T.C. Memo. 1998-39
UNITED STATES TAX COURT
DAVID DOBRICH AND NAOMI DOBRICH, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 3832-95, 7382-96. Filed January 29, 1998.
John M. Youngquist and Donald L. Feurzeig, for petitioners.
Daniel J. Parent, for respondent.
SUPPLEMENTAL MEMORANDUM OPINION
GERBER, Judge: The Court filed a Memorandum Findings of
Fact and Opinion in this case (T.C. Memo. 1997-477) on
October 20, 1997, stating that a decision would be entered for
petitioners for 1990 (docket No. 7382-96) and pursuant to Rule
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1551 as to 1989 (docket No. 3832-95). Respondent filed an
unagreed computation for the 1989 taxable year that would result
in a $1,032,409 income tax deficiency and a $392,873.13
overpayment after considering payments made after issuance of the
notice of deficiency. Respondent's computation for 1989 would
also result in a $774,307 fraud penalty under section 6663. This
opinion addresses the parties' controversy over the computation
of the decision(s) to be entered.
Respondent had determined deficiencies in petitioners' 1989
and 1990 Federal income tax in the amounts of $1,111,292 and
$1,111,320, respectively, and section 6663(a) civil fraud
penalties for 1989 and 1990 of $833,469 and $833,490,
respectively. Respondent determined the income tax deficiency
and penalty in the alternative for 1989 or 1990.
The issues we considered were: (1) Whether petitioners may
defer recognition of gain from the disposition of certain real
property under section 1031, (2) if the transaction does not
qualify for section 1031 exchange, whether petitioners are
entitled to report the gain in 1990 under the installment sale
method, and (3) whether petitioners are liable for a fraud
penalty under section 6663.
1
Unless otherwise indicated, Rule references are to the
Tax Court Rules of Practice and Procedure, and section references
are to the Internal Revenue Code for the years in issue.
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In T.C. Memo. 1997-477, we decided that petitioners were not
entitled to defer recognition of gain under section 1031, the
gain was recognizable in 1989, petitioners did not qualify for
installment sales treatment to place income in 1990, and
petitioners were liable for the section 6663 fraud penalty for
1989.
Under Rule 155(a), parties are required to submit
"computations pursuant to the Court's determination of the
issues, showing the correct amount of the deficiency, liability,
or overpayment to be entered as the decision." Parties are not
permitted to raise new issues or matters in connection with the
Rule 155 computations. Bankers Pocahontas Coal Co. v. Burnet,
287 U.S. 308 (1932). The starting point for the computation is
the statutory notice of deficiency from which the parties compute
the redetermined deficiency based upon matters agreed by the
parties or ruled upon by the Court. Home Group, Inc. v.
Commissioner, 91 T.C. 265, 269 (1988), affd. 875 F.2d 377 (2d
Cir. 1989); Whitham v. Commissioner, a Memorandum Opinion of this
Court dated Jan. 30, 1953.
Petitioners, in their proffered computation, filed
December 11, 1997, objected to respondent's 1989 computation on
several grounds. First, because we found that petitioners'
transactions were sales and not like-kind exchanges, they contend
that the $3,969,000 of sales proceeds used by respondent should
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have been $3,962,764 to reflect $6,236 in selling costs
documented in the record. If we adopt petitioners' approach, the
1989 income tax deficiency would be $1,030,663. The reduction of
the income tax deficiency also causes a reduction in the section
6663 penalty from $774,307 to $772,997. Support for petitioners'
entitlement to a $6,236 reduction is adequately documented in the
record and is an integral part of our finding that the
transactions in question do not qualify under section 1031.
After considering the parties' proposed computations, our
opinion, and the record in these consolidated cases, we hold that
petitioners' approach to the computation for the 1989 deficiency
and penalty is correct.
In addition, petitioners objected that the $392,873.13
overpayment for 1989 after considering post-notice payments was
understated in that petitioners' early December 1997 payment in
the amount of $1,323,723 was not considered in respondent's
computation. Following a telephone conference between the Court
and the parties, respondent's counsel determined that the
$1,323,723 payment had been made by petitioners after
respondent's computation had been submitted to the Court and that
the overpayment after considering post-notice payments should be
increased accordingly.
With respect to the 1990 taxable year, the Court did not
request a computation under Rule 155. Respondent had determined
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that the transactions in question were taxable, alternatively,
for 1989 or 1990. We decided that 1989 was the year in which the
income was to be included, and no computation under Rule 155 was
required for 1990 because of our understanding that petitioners
would have no deficiency or overpayment for the 1990 year.
Petitioners, however, proffered a computation for entry of
decision for 1990 reflecting a $20,831 overpayment, which they
claim is attributable to additional depreciation that they could
have claimed on the acquired properties on the premise that they
were purchased, rather than exchanged. Petitioners point out
that they were permitted to amend their petition for the 1990
year to claim $75,012 of additional depreciation. Respondent, in
turn, answered petitioners' allegation in the amendment to the
1990 petition by admitting that petitioners would be entitled to
additional depreciation if the Court determines that "the
transaction is taxable in 1990". Respondent, however, denied,
for lack of sufficient information, that petitioners were
entitled to the amount they had alleged. Petitioners also
contend that we held that the period for assessment would be open
for the 1990 year due to our finding of fraud for 1990. Under
these circumstances, petitioners seek an overpayment for 1990,
rather than a "no deficiency, no overpayment" decision.
We find that petitioners are not entitled to an overpayment
for their 1990 taxable year. Their amended petition for 1990
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sought the $75,012 of additional depreciation only "If the Court
concludes that the transaction is taxable in 1990".
Additionally, petitioners did not seek an overpayment or refund
in their petition, or the amendment thereto, or at any time,
until after the Court's issuance of the opinion and request for
the computations under Rule 155 for the 1989 year.
Petitioners rely on note 3 in T.C. Memo. 1997-477 in their
attempt to show that the 1990 year remained open for their claim
of a refund. That footnote contained the following commentary:
Petitioners had raised the defense that the period
for assessment had expired when respondent issued the
notice of deficiency for the 1990 year. The 1990 year
comes into play in the context of this case if
petitioners are entitled to installment sale treatment.
In that event respondent would also have the burden of
proving that an exception to the general period of
limitations applies. Stratton v. Commissioner, 54 T.C.
255, 289 (1970). That question is mooted by our
holding that petitioners are not entitled to
installment reporting. Even if petitioners had been
successful on the installment reporting issue,
respondent has carried the burden of showing a
fraudulent return, and, therefore, the period for
assessment would not have expired prior to issuance of
the deficiency notice. Sec. 6501(c)(1).
The footnote is dicta in that its purpose is to consider whether
the overall result in these cases would have been different if we
found that the installment sales method could have been used. It
was not the holding of our opinion and, accordingly, not a
predicate for petitioners' argument that the 1990 year is open.
There was no need to make a holding on that issue because the
sole issue raised for 1990 was mooted by our finding that
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petitioners were required to include the income from real
property sales for 1989.
Accordingly, petitioners have not shown that the question of
an overpayment for 1990 was raised and/or in issue prior to the
submission of the Rule 155 computation. Petitioners' argument
that the limitations period is still open within which a refund
for 1990 could be claimed falls short of the statutory
requirements in several obvious respects. Petitioners have not
shown that they have met the requirements of sections 6501, 6511,
or 6512. We therefore hold that petitioners are not entitled to
an overpayment for 1990.
To reflect the foregoing,
Decisions will be entered in
accord with this opinion in docket
No. 3832-95 and for petitioners in
docket No. 7382-96.