DocketNumber: Docket No. 6390-74
Citation Numbers: 66 T.C. 61, 1976 U.S. Tax Ct. LEXIS 131
Judges: Scott
Filed Date: 4/8/1976
Status: Precedential
Modified Date: 1/13/2023
1976 U.S. Tax Ct. LEXIS 131">*131
2. The addition to tax for fraud provided for by
66 T.C. 61">*62 OPINION
Respondent determined a deficiency in petitioners' Federal income tax and an addition to the tax of M. William Breman under the provisions of
(1) Whether the decision entered by this Court on April 5, 1968, pursuant to stipulation of the parties, determining a deficiency in petitioners' income tax for their fiscal year ended November 30, 1964, in the amount of $ 30,128.93, forecloses under the doctrine of res judicata the assertion of a further deficiency and an addition to tax under
(2) If the assertion of a further deficiency is not foreclosed1976 U.S. Tax Ct. LEXIS 131">*136 by the prior decision of this Court for petitioners' fiscal year ended November 30, 1964, is the deficiency which may be asserted limited to the addition to tax under
(3) If the assertion of a deficiency and an addition to tax under
All of the facts have been stipulated and are found accordingly.
Petitioners, husband and wife, whose legal residence was in Atlanta, Ga., at the time the petition in this case was filed, filed a joint Federal1976 U.S. Tax Ct. LEXIS 131">*137 income tax return on March 15, 1965, for their taxable year ended November 30, 1964, with the District Director, Internal Revenue Service, in Atlanta, Ga.
On January 17, 1966, respondent issued to petitioners a statutory notice of deficiency determining a deficiency in their Federal income tax for their taxable year ended November 30, 1964, in the amount of $ 50,395.97. The deficiency was based on the determination of respondent that $ 98,157 of an amount distributed to petitioners in 1964 by Georgia Screw Products Corp. constituted ordinary dividend income and not capital gain as reported by petitioners. Respondent increased petitioners' taxable income as reported by the amount of the dividend he determined to result from the distribution and decreased the resulting amount of income by the amount of capital gain reported by petitioners as gain from a liquidating distribution of Georgia Screw Products Corp.
Petitioners filed a timely petition to this Court assigning error to the respondent's determination of deficiency for their taxable year ended November 30, 1964, as set forth in his notice of deficiency dated January 17, 1966. This petition was assigned docket No. 1883-66. 1976 U.S. Tax Ct. LEXIS 131">*138 Respondent filed a timely answer to petitioners' petition. Petitioners and respondent reached a basis of settlement in docket No. 1883-66, reducing the additional dividend from the $ 98,157 set forth in the notice of deficiency to $ 68,710. After making the necessary adjustments to capital gain income as reported, this settlement resulted in a deficiency in petitioners' income tax for their fiscal year ended November 30, 1964, of $ 30,128.93. The parties filed with this Court a proposed decision based on the settlement they had reached for a deficiency in petitioners' income tax for their taxable year ended November 30, 1964, in the amount of $ 30,128.93. On April 5, 1968, this Court entered a decision in docket No. 1883-66 determining the stipulated deficiency of $ 30,128.93 in petitioners' income tax for their taxable year ended November 30, 1964. Neither respondent nor petitioners filed an appeal from the decision of this Court entered April 5, 1968.
66 T.C. 61">*64 During the taxable year ended November 30, 1964, petitioner M. William Breman received dividend income from Breman Steel Co., Inc., in the amount of $ 20,854.31, representing the receipt of proceeds from the sale of scrap1976 U.S. Tax Ct. LEXIS 131">*139 steel by Breman Steel Co., Inc. This $ 20,854.31 of dividend income was not reported on petitioners' Federal income tax return for their taxable year ended November 30, 1964. The omitted dividend income of $ 20,854.31 was not included as an adjustment in the statutory notice of deficiency dated January 17, 1966, on which the case of
Respondent, on April 29, 1974, mailed1976 U.S. Tax Ct. LEXIS 131">*140 to petitioners a second notice of deficiency, which is the basis of the petition filed in this case. In this second notice of deficiency respondent determined the deficiency as heretofore set forth against petitioners for their taxable year ended November 30, 1964, based on the inclusion in their income of $ 20,854.31 of dividend income which was not reported on their Federal income tax return for their fiscal year 1964. In this same notice of deficiency respondent determined an addition to tax of petitioner M. William Breman in the amount heretofore set forth. Petitioners concede that respondent is correct in asserting the addition to tax under the provisions of
Petitioners' primary position is that the decision of this Court entered on April 5, 1968, in docket No. 1883-66 determining a deficiency in their income tax for their taxable year ended November 30, 1964, constitutes a bar under the doctrine of res judicata to the assertion of additional deficiencies, including 66 T.C. 61">*65 addition to tax under
1976 U.S. Tax Ct. LEXIS 131">*142 Respondent takes the position that the provisions of
1976 U.S. Tax Ct. LEXIS 131">*143 Petitioners recognize that
This Court has pointed1976 U.S. Tax Ct. LEXIS 131">*144 out on numerous occasions that its jurisdiction is strictly limited by statute and that it may not enlarge upon that statutory jurisdiction. See
1976 U.S. Tax Ct. LEXIS 131">*145 Petitioners here ask us to determine that respondent is barred by the doctrine of res judicata because of our prior decision with respect to their fiscal year 1964 from asserting the deficiency in tax and addition to tax here in issue. In order to determine whether the doctrine of res judicata is applicable here, it is necessary that we have jurisdiction to make such a determination. Unless respondent's deficiency notice, which forms the basis of the petition in this case, is a valid notice under
It would seem to follow that if we acquire jurisdiction over the case from the second notice of deficiency then a final decision in the prior case is not a bar to our redetermining the deficiency in the second case. The legislative1976 U.S. Tax Ct. LEXIS 131">*146 history of
If after the enactment of this Act the Commissioner has mailed to the taxpayer notice of a deficiency as provided in subdivision (a), and the taxpayer files a petition with the Board within the time prescribed in such subdivision, the Commissioner shall have no right to determine any additional deficiency in respect of the same taxable year, except in the case of fraud, and except as provided in subdivision (e) of this section or in
In explaining this section, the Senate Finance Committee Report states:
But if he does elect to file a petition with the Board his entire tax liability for the year in question (except in case of fraud) is finally and completely settled by the decision of the Board when it has become final, whether the decision is by findings of fact and opinion, or by dismissal, as in case of lack of prosecution, insufficiency of evidence to sustain the petition, or on the taxpayer's own motion. The duty of the Commissioner to assess the deficiency thus determined is mandatory, and no matter how meritorious a claim for abatement of the assessment or for refund he can not entertain it, nor can suit be maintained against the United States or the collector. Finality is the end sought to be attained by these provisions of the bill, and 1976 U.S. Tax Ct. LEXIS 131">*148 the committee is convinced that to allow the reopening of the question of the tax for the year involved either by the taxpayer or by the Commissioner (save in the sole case of fraud) would be highly undesirable.
S. Rept. No. 52, 69th Cong., 1st Sess. (1926), 1939-1 (Part 2)
The Board shall have jurisdiction to redetermine the correct amount of the deficiency even if the amount so redetermined is greater than the amount of the deficiency, notice of which has been mailed to the taxpayer, and to determine whether any penalty, additional amount or addition to the tax should be assessed, if claim therefor is asserted by the Commissioner at or before the hearing or a rehearing.
66 T.C. 61">*69 In explaining this section the Senate Finance Committee Report states:
Under the existing law and the House bill the 5 per cent and 50 per cent additions to the tax in case of negligence or fraud are to be assessed and collected in the same manner as if they were a deficiency,
S. Rept. No. 52, 69th Cong., 1st Sess. (1926), 1939-1 (Part 2)
In light of this legislative history the reasonable interpretation of
Neither party has cited a case directly in point with the instant case. However, a Memorandum Opinion of this Court cited to us by petitioners to support their argument that respondent's proper procedure would be to file a motion to reopen the prior case indicates that respondent is justified in sending a second notice of deficiency and that this Court may properly redetermine the deficiency when a timely petition seeking such redetermination is filed. 5
1976 U.S. Tax Ct. LEXIS 131">*151 66 T.C. 61">*70 In
The deficiency notice of November 18, 1953, was not invalid under
Considering the statutory provisions and their legislative history we conclude that respondent properly issued the second notice of deficiency and, a petition having been filed from that notice, we have jurisdiction to redetermine the deficiency even though previously we had entered a decision which had become1976 U.S. Tax Ct. LEXIS 131">*152 final at the time the second notice of deficiency was issued. In our view the statutory provision authorizes a determination of a deficiency and addition to tax which, except for these provisions, respondent might be barred from asserting under the doctrine of res judicata. 6 Since there is no restriction placed in
1976 U.S. Tax Ct. LEXIS 131">*153 Having determined that the notice is proper and places at issue before us the redetermination of both the deficiency and the addition to tax for fraud, it is necessary to consider petitioners' contention that the addition to tax should be limited to 50 66 T.C. 61">*71 percent of the deficiency determined in the second notice of deficiency.
It has been held in numerous cases under the provisions of
In
Petitioners apparently recognize that the many different circumstances under which we have held the addition to tax for fraud provided for in
The case of
Whether Congress intended to disturb the existing law in this particular when it passed the Internal1976 U.S. Tax Ct. LEXIS 131">*158 Revenue Act of 1954 appears never to have been decided by a Court of Appeals, perhaps because it seems obvious that the statutory history indicates that Congress did not intend to affect the existing interpretation.
We agree with the conclusion reached by the Circuit Court of Appeals in
1976 U.S. Tax Ct. LEXIS 131">*160 Had there been only one deficiency assessed coupled with a finding that at least a part of the underpayment was due to fraud, then there would not have been any previously assessed deficiency for which taxpayers could claim a credit 66 T.C. 61">*74 under
We hold that respondent correctly computed the addition to Mr. Breman's tax for fraud by applying the 50-percent addition to the difference in petitioners' correct tax liability and the tax reported on petitioners' original return.
Our holding on this issue is in accordance with the holding in the Court-reviewed case of
1. All references are to the Internal Revenue Code of 1954, as amended, unless otherwise noted.↩
2. Petitioners make no contention separately with respect to Mrs. Sylvia G. Breman that since no addition to tax under
10. The only issues under the pleadings for determination by the Court are set forth below:
(a) Whether the decision in Docket No. 1883-66, * * *, constitutes a bar to the assertion of additional deficiencies in the petitioners' tax liability for the taxable year ended November 30, 1964.
(b) In the event that the Court holds that the assertion of additional deficiencies in the petitioners' tax liability for the taxable year ended November 30, 1964 is not barred, whether the amount of the addition to tax under the provisions of
We therefore will not consider whether as to Mrs. Breman only res judicata would be applicable, but by not considering this issue are not expressing a view as to the conclusion we would reach if the issue were raised. See, however,
3.
(c) Further Deficiency Letters Restricted. -- (1) General rule. -- If the Secretary or his delegate has mailed to the taxpayer a notice of deficiency as provided in subsection (a), and the taxpayer files a petition with the Tax Court within the time prescribed in
4.
(a) Time for Filing Petition and Restriction on Assessment. -- Within 90 days, or 150 days if the notice is addressed to a person outside the States of the Union and the District of Columbia, after the notice of deficiency authorized in
5. In
"It is true, of course, that if we should deny respondent's motion to amend his answer and raise the new issues contained in his affirmative allegations, including fraud, he could issue a new deficiency notice as provided under
6. We make no distinction because the decision here was pursuant to a stipulation of the parties. As was pointed out by the Supreme Court in
Frank C. And Mary Papa v. Commissioner of Internal Revenue , 464 F.2d 150 ( 1972 )
Geo. M. Still, Inc. v. Commissioner of Internal Revenue , 218 F.2d 639 ( 1955 )
Joseph P. Kiker v. Commissioner of Internal Revenue, Joseph ... , 218 F.2d 389 ( 1955 )
joseph-a-cirillo-and-martha-r-cirillo-v-commissioner-of-internal , 314 F.2d 478 ( 1963 )
William Levinson and William Levinson, Assignee of F.M.P. ... , 496 F.2d 651 ( 1974 )
Senate Realty Corporation v. Commissioner of Internal ... , 511 F.2d 929 ( 1975 )
Bessie Lasky and Jesse L. Lasky v. Commissioner of Internal ... , 235 F.2d 97 ( 1956 )
United States v. International Building Co. , 73 S. Ct. 807 ( 1953 )