Dover Corp. v. Commissioner

T.C. Memo. 1997-339

UNITED STATES TAX COURT

DOVER CORPORATION AND SUBSIDIARIES, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 24250-96. Filed July 28, 1997.

Robert D. Whoriskey and Charles R. Goulding, for

petitioner.

Lewis R. Mandel, for respondent.

MEMORANDUM OPINION

DAWSON, Judge: This case was assigned to Special Trial

Judge Robert N. Armen, Jr., pursuant to the provisions of section

7443A(b)(4) of the Internal Revenue Code of 1986, as amended, and
 - 2 -

Rules 180, 181, and 183.1 The Court agrees with and adopts the

Opinion of the Special Trial Judge, which is set forth below.

OPINION OF THE SPECIAL TRIAL JUDGE

ARMEN, Special Trial Judge: This case is before the Court

on the motion of Dover Corporation and Subsidiaries (hereinafter

petitioner) to restrain assessment or collection, filed pursuant

to section 6213(a) and Rule 55. As explained in greater detail

below, we will deny petitioner's motion.

As an introductory matter, we observe that the taxable years

before the Court in the present case are 1992 and 1993; however,

for purposes of petitioner's motion, our focus will be on 1993.

Nevertheless, because of various carrybacks and carryforwards,

taxable years other than those in issue will be discussed, and

certain of those other taxable years are before the Court in

other dockets.

Background

Petitioner reported overpayments of Federal income tax in

the amounts of $4,132,466, $10,711,683, and $7,729,449 on its

income tax returns for 1990, 1991, and 1992, respectively. In

each instance, petitioner made an election to treat such

overpayment as a credit to be carried forward and applied as an

1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the taxable years in
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
 - 3 -

estimated tax payment for the succeeding taxable year pursuant to

section 301.6402-3(a)(5), Proced. & Admin. Regs.2

On August 19, 1994, respondent issued a notice of deficiency

to petitioner. In the notice, respondent determined deficiencies

in petitioner's income taxes for the taxable years 1990 and 1991

in the amounts of $34,279,695 and $1,893,325, respectively.3

On September 15, 1994, petitioner filed its income tax

return for 1993, as well as amended tax returns (Forms 1120X) for

1990 and 1991.

Petitioner claimed an increased overpayment in the amount of

$1,146,384 on its amended return for 1990 and made an election to

treat such increased overpayment as a credit to be applied as an

estimated tax payment for 1991 pursuant to section 301.6402-

3(a)(5), Proced. & Admin. Regs. The increased overpayment that

petitioner claimed for 1990 is largely attributable to

petitioner's claim of additional general business credits and

environmental tax credits.

Petitioner's amended return for 1991 and petitioner's income

tax return for 1993 are related in that the most significant item

reported on petitioner's amended return for 1991 is a carryback

2
For each of the years discussed, petitioner filed
consolidated income tax returns on Form 1120, U.S. Corporation
Income Tax Return.
3
As will be discussed shortly, the taxable years 1990 and
1991 are the subject of a petition filed at another docket.
 - 4 -

of a short-term capital loss claimed on petitioner's income tax

return for 1993. In particular, petitioner reported short-term

capital gain of $1,543,914 and short-term capital loss of

$35,234,914 on its income tax return for 1993. A large portion

of the net of these items; i.e., net short-term capital loss in

the amount of $32,797,961, is claimed as a carryback loss on

petitioner's amended return for 1991, which amended return

includes petitioner's claim for an increased overpayment for 1991

in the amount of $12,621,181.4 Petitioner made an election to

treat the $12,621,181 overpayment claimed on its amended return

for 1991 as a credit to be carried forward and applied as an

estimated tax payment for 1992 pursuant to section 301.6402-

3(a)(5), Proced. & Admin. Regs.

Petitioner's income tax return for 1993 reports total tax of

$75,758,778 and various tax credits totaling $83,577,768,

resulting in a claimed overpayment of $7,818,990. Among the

credits reported on petitioner's income tax return for 1993 is a

credit in the amount of $20,350,630, which is identified as a

credit for an overpayment of tax reported on petitioner's income

tax return for 1992. The $20,350,630 amount consists of the

$12,621,181 overpayment claimed on petitioner's amended return

4
The overpayment of $12,621,181 claimed on petitioner's
amended return for 1991 includes the carryforward of the
overpayment in the amount of $1,146,384 claimed on petitioner's
amended return for 1990.
 - 5 -

for 1991 and carried forward to 1992, and the $7,729,449

overpayment claimed on petitioner's income tax return for 1992.

Petitioner made an election to treat the $7,818,990 overpayment

claimed on its income tax return for 1993 as a credit to be

applied as an estimated tax payment for 1994 pursuant to section

301.6402-3(a)(5), Proced. & Admin. Regs.5

Upon the filing of petitioner's income tax return for 1993,

respondent made an assessment against petitioner in the amount of

$75,758,778 based upon the amount of total tax reported on such

return by petitioner. Sec. 6201(a)(1). However, respondent did

not recognize the full amount of the tax credits claimed on

petitioner's income tax return for 1993. In particular, because

the taxable years 1990 and 1991 were the subject of an

outstanding notice of deficiency, respondent did not accept

petitioner's amended returns for 1990 and 1991, nor did

respondent recognize petitioner's election to treat the

overpayments claimed on such amended returns as credits to be

applied as estimated tax payments for succeeding taxable years.

In sum, respondent did not recognize the portion of the credit

for estimated tax payments claimed on petitioner's income tax

return for 1993 attributable to the $12,621,181 overpayment

5
Petitioner also reported overpayments on its income tax
returns for 1994 and 1995. In each instance, petitioner made an
election to treat such overpayment as a credit to be carried
forward and applied as an estimated tax payment for the
succeeding taxable year.
 - 6 -

claimed on petitioner's amended return for 1991. Consistent with

this adjustment, respondent determined that petitioner failed to

pay $4,905,029.16 of the $75,758,778 in total tax reported by

petitioner on its income tax return for 1993.6 Shortly

thereafter, on December 19, 1994, respondent issued a bill to

petitioner for the taxable year 1993 requesting the payment of

$5,455,695.74, consisting of tax in the amount of $4,905,029.16,

penalties in the amount of $245,251.46, and interest in the

amount of $305,415.12.

In the interim, on November 18, 1994, petitioner filed a

petition, which was assigned docket No. 21334-94, contesting

respondent's determinations as set forth in the notice of

deficiency for the taxable years 1990 and 1991. In addition to

contesting respondent's determinations, the petition at docket

No. 21334-94 includes allegations that petitioner is entitled to

overpayments for the taxable years 1990 and 1991 consistent with

the reporting position taken by petitioner in its amended returns

for 1990 and 1991, including the carryback of the $32,797,961 net

6
As a further consequence of the rejection of the
$12,621,181 credit claimed on petitioner's income tax return for
1993, respondent did not recognize petitioner's election to treat
its claimed overpayment for 1993 as a credit to be carried
forward and applied as an estimated tax payment for 1994 and
1995. This resulted in respondent's conclusion that petitioner
failed to pay a portion of the tax that petitioner reported on
its income tax returns for 1994 and 1995.
 - 7 -

short-term capital loss from 1993 to 1991 that petitioner claimed

on its amended return for 1991.

On August 12, 1996, respondent issued a notice of deficiency

to petitioner in which respondent determined deficiencies in

petitioner's income taxes for 1992 and 1993 in the amounts of

$4,629,260 and $12,696,027, respectively. The notice of

deficiency includes the disallowance of the entire $35,234,914

short-term capital loss claimed by petitioner on its 1993 income

tax return for 1993.

On November 12, 1996, petitioner commenced the present case

by filing a timely petition for redetermination, contesting

respondent's determinations as set forth in the notice of

deficiency for 1992 and 1993. The petition includes allegations

that respondent erred in failing to recognize petitioner's

election to treat the $12,621,181 overpayment claimed on its

amended return for 1991 as a credit to be applied as an estimated

tax payment for succeeding taxable years.

Respondent has not issued a notice of deficiency to

petitioner for either 1994 or 1995.

On December 30, 1996, respondent issued to petitioner a

notice of intent to levy, which states that petitioner owes

$2,082,646 in tax, penalties, and interest for 1993.7 In

7
The difference between the $5,455,695.74 amount listed as
due for 1993 in respondent's bill to petitioner dated Dec. 19,
(continued...)
 - 8 -

addition, by letter dated January 6, 1997, respondent requested a

payment from petitioner in the amount of $6,997,537.51 for taxes,

penalties, and interest purportedly due for 1995. Respondent

issued a further written request for payment for 1995 on February

17, 1997.

On March 4, 1997, petitioner filed a Motion to Restrain

Assessment or Collection in the present case. Petitioner seeks

an order from the Court restraining respondent from further

assessment or collection of taxes for the years 1993, 1994, and

1995.

On March 18, 1997, respondent filed an objection to

petitioner's Motion to Restrain Assessment or Collection.

Respondent contends that the amounts that have been assessed and

that are the object of respondent's collection efforts are the

amounts that are due because of respondent's decision not to

accept petitioner's amended returns for 1990 and 1991. In this

regard, respondent asserts that the assessments in question are

7
(...continued)
1994, and the $2,082,646 amount listed as due in respondent's
notice of intent to levy issued to petitioner on Dec. 30, 1996,
is attributable to respondent's application of a net refund of
approximately $4,000,000 due to petitioner for 1982 through 1989
as an offset against the amount purportedly due for 1993.
Petitioner contested the application of its refund in this manner
by way of Motions to Enforce Refund of an Overpayment filed in
docket Nos. 5842-91, 19640-91, 19668-91, 19886-91, and 6102-93.
The latter motions are the subject of this Court's Memorandum
Opinion, Dover Corporation and Subsidiaries. v. Commissioner,
T.C. Memo. 1997-340, a companion case to the present case.
 - 9 -

separate and distinct from the deficiencies placed in dispute in

the present case and, therefore, that the Court lacks

jurisdiction to restrain respondent's collection activity.

Respondent further asserts that the Court lacks jurisdiction to

restrain assessment and collection with respect to 1994 and 1995

because respondent has not issued a notice of deficiency to

petitioner for either of those years.

Discussion

Section 6213(a) provides that respondent generally is

precluded from assessing or collecting a deficiency until a

notice of deficiency authorized under section 6212(a) is mailed

to the taxpayer with respect to the deficiency and until the

expiration of the 90-day (or 150-day) period for filing a timely

petition for redetermination with this Court. Upon the filing of

a petition for redetermination, respondent is further precluded

from assessing or collecting the deficiency until the decision of

the Court becomes final. Powerstein v. Commissioner, 99 T.C.

466, 471 (1992); Powell v. Commissioner, 96 T.C. 707, 710-711

(1991).

Section 6213(a) was amended, effective with respect to

orders entered after November 10, 1988, to grant this Court

jurisdiction to restrain assessment and collection of a

deficiency in cases where "a timely petition for redetermination

of the deficiency has been filed and then only in respect of the
 - 10 -

deficiency that is the subject of such petition." Technical and

Miscellaneous Revenue Act of 1988, Pub. L. 100-647, sec. 6243(a),

102 Stat. 3749; Kamholz v. Commissioner, 94 T.C. 11, 15 (1990).

Consistent with the Court's statutorily prescribed jurisdiction

in this area, resolution of petitioners' Motion to Restrain

Assessment or Collection depends upon whether respondent has

assessed deficiencies that are the subject of petitioner's timely

filed petition for redetermination. Powerstein v. Commissioner,

supra at 471-472, and cases cited therein.

Based upon our review of the record presented, we are

satisfied that respondent has not assessed, and is not attempting

to collect, the deficiencies that are in dispute in this case.

Further, respondent has not issued a notice of deficiency to

petitioner for either 1994 or 1995. Under the circumstances, we

will therefore deny petitioner's Motion to Restrain Assessment or

Collection.

We begin our analysis with the events that transpired upon

the filing of petitioner's income tax return for 1993 and

petitioner's amended returns for 1990 and 1991. As previously

stated, petitioner simultaneously filed its income tax return for

1993 and its amended returns for 1990 and 1991 on September 14,

1994, nearly 1 month after respondent had issued a notice of

deficiency to petitioner for 1990 and 1991. Respondent did not

accept petitioner's amended returns for 1990 or 1991 or recognize
 - 11 -

petitioner's election to treat the overpayments claimed on the

amended returns as credits to be applied as estimated tax

payments for succeeding taxable years.

Consistent with the decision not to accept petitioner's

amended returns for 1990 and 1991, respondent concluded that

petitioner had failed to pay a portion of the tax reported on its

income tax return for 1993. Specifically, respondent assessed

(and is attempting to collect) tax for 1993 directly related to

the disallowance of the $12,621,181 overpayment claimed on

petitioner's amended return for 1991--the amount that petitioner

attempted to treat as a credit to be applied as an estimated tax

payment for 1993.

Notably, petitioner's petition for redetermination, filed at

docket No. 21334-94 on November 18, 1994, contesting respondent's

deficiency determinations for 1990 and 1991, includes allegations

intended to invoke the Court's jurisdiction to determine an

overpayment pursuant to section 6512(b); i.e., that petitioner is

entitled to refunds for overpayments based upon the items

reported in its amended returns for 1990 and 1991.

The Court is satisfied that respondent's collection efforts

are not directed at the deficiency for 1993 that is the subject

of the petition filed in the present case. In particular, the

only relationship between the deficiency in dispute in the

present case and the amount that respondent has assessed and is
 - 12 -

attempting to collect is that a portion of the deficiency for

1993 is attributable to respondent's determination to disallow

the $35,234,914 short-term capital loss claimed on petitioner's

income tax return for 1993, whereas respondent's collection

efforts are directed at amounts due as a consequence of

respondent's decision not to accept petitioner's amended return

for 1991, which amended return included a claimed carryback of a

large portion of the short-term capital loss claimed in 1993.

Notwithstanding this relationship, it is evident that respondent

has not assessed the amount of the deficiency disputed by

petitioner in its petition for 1993.

Petitioner relies upon section 6402(a) and (b) and section

6513(d), as well as section 301.6402-3(a)(5), Proced. & Admin.

Regs., to support its position that respondent's collection

efforts are improper. Section 6402(a) provides that the

Commissioner may credit an overpayment of tax against any

outstanding tax liability of the taxpayer and shall refund the

balance, if any, to the taxpayer. Section 6402(b) provides that

the Commissioner may prescribe regulations under which an

overpayment, determined by the taxpayer or the Commissioner, can

be credited against estimated income tax for the taxpayer's

succeeding taxable year. Section 301.6402-3(a)(5), Proced. &

Admin. Regs., provides that if the taxpayer elects to have all or

part of an overpayment applied as a credit against estimated
 - 13 -

income tax for its succeeding taxable year, such amount shall be

applied as a payment on account of its estimated tax for such

year. Based upon these provisions, petitioner contends that

respondent was obliged to accept its amended returns for 1990 and

1991 and to recognize petitioner's election to treat the

overpayment claimed on its amended return for 1991 as a credit to

be applied as an estimated tax payment for 1993.

We agree with petitioner that the sections it cites

generally permit a corporate taxpayer to claim a refund by filing

an amended return claiming an overpayment and then to make an

election to treat such overpayment as a credit to be applied

against its estimated tax liability for a succeeding taxable

year. However, we are not persuaded that respondent was

compelled, as a matter of law, to accept petitioner's amended

returns for 1990 and 1991 under the circumstances presented.

Simply stated, petitioner's position is inconsistent with the

proposition that its amended returns constitute "claims" for

refunds that respondent may review and adjust, either by way of

an immediate rejection of the refund claim, see McCabe v.

Commissioner, T.C. Memo. 1983-325, and cases discussed therein,

or by way of a tentative allowance, subsequent audit, and (if

necessary) issuance of a notice of deficiency, see Terry v.

Commissioner, 91 T.C. 85, 87 (1988); Owens v. Commissioner, 50

T.C. 577, 583 (1968), and cases cited therein.
 - 14 -

In the normal course, the immediate rejection of a claim for

refund might lead the taxpayer to file a refund suit in the

appropriate Federal District Court or the Court of Federal

Claims. Sec. 7422. In the present case, respondent decided not

to accept petitioner's amended returns for 1990 and 1991, which

decision was made after the examination of those years and the

issuance of a notice of deficiency for those years. Respondent's

decision made it appropriate for petitioner to allege, as it did

in its petition for 1990 and 1991, that it is entitled to a

refund consistent with its reporting position as set forth in its

amended returns. Sec. 6512(b). However, petitioner's decision

to invoke this Court's jurisdiction to determine an overpayment

does not render respondent's collection efforts in the present

case improper. To the contrary, by definition, this Court's

jurisdiction to determine an overpayment is based upon the

premise that the amount in question has been collected.

Petitioner argues in the alternative that respondent has

violated the deficiency procedures by "implicitly" disallowing

the short-term capital loss claimed on petitioner's income tax

return for 1993, as well as the carryback of the net short-term

capital loss claimed on petitioner's amended return for 1991, and

then taking steps to collect the resulting "deficiency". To the

contrary, and as discussed above, respondent is not attempting to

collect the deficiency for 1993, including the portion of the
 - 15 -

deficiency that is attributable to the disallowance of the

$35,234,914 short-term capital loss that was claimed on

petitioner's income tax return for 1993. Moreover, consistent

with the statutory definition of a deficiency set forth in

section 6211(a),8 it is clear that the rejection of petitioner's

amended returns for 1990 and 1991, which amended returns were

filed after the issuance of the notice of deficiency for those

years, does not convert the disallowed claims for refund into

deficiencies for those years. See, e.g., Koch v. Alexander, 561

F.2d 1115, 1117-1118 (4th Cir. 1977).

Petitioner also contends that it is anomalous to permit

respondent to reject petitioner's amended returns for 1990 and

1991 under the circumstances presented herein when petitioner

could have achieved the desired result; i.e., an immediate refund

attributable to the carryback of the net short-term capital loss

from 1993 to 1991, simply by filing an application for a

tentative carryback adjustment pursuant to section 6411.

However, we are reminded of the familiar principle that "a

8
Sec. 6211(a) defines a deficiency as the amount by which
the tax imposed on a taxpayer for a particular taxable year
exceeds the excess of--

(1) the sum of
(A) the amount shown as the tax by the taxpayer upon
his return * * * plus
(B) the amounts previously assessed (or collected
without assessment) as a deficiency, over--
(2) the amount of rebates * * * .
 - 16 -

transaction is to be given its tax effect in accord with what

actually occurred and not in accord with what might have

occurred." Don E. Williams Co. v. Commissioner, 429 U.S. 569,

579 (1977) (quoting Commissioner v. National Alfalfa Dehydrating

& Milling Co., 417 U.S. 134, 148-149 (1974)). Accordingly, we

decline to consider what might have been if petitioner had filed

such an application.

We have considered petitioner's remaining contentions and

find them unpersuasive.

In conclusion, respondent has not assessed and is not

attempting to collect any deficiency at issue in the present

case. Consequently, we will deny petitioner's Motion to Restrain

Assessment or Collection.

To reflect the foregoing,

An order denying petitioner's

Motion to Restrain Assessment

or Collection will be entered.