The court thus concluded that
Dr. Malachinski had not overcome the
statutory presumption that he signed the
consent form.
In making its finding on the genuineness
of the signature, the court also based
its conclusion on various pieces of
circumstantial evidence. For example, the
court noted that Dr. Malachinski had
first argued that his signature had been
forged in 1995, twelve years after the
form was signed. The court did not
believe that, during the twelve years
that followed the alleged waiver of the
statute of limitations, none of Dr.
Malachinski’s four sets of professional
advisors had consulted with him about the
validity of the waiver. Rather, the court
believed that Dr. Malachinski’s advisors
had done so and had learned from him that
he had signed the consent form;
otherwise, they would have sought to
terminate the proceedings immediately. In
the court’s view, the "conduct of [Dr.
Malachinski] and his advisors is thus
plainly inconsistent with the claim that
the consent was forged." R.56 at 13.
Moreover, typewritten portions of a
power of attorney to advisors Ostrand and
Mack indicated that Dr. Malachinski and
Superson had contacted the accountants by
May 23, 1983. The consent was executed on
June 1, 1983, and, ten days later, Dr.
Malachinski and Superson signed the power
of attorney. The court deemed it
"unlikely" that Superson would forge her
husband’s signature on a consent form
days before cooperating with him in
hiring advisors to represent them; her
"duplicity would have been too easily
uncovered." Id.
The court also noted that Dr.
Malachinski, at the urging of his
advisors, made a $20,400 payment with
respect to 1980 liability in April 1984.
He made the payment after the period of
limitations for 1980 would have expired
unless a valid waiver were in effect;
competent professionals, opined the
court, "would not advise a client to make
a payment with respect to a tax liability
which could not be collected." Id. The
court further observed that Dr.
Malachinski’s advisors had conducted
additional discussions with the
Commissioner’s agents in the latter part
of 1984, and, even after the Commissioner
sent Dr. Malachinski and Superson a
letter proposing a liability of more than
$90,000, the advisors made no suggestion
that the collection of the taxes was
time-barred. Finally, the court noted
that almost seven years passed between
the time Dr. Malachinski granted a power
of attorney to Boylan, his attorney of
record in the tax court, and the time the
question of the validity of the signature
was first raised.
Although Dr. Malachinski argued that
Superson possessed enough animosity
toward him to motivate the forgery of the
consent form--a hatred evidenced in large
part by her involvement in a murder-for-
hire scheme against him--the court
concluded that such animosity was "too
attenuated and too remote in time" to
support a finding that she forged Dr.
Malachinski’s name to the consent
document. Id. at 14-15. Evidence of
Superson’s criminal involvement arose in
1989, six years after the form was
executed and after a bitter custody
battle had taken place. The court noted,
too, that it would have reached the same
conclusion even if it had considered
Mellerke’s proffered testimony in this
regard. The court did not reach the IRS’
hearsay objection because Mellerke’s
testimony was "too vague and inconclusive
to be of evidentiary value in determining
whether [Dr. Malachinski’s] signature on
the consent was forged." Id. at 15.
The tax court also held that it lacked
jurisdiction to determine whether Dr.
Malachinski was entitled to a credit for
the $20,400 payment. It explained that
its jurisdiction is limited to the
determination of deficiencies and certain
overpayments, and Dr. Malachinski’s
remittance did not fall into either
category. The payment was better
characterized as a deposit in the nature
of a cash bond, the court concluded, a
payment over which the tax court does not
have jurisdiction./2
II
ANALYSIS
Dr. Malachinski argues on appeal that
the tax court erred in determining (1)
that he consented to extend the statute
of limitations for assessment and (2)
that the court did not have jurisdiction
to determine whether he was entitled to a
credit for the $20,400 remittance.
A. Genuineness of Signature
Section 6501(a) of the Internal Revenue
Code ("the Code") provides that the IRS
has three years from the date a return is
filed to assess deficiencies. This period
can be extended, however, if both the
"Secretary and the taxpayer have
consented in writing to its assessment
after such time." I.R.C. sec. 6501(c)(4).
In asserting a statute of limitations
defense, a taxpayer makes a prima facie
case by showing that the notice of
deficiency was not mailed within the
three-year time period. See Adler v.
Commissioner, 85 T.C. 535, 540 (1985). If
the IRS produces a consent to extend the
limitations period that is valid on its
face,/3 the burden then shifts back to
the taxpayer to show that the consent is
invalid. See id. at 540-41. The ultimate
burden of proof on the limitations
defense always rests on the taxpayer. See
id. at 540; see also Feldman v.
Commissioner, 20 F.3d 1128, 1132 (11th
Cir. 1994).
In this case, Dr. Malachinski filed his
tax return for the year 1980 on April 15,
1981. On June 8, 1983, prior to the
expiration of the three-year statute of
limitations, a representative of the
Commissioner executed a consent form,
purportedly signed by Dr. Malachinski and
Superson, that agreed to extend
indefinitely the statute of limitations
on assessment for 1980. The IRS, relying
on that consent, issued the notice of
deficiency at issue here in May 1994.
Dr. Malachinski argues that the
agreement to extend the statute of
limitations is invalid because he never
signed the consent form. He speculates,
instead, that his ex-wife forged his
signature. To overcome the presumption
that a signature on a document is
authentic, see I.R.C. sec. 6064, Dr.
Malachinski presented at trial the expert
report and testimony of Diane Marsh, a
board-certified forensic document
examiner. He now maintains on appeal that
the tax court abused its discretion in
curtailing Marsh’s testimony.
Tax Court Rule 143(f)(1) requires that
an expert’s written opinion be submitted
at least 30 days in advance of trial. The
report must not only set forth the
witness’ opinions but also include the
"facts or data on which that opinion is
based" and "reasons for the conclusion."
Testimony is "excluded altogether" for:
failure to comply with the provisions of
this paragraph, unless the failure is
shown to be due to good cause and unless
the failure does not unduly prejudice the
opposing party, such as by significantly
impairing the opposing party’s ability to
cross-examine the expert witness or by
denying the opposing party the reasonable
opportunity to obtain evidence in
rebuttal to the expert witness’
testimony.
Tax Court Rule 143(f)(1).
We agree with the tax court that Marsh’s
written report does not satisfy Rule
143(f)(1). The report is terse and
conclusory, indicating only Marsh’s
opinion that Dr. Malachinski had not
signed his name to the consent form and
that the same individual had written the
date on both signature lines. Marsh does
not explain her conclusions nor does she
denote the facts supporting it. Moreover,
Dr. Malachinski has not shown that the
failure to include this information was
due to good cause. In our view, the tax
court was on solid ground in concluding
that permitting the additional testimony
would have unduly prejudiced the IRS’
ability to cross-examine Marsh. See Diego
Investors IV v. Commissioner, 58 T.C.M.
(CCH) 753, 763 (1989) (noting that "[o]ne
purpose of exchanging expert reports is
to facilitate effective cross-examination
by the other party"); see also Estate of
Friedberg v. Commissioner, 63 T.C.M.
(CCH) 3080, 3081-23 (1992) ("[W]hen one
party seeks to introduce expert
testimony, which may be exceedingly
complex and difficult for the layperson
to readily understand, the other party
must be given sufficient time to overcome
those obstacles."). The use of expert
testimony is within the discretion of the
trial judge, see Diego Investors, 58
T.C.M. at 764, and we see no evidence
that the tax court abused its discretion
in curtailing Dr. Malachinski’s direct
examination of Marsh.
In rebuttal to Marsh’s report, the
Commissioner presented the report and
testimony of James Davidson, also a
certified document examiner. Davidson
examined various exemplars of Dr.
Malachinski’s signature and concluded
that the samples were not representative
enough for him to find that the signature
was a forgery. Taking into account the
conclusions of the two experts, the tax
court examined the exemplars itself to
reach its own conclusion that the
signature was genuine. Dr. Malachinski
now argues that the court committed clear
error in making this determination.
As an initial matter, we note that Dr.
Malachinski faces a difficult burden in
contesting the tax court’s factual
findings. Under the clearly erroneous
standard of review, a finding of fact is
reversed "only when the reviewing court
on the entire evidence is left with the
definite and firm conviction that a
mistake has been committed." Coleman v.
Commissioner, 16 F.3d 821, 825 (7th Cir.
1994) (internal quotation marks omitted).
We "must view the evidence in the entire
record in the light which is most
favorable to the finding." Pittman v.
Commissioner, 100 F.3d 1308, 1313 (7th
Cir. 1996) (quoting Tripp v.
Commissioner, 337 F.2d 432, 434 (7th Cir.
1964)).
Although Dr. Malachinski objects to the
court’s substitution of its own judgment
for that of his expert, the tax court is
permitted to do just that. The court has
broad discretion to "evaluate the overall
cogency of each expert’s analysis."
Estate of Davis v. Commissioner, 110 T.C.
530, 538 (1998) (citation and quotation
marks omitted). It can reject, in whole
or in part, reports and testimony of
expert witnesses in favor of its own
independent evaluation of the evidence in
the record. See Helvering v. National
Grocery Co., 304 U.S. 282, 294-95 (1938);
see also Shepherd v. Commissioner, 115
T.C. 376, 390 (2000) ("We may be
selective in our use of any part of an
expert’s opinion."). Thus, the tax court
apparently undertook an independent
assessment of the signature. See, e.g.,
Bybee v. Commissioner, 72 T.C.M.
607, 608 (1996) (after studying
handwriting exemplars, tax court
concluded that the "handwriting reflected
by petitioners’ signatures on their 1982,
1983, and 1984 joint Federal income tax
returns appears to be identical to the
handwriting reflected by petitioners’
signatures on the Form 872, and no
credible evidence indicates to the
contrary").
Dr. Malachinski also maintains that the
inferences the court drew from the
circumstantial evidence were not
reasonable. For example, the tax court in
part based its determination on the
failure of Dr. Malachinski and his tax
professionals to raise the issue of
consent until 12 years after the form was
signed./4 Dr. Malachinski argues that
he received a letter from the IRS in 1990
advising him that the 1980 tax dispute
had been resolved; he had no reason,
therefore, to pursue the issue of
consent. He also asserts that he relied
on his lawyers to defend the tax return
and did not even know that the forged
waiver existed.
Again, however, we are not persuaded
that the court clearly erred in making
its factual findings. As we have noted
previously, the existence of evidence to
support an inference contrary to that
drawn by the trier of fact does not mean
that the findings were clearly erroneous.
See Harper v. City of Chicago Heights,
223 F.3d 593, 600 (7th Cir. 2000), cert.
denied, 121 S. Ct. 883 (2001); see also
Malkin v. United States, 243 F.3d 120,
123-24 (2d Cir. 2001) (rejecting
petitioner’s contention that the evidence
was insufficient to support the district
court’s finding that he signed an
agreement to extend the statute of
limitations on assessment). A fact
finder’s choice between two permissible
inferences from the evidence cannot be
clearly erroneous. See Anderson v.
Bessemer City, 470 U.S. 564, 574 (1985).
Dr. Malachinski also takes issue with
the tax court’s determination that his
ex-wife did not forge his signature. We
conclude, however, that the court was
well within its province when it found
that Superson’s hostility toward Dr.
Malachinski--as manifested in her attempt
to hire someone to kill him--was too far
removed in time (six years after the
execution of the consent form) to support
the forgery theory. Although Dr.
Malachinski marshals evidence to the
contrary (Superson secretly had filed for
divorce; the two had been embroiled in a
heated custody battle; Mellerke testified
that Superson had made several suspicious
statements; Superson was convicted of
attempting to hire someone to kill Dr.
Malachinski; and, in a deposition related
to this case, Superson refused to answer,
on self-incrimination grounds, questions
relating to whether she forged Dr.
Malachinski’s signature), we review the
record in the light most favorable to the
tax court’s findings and, as indicated
previously, defer to those findings when
there are two permissible views of the
evidence. See United States v. Hardamon,
188 F.3d 843, 848 (7th Cir. 1999).
B. Remittance
1.
Dr. Malachinski sent the IRS a
remittance of $20,400 in April 1984 in
anticipation of income tax liability for
1980. Notably, at the time Dr.
Malachinski made this payment, the IRS
had not defined any tax liability for
1980. Although the taxes were under
audit, no examination report proposing a
deficiency had been prepared. Indeed, the
deficiency was not determined until ten
years later. In 1988, the IRS transferred
the payment to Dr. Malachinski’s
individual 1982 income tax account. The
money, plus $902 in interest, was
refunded by the IRS six months later.
Dr. Malachinski argues that he did not
request either the credit of the funds to
his 1982 taxable year or the refund of
that amount. He denies, moreover, that he
ever received the refund; he speculates
that Superson intercepted the check and
forged his endorsement. Thus, even if he
does not prevail on the statute of
limitations defense, Dr. Malachinski
asserts that he is entitled to a credit
of $20,400 against the deficiency he now
owes on his 1980 tax return.
The tax court determined that it was
without jurisdiction to determine whether
Dr. Malachinski was entitled to a credit
against the 1980 deficiency. The court
reasoned that, when the payment was
initially made, it was not a payment
toward a 1980 liability and therefore
ought to be considered a deposit rather
than a payment to satisfy a particular
tax liability. Later, the IRS applied the
funds to Dr. Malachinski’s 1982 tax
liability and, in the course of
determining the extent of that 1982
liability, returned these funds as an
overpayment. Because the tax court did
not have jurisdiction over Dr.
Malachinski’s 1982 tax liability in this
action, the court could not review the
correctness of the IRS’ disposition of
the funds with respect to that year.
Therefore, at the time it was asked to
apply the funds to the 1980 tax
liability, there were no funds within the
court’s jurisdiction to apply to that
liability.
2.
In reviewing the determination of the
tax court, we turn first to its initial
determination that, at the time of their
receipt by the IRS, the funds were a
deposit rather than a payment on the 1980
taxes. In Moran v. United States, 63 F.
3d 663 (7th Cir. 1995), this circuit
joined a significant number of other
circuits in concluding that a court must
look to the facts and circumstances of an
individual case to determine whether a
remittance is a deposit or a payment. See
id. at 667-68. We held that "for the
purposes of deciding whether a remittance
was a payment of tax, formal assessment
is only one factor to be considered." Id.
at 668 (quoting Ewing v. United States,
914 F.2d 499 (4th Cir. 1990), cert.
denied, 500 U.S. 905 (1991)). Other
factors to be considered include the
taxpayer’s intent upon making the
remittance, how the IRS treats the
remittance upon receipt, and when the tax
liability is defined. See Moran, 63 F.3d
at 668.
In Moran, we also took the view, without
extended discussion, that we ought to
assess these factors under a de novo
standard of review. Further reflection
has convinced us that a deferential
standard is more appropriate. Recent
years have seen a growth in our national
jurisprudence on the appropriate standard
of review for the application of legal
principles to fact-specific questions.
The Supreme Court has made it clear that
plenary review is appropriate when a
relevant legal principle can be given
meaning and clarified only through the
application of that rule to the
circumstances of a particular case and
when there are particularly important
reasons for the courts to craft a defined
set of rules that ensure that future
determinations involving important rights
are made accurately. See Ornelas v.
United States, 517 U.S. 690, 697-98
(1996); see also Cooper Indus., Inc. v.
Leatherman Tool Group, Inc., 121 S. Ct.
1678, 1685-88 (2001). However, absent
such special considerations, a proper
allocation of the roles of trial and
appellate courts counsels that fact-
specific questions not easily susceptible
of useful generalization be reviewed
deferentially by appellate courts. See
Cooter & Gell v. Hartmarx Corp., 496 U.S.
384, 399-405 (1990); Pierce v. Underwood,
487 U.S. 552, 557-63 (1988). The
application of the "facts and
circumstances" test that we embraced in
Moran indicated strongly that we ought to
review the determination of the tax court
on this question deferentially. On this
point--the applicable stand-ard of
review--our language to the contrary in
Moran is overruled./5
Applying a deferential standard of
review to the determination of the tax
court in this case, we see no reason to
disturb that court’s conclusion. The
record adequately supports the conclusion
that the tax court correctly determined
the payment in this case, at the time it
was made, was a deposit. As we already
have noted, Dr. Malachinski’s payment was
made in April 1984, well before any
liability was defined. At that time, his
1980 tax return was being audited, but no
report proposing a deficiency was
prepared until 15 months later, and the
deficiency was not determined until 10
years later. The amount of the remittance
bore, in the words of the tax court, "no
perceptible relationship" to the amount
of the deficiency proposed in the
examination report (more than $90,000).
R.56 at 20. Dr. Malachinski,
additionally, did not indicate that the
remittance constituted a payment; rather,
he recalled making it to halt the accrual
of interest./6
Further, the IRS apparently treated the
remittance as a cash bond. When it
refunded the remittance, it included $902
in interest--a reflection of the accrual
of interest for the six months the money
was in the 1982 account and not for the
total four and-a-half years the IRS had
the money. The payment of interest only
for the time that the money was posted to
the 1982 account indicates that the IRS
treated the payment as a cash bond for
the year 1980./7
3.
Although the tax court has jurisdiction
to determine whether a deposit payment is
applicable to a particular deficiency,
see Hays v. Commissioner, 71 T.C.M.
1754, 1757-58 (1996), here, the court was
never asked to determine whether the
deposit in question could be attributed
to the 1980 tax year at any time prior to
the IRS’ application of those funds to
the 1982 tax account in 1988. Whether
those funds were properly allocated to
the 1982 tax account was a matter not
properly before the tax court in this
proceeding because the court did not have
jurisdiction over the 1982 tax account.
See I.R.C. sec. 6214(b). At first glance,
section 6512(b) seemingly might provide a
jurisdictional hook to permit the tax
court to reach this question. That
section states:
[I]f the Tax Court finds that there is no
deficiency and further finds that the
taxpayer has made an overpayment of
income tax for the same taxable year . .
. in respect of which the Secretary
determined the deficiency, or finds that
there is a deficiency but that the
taxpayer has made an overpayment of such
tax, the Tax Court shall have
jurisdiction to determine the amount of
such overpayment, and such amount shall,
when the decision of the Tax Court has
become final, be credited or refunded to
the taxpayer.
I.R.C. sec. 6512(b)
We cannot read this provision as
permitting the tax court to determine
whether the $20,400 deposit ought to be
attributed to Dr. Malachinski’s 1980 tax
deficiency. First, sec. 6512(b) refers to
overpayments, and, as we just held, with
respect to the 1980 tax year, the
remittance at issue here is a deposit and
not a payment. Although the term
"overpayment" is nowhere statutorily
defined, see Estate of Baumgardner v.
Commissioner, 85 T.C. 445, 449 (1985),
the Supreme Court has defined overpayment
as "any payment in excess of that which
is properly due." Jones v. Liberty Glass
Co., 332 U.S. 524, 531 (1947) (defining
overpayment as used in the statutory
predecessor to sec. 6512(b), sec. 322 of
the 1939 Code). For there to be an
overpayment, the taxpayer first must have
made a payment. See Bachner v.
Commissioner, 109 T.C. 125, 129 (1997),
aff’d without published opinion, 172 F.3d
859 (3d Cir. 1998). Because Dr.
Malachinski has not made a payment for
the 1980 tax year, it follows that he
could not have made an overpayment that
would have brought him within the purview
of sec. 6512(b).
Even if Dr. Malachinski’s remittance
could be considered a payment rather than
a deposit when it was transferred and
credited to his 1982 account, sec.
6512(b)(4) nevertheless prevents the tax
court from exercising jurisdiction over
the remittance. This recently added
subsection of I.R.C. sec. 6512/8 reads
as follows:
(4) Denial of Jurisdiction Regarding
Certain Credits and Reductions.--The Tax
Court shall have no jurisdiction under
this subsection to restrain or review any
credit or reduction made by the Secretary
under section 6402./9
The Senate Report explains that the
addition "clarifies that the Tax Court
does not have jurisdiction over the
validity or merits of the credits or
offsets that reduce or eliminate the
refund to which the taxpayer was
otherwise entitled." S. Rep. 105-33,
105th Cong., 1st Sess. 302-303
(1997).Although the tax court has
jurisdiction to determine the amount of
an overpayment, see I.R.C. sec.
6512(b)(1), it does not have jurisdiction
to direct the disposition of an
overpayment when that payment has been
credited against another year’s
assessment pursuant to sec. 6402(a) prior
to the commencement of a tax court
proceeding. See I.R.C. sec. 6512(b)(4);
Savage v. Commissioner, 112 T.C. 46, 48-
51 (1999).
Conclusion
The tax court did not clearly err when
it determined that Dr. Malachinski’s
signature on the consent form was
genuine. We also agree that the tax court
lacked jurisdiction to determine whether
Dr. Malachinski was entitled to a credit
for the $20,400 remittance. Accordingly,
we affirm the decision of the tax court.
AFFIRMED
FOOTNOTES
/1 After their divorce, the Malachinskis were in-
volved in an acrimonious child custody contest.
Dr. Malachinski had filed for sole custody of the
two Malachinski children, but Superson was award-
ed custody in 1986. The following year, however,
an appellate court reversed the award of custody
and granted full custody of the children to Dr.
Malachinski.
/2 Because the court determined that it had no
jurisdiction to address the remittance, it de-
clined to rule on the Commissioner’s hearsay
objection to Mellerke’s testimony.
/3 A consent is valid on its face if it identifies
the taxpayer, bears his signature, identifies the
year, and is dated prior to the expiration of the
existing limitations period. See Kim v. Commis-
sioner, 71 T.C.M. 2530 (1996).
/4 Cf. Kim v. Commissioner, 71 T.C.M. 2530
(1996) (emphasizing the taxpayer’s long period of
silence in rejecting the taxpayer’s argument that
her signature on an IRS document was forged:
"Certainly, by failure to question the validity
of the [form] for an extended period of time,
[the taxpayer] has in effect accepted it as
valid. [The taxpayer] has failed to show that the
notice of deficiency was untimely sent.").
/5 This opinion has been circulated among all judges
of this court in regular active service. No judge
favored a rehearing en banc on the question of
whether this language from Moran ought to be
overruled.
/6 We note that the IRS specifically approves this
procedure and accepts deposits for this purpose.
See Rev. Proc. 82-51, 1982-2 C.B. 839, superseded
by Rev. Proc. 84-58, 1984-2 C.B. 501. The origi-
nal provision (applicable to remittances made
before Oct. 1, 1984--the case here) indicates
that any "undesignated remittance" made before
the written proposal of a liability will be
"treated by the Service as a deposit in the
nature of a cash bond." Rev. Proc. 82-51, 1982-2
C.B. 839.
/7 Although the voucher prepared by the IRS contains
a checked section indicating that the remittance
was an advance payment on deficiency, it also
bears the handwritten legend in the "remarks"
section that the payment served as a cash bond.
The voucher is, therefore, inconclusive.
/8 I.R.C. sec. 6512(b)(4) was added to the Code by
the Taxpayer Relief Act of 1997, Pub. L. 105-34,
sec. 1451(b), 111 Stat. 788, 1054.
/9 Under I.R.C. sec. 6402, the Commissioner is
expressly authorized to credit the amount of an
overpayment against any tax liability of the
taxpayer. See I.R.C. sec. 6402(a).
Posner, Circuit Judge, concurring in part and
dissenting in part. I agree with the majority’s
analysis and disposition of the taxpayer’s first
ground of appeal and with its conclusion anent
the second ground that the remittance to the IRS
was a deposit and not a payment of taxes. I also
agree that the Tax Court’s determination that it
was a deposit should not be reviewed "de novo,"
that is, without deference to the Tax Court’s
view of the matter, though I think we could say
a bit more on that subject. But I disagree with
the majority’s holding that the Tax Court lacked
jurisdiction to apply the taxpayer’s deposit
toward his tax deficiency--and let me begin with
this issue.
The majority points out that the Tax Court’s
jurisdiction is limited to the resolution of
disputes over deficiencies, 26 U.S.C. sec.sec.
6213(a), 6214--that is, underpayments--but that
its power to resolve such disputes includes the
power to determine whether a taxpayer is entitled
to a refund of payments made in excess of a
deficiency, 26 U.S.C. sec. 6512(b), that is, to
a refund of an overpayment. So far, so good. But
when a taxpayer makes a deposit against a possi-
ble liability, so that there is only a potential
deficiency, the majority holds that the Tax Court
has no jurisdiction to apply the deposit against
the deficiency even if the court later deter-
mines, as it did in this case, that, yes, there
is a deficiency against which the deposit could
be credited to reduce the taxpayer’s net defi-
ciency. The consequence of my colleagues’ posi-
tion is that any time the IRS refuses to acknowl-
edge that a taxpayer against whom it has assessed
a deficiency had made a deposit against that
deficiency, the taxpayer must, if he wishes to
challenge both the deficiency and the refusal to
credit his deposit against it, file two separate
suits: one in the Tax Court to litigate his
deficiency and a second in a federal district
court or the U.S. Court of Federal Claims (28
U.S.C. sec.sec. 1346(a)(2), 1491(a)(1); see
Tosello v. United States, 210 F.3d 1125, 1128
(9th Cir. 2000)) to force the IRS to return his
deposit. See Rosenman v. United States, 323 U.S.
658 (1945); Ertman v. United States, 165 F.3d
204, 206 (2d Cir. 1999); New York Life Ins. Co.
v. United States, 118 F.3d 1553, 1555-58 (Fed.
Cir. 1997).
Nothing compels so inefficient a procedure for
litigating disputes over deposits against poten-
tial deficiencies. The motive for a taxpayer’s
depositing money with the IRS is his realization
that there is a potential tax deficiency (in
other words, that he may have underpaid his
taxes) coupled with a desire to stop interest and
penalties from accruing. See VanCanagan v. United
States, 231 F.3d 1349, 1353 (Fed. Cir. 2000);
Callaway v. Commissioner, 231 F.3d 106, 113 n. 11
(2d Cir. 2000); IRS Rev. Proc. 84-58 sec. 5.01,
1984-2 C.B. 501, sec. 5.01. Should a deficiency
eventually be assessed, the deposit is then used
to pay it off. See id. sec.sec. 4.02(2), (3);
Michael I. Saltzman, IRS Practice and Procedure
sec. 6.02[3] [a][ii], p. 6-15 (2d ed. 1991). In
determining a taxpayer’s net deficiency, there-
fore, the Tax Court, as a matter of elementary
judicial economy, ought to be able to determine
the status of a deposit. That has been the
court’s steady practice, see, e.g., Hays v.
Commissioner, T.C. Memo 1996-18, 1996 WL 20554
(U.S. Tax Court Jan. 22, 1996), from which it
unaccountably departed in this case with an
unelaborated citation to an irrelevant case,
Savage v. Commissioner, 112 T.C. 46 (1999). The
power for which I am arguing is entirely consis-
tent with the limitation of the Tax Court’s
jurisdiction to disputes over deficiencies (and
overpayments in connection therewith), with the
case law, and with common sense.
The question is not whether the Tax Court has
"jurisdiction over a deposit." It has jurisdic-
tion to determine the amount of deficiencies.
This can be done only by taking the amount of
taxes owed and subtracting any payments toward
them. No one would say that the Tax Court has
"jurisdiction over a tax payment"; it just uses
the payment to compute the amount owed, and if
there are disputes about how much has been paid
the Tax Court must resolve them. The same is
true if the remittance is not a payment of tax
but instead a deposit against a potential tax
liability.
Against this my colleagues make two points. The
first is that a deposit cannot be an overpayment
because, "for there to be an overpayment, the
taxpayer first must have made a payment." That
isn’t true as a matter of ordinary usage, and my
colleagues’ opinion gives no reason why it should
be interpreted this way. If you make a deposit on
the purchase of a lamp, not knowing the price,
and the price turns out to be less than the
deposit, the seller will refund the difference--
you’ve "overpaid." The second point made by my
colleagues relates to 26 U.S.C. sec. 6512(4)(b),
which forbids the Tax Court "to restrain or
review any credit or reduction made by the Secre-
tary [of the Treasury, i.e., the IRS] under
section 6402." Section 6402(a) authorizes the IRS
to credit an overpayment of taxes for one tax
year against a deficiency in the taxes paid by
the taxpayer in another tax year, and so is
inapplicable to this case because the deposit
(overpayment) was not made on account of a dif-
ferent year from the year for which the deficien-
cy was assessed; the deposit was against taxes
assessed for that year. It is not surprising that
the government didn’t even bother to cite section
6402 in its original brief, or for that matter
section 6512(4)(b). What is more, as is apparent
from a comparison of section 6512(4)(b) with
sections 6402(b) and (c), and from the legisla-
tive history of section 6512(4)(b), see S. Rep.
No. 33, 105th Cong., 1st Sess. 302-03 (1997);
H.R. Rep. No. 48, 105th Cong., 1st Sess. 637-38
(1997), the section was enacted in order to
prevent the Tax Court from second-guessing the
IRS’s determination to reduce a refund by the
amount of child-support payments or payments due
on government loans. It has nothing to do with
deposits.
Turning now to the proper standard of appellate
review of a finding that a remittance was a
deposit rather than a payment of taxes, I agree,
as I said at the outset, that it should be the
clearly-erroneous standard and not the de novo
(no deference) standard of Moran v. United
States, 63 F.3d 663, 666 (7th Cir. 1995). It is
worth noting that the court adopted that position
in Moran without elaboration and without explana-
tion beyond a bare citation to a case that says
something entirely different and completely
irrelevant, which is that review of summary
judgment is de novo. Hefti v. IRS, 8 F.3d 1169,
1171 (7th Cir. 1993). Moran was also a summary
judgment case, and it is possible that the refer-
ence in it to review de novo was intended to say
nothing more than what Hefti had (correctly)
said, though the specific language of Moran is
against this interpretation: "All these conten-
tions essentially hinge on one issue: whether the
remittances made by the Morans in 1985 and 1986
were payments of tax or deposits that the IRS
converted into payments in September, 1991. We
review the district court’s decision on this
legal question de novo." However all this may be,
the Sixth Circuit, in a case decided after Moran,
reached the opposite conclusion, Gabelman v.
Commissioner, 86 F.3d 609, 611 (6th Cir. 1996),
and so we have a circuit split, which behooves us
to revisit Moran. See United States v. Carlos-
Colmenares, 253 F.3d 276, 277-78 (7th Cir. 2001).
The usual significance of the distinction
between the payment of taxes and a deposit
against a potential deficiency is, as in Moran
itself, 63 F.3d at 666-67, 670; Ertman v. United
States, supra, 165 F.3d at 206; and Blatt v.
United States, 34 F.3d 252, 253-54 (4th Cir.
1994), that to get back an overpayment of taxes
you must file a refund suit, and there are
limitations (including how much time one has to
sue), see 26 U.S.C. sec. 6511, that are not
applicable to claims for the return (or credit-
ing) of deposits. So the question of classifica-
tion is significant even if, as I believe, my
colleagues are wrong to think it has jurisdic-
tional significance in this case.
As the majority points out, which animal--tax
payment or deposit--a particular remittance is
depends on "the facts and circumstances of an
individual case," including such facts as "the
taxpayer’s intent upon making the remittance, how
the IRS treats the remittance upon receipt, and
when the tax liability is defined." (This has
been dubbed "the ’facts and circumstances’ test."
Ertman v. United States, supra, 165 F.3d at 207;
see also Gabelman v. Commissioner, supra, 86 F.3d
at 613.) When a legal conclusion is based on a
kaleidoscope of factual determinations, appellate
courts generally review it under the clearly-
erroneous standard, recognizing that the trier of
fact is in a better position than the appellate
judges to weigh up the various facts and that the
primary appellate role is to assure legal unifor-
mity, an unattainable goal when the dispositive
issue is case-specific. See, e.g., Buford v.
United States, 121 S. Ct. 1276 (2001); Cooter &
Gell v. Hartmarx Corp., 496 U.S. 384, 401-04
(1990); Icicle Seafoods, Inc. v. Worthington, 475
U.S. 709, 711-14 (1986); United States v. Hill,
196 F.3d 806, 808 (7th Cir. 1999); Cook v. City
of Chicago, 192 F.3d 693, 696-97 (7th Cir. 1999);
United States v. Frederick, 182 F.3d 496, 499-500
(7th Cir. 1999); United States v. Rule Indus-
tries, Inc., 878 F.2d 535, 538, 541-42 (1st Cir.
1989), and with reference to review of such
determinations in tax cases, Williams v. Commis-
sioner, 1 F.3d 502, 505 (7th Cir. 1993), where we
noted that because "a question about the proper
application of a legal standard to the (real)
facts . . . requires a judgment based on the
idiosyncratic facts of a particular case rather
than the formulation of a general rule, it is one
best confided to the first-line judicial officer
subject to only light appellate review." A ruling
in this case that Malachinski’s payment was a
deposit has no precedential significance, because
there will never be a case with the same facts.
The rule that overpayments and deposits are
treated differently in tax law is a genuine rule
of law; the "rule" that Malachinski loses this
case is not.
There is an analogy to a jury’s or a trial
judge’s finding of negligence. Even if the facts
are undisputed, the inference from them that the
defendant was or was not negligent is drawn by
the trier of fact and reviewed deferentially. The
Supreme Court so held in McAllister v. United
States, 348 U.S. 19 (1954); see 9A Charles A.
Wright & Arthur R. Miller, Federal Practice and
Procedure sec. 2590, pp. 622-24 (2d ed. 1995);
see also Cooter & Gell v. Hartmarx Corp., supra,
496 U.S. at 402; Halek v. United States, 178 F.3d
481, 485 (7th Cir. 1999); Mucha v. King, 792 F.2d
602, 605 (7th Cir. 1986); Ogden v. Commissioner,
244 F.3d 970 (5th Cir. 2001) (per curiam). The
inference that Malachinski’s remittance was a
deposit rather than a tax payment would likewise
be for the Tax Court to draw subject to light
review by us even if the underlying facts--Mal-
achinski’s intent, what the IRS did with his
check, and so forth--were stipulated.
There are, it is true, exceptions to the prin-
ciple that legal inferences from facts, or what
are more commonly called rulings on "mixed ques-
tions of law and fact" or "ultimate questions of
fact," are to be reviewed for clear error. The
exceptions have mainly to do with sensitive
issues of constitutional law or jurisdiction,
see, e.g., Cooper Industries, Inc. v. Leatherman
Tool Group, Inc., 121 S. Ct. 1678, 1685-86 (2001);
Ornelas v. United States, 517 U.S. 690, 696-99
(1996), and so are inapplicable here. Cf. United
States v. Frederick, supra, 182 F.3d at 499-500;
Door Systems, Inc. v. Pro-Line Door Systems,
Inc., 126 F.3d 1028, 1031 (7th Cir. 1997). Al-
though there is a regrettable lack of uniformity
in the practice of appellate courts, as pointed
out in United States v. Frederick, supra, 182
F.3d at 503-04 (concurring opinion); see also
Witkowski v. Welch, 173 F.3d 192, 198 n. 7 (3d
Cir. 1999), this circuit has adhered to the
principle quite steadily--see, e.g., besides the
cases cited earlier, In re Rovell, 194 F.3d 867,
870-71 (7th Cir. 1999); United States v. Freder-
ick, supra, 182 F.3d at 499; and Mars Steel Corp.
v. Continental Bank N.A., 880 F.2d 928, 933-36
(7th Cir. 1989) (en banc)--and it is fully appli-
cable to the present case.
The government has conceded that if the Tax
Court did have jurisdiction to apply the taxpay-
er’s deposit to his deficiency, the case must be
remanded. The IRS contends that it returned the
deposit to the taxpayer, and if that is right
then of course he is not entitled to credit it
against his deficiency. But that is a factual
question for the Tax Court to answer. I would
therefore remand the case to the Tax Court.