T.C. Summary Opinion 2003-63
UNITED STATES TAX COURT
FRANK R. SANCHEZ, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 4075-01S. Filed May 28, 2003.
Frank R. Sanchez, pro se.
David C. Holtz, for respondent.
GOLDBERG, Special Trial Judge: This case was heard pursuant
to the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed. The decision to be
entered is not reviewable by any other court, and this opinion
should not be cited as authority. Unless otherwise indicated,
subsequent section references are to the Internal Revenue Code in
effect for the year at issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
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Respondent determined a deficiency of $2,019 and an addition
to tax of $504.75 pursuant to section 6651(a) in petitioner’s
Federal income tax for the taxable year 1995.
This case was submitted fully stipulated pursuant to Rule
122. The stipulation of facts and the attached exhibits are
incorporated herein by this reference. At the time the petition
was filed, petitioner lived in Long Beach, California.
In the notice of deficiency, respondent determined that
petitioner: (1) Was not entitled to a claimed $23,039 net
operating loss (NOL) deduction; (2) was not entitled to deduct a
total of $2,990 of subcontractor expense claimed on four separate
Schedules C, Profit or Loss From Business; (3) was entitled to a
$40 deduction in arriving at adjusted gross income for one-half
of the increased self-employment tax resulting from the
disallowed Schedules C expenses; and (4) was subject to an
addition to tax pursuant to section 6651(a) for failure to file
his 1995 tax return by the prescribed due date.
Petitioner filed his petition with this Court requesting a
redetermination of the 1995 and 1987 tax years. Respondent
subsequently filed a Motion to Dismiss for Lack of Jurisdiction
and Strike as to the Taxable Year 1987. By order, on August 6,
2001, this Court granted respondent’s motion dismissing the 1987
taxable year for lack of jurisdiction because no notice of
deficiency was issued for that taxable year. However, the order
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stated that, pursuant to section 6214(b), the Court may take into
account facts pertaining to 1987 to correctly redetermine the tax
for the taxable year 1995.
In the stipulation of facts, petitioner conceded that for
the 1995 tax year: (1) He was not entitled to the $23,039 NOL
deduction claimed; (2) he was not entitled to the $2,990 of
claimed Schedules C expenses; and (3) he was liable for the
addition to tax of $504.75 pursuant to section 6651(a).
The parties stipulated that all issues not specifically
addressed in the stipulation of facts would be resolved in
accordance with the notice of deficiency. Accordingly, although
not specifically addressed in the stipulation of facts,
petitioner is allowed the $40 deduction for one-half of the
increased self-employment tax resulting from the disallowance of
Schedules C expenses claimed on his 1995 tax return.
The only remaining issues for decision are: (1) Whether
petitioner is entitled to an adjustment pursuant to sections 1311
through 1314 to reflect a carryback of a 1990 tax year NOL to the
tax year 1987; and (2) in the alternative, whether petitioner is
entitled to equitable recoupment relief related to the carryback
of a 1990 tax year NOL to the tax year 1987.
Petitioner claimed, on his 1995 tax return, a $23,039 NOL
carryforward deduction generated in 1990. Instead of a carryback
of the NOL generated in 1990 to the 1987 tax year as allowed
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pursuant to section 172(b)(1)(A)(i), petitioner claimed the 1990
NOL as a carryforward deduction only. However, in his 1990 tax
return, petitioner failed to make the election to waive the
carryback provision required to forgo the carryback. See sec.
172(b)(3). By failing to make this election with his 1990 tax
return, petitioner is not entitled to the $23,039 NOL deduction
generated in 1990 and claimed on his 1995 tax return, as he has
conceded.
After being informed of the error, petitioner, on July 13,
2001, filed an amended tax return for the 1987 tax year claiming
a refund attributable to the 1990 error of failing to carryback
the NOL to 1987. However, respondent determined that the period
of limitations for filing the 1987 amended tax return to claim a
refund attributable to the 1990 NOL carryback had expired on
October 15, 1994. Thus, respondent denied the 1987 refund claim.
Petitioner contends that the mitigation provisions of
sections 1311 through 1314 apply because (1) respondent’s
determination to disallow the NOL deduction claimed on the 1995
tax return, and (2) respondent’s refusal to correct the error by
allowing the NOL carryback to 1987, constitute a double
disallowance of a deduction pursuant to section 1312(4).
The mitigation provisions, sections 1311 through 1314, were
designed to palliate the effect of the period of limitations in
certain meticulously and narrowly defined situations. Bradford
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v. Commissioner, 34 T.C. 1051, 1054 (1960). In those situations,
the mitigation provisions preclude the Commissioner or a taxpayer
from taking a position that is inconsistent with an earlier
year’s position and then seeking refuge behind the period of
limitations that otherwise prevents an adjustment to the earlier
year. S. Rept. 1567, 75th Cong., 3d Sess. (1938), 1939-1 C.B.
(Part 2) 779, 815. If the requirements allowing mitigation are
met, a year closed by the statute of limitations can be reopened
for the limited purposes of the mitigation sections. Farmer v.
Commissioner, T.C. Memo. 1998-327.
The mitigation provisions were drafted with great precision
and care. Bolten v. Commissioner, 95 T.C. 397, 403 (1990). The
relief available under the mitigation provisions is limited, and
the statutory provisions do not purport to permit the correction
of all errors and inequities. Fong v. Commissioner, T.C. Memo.
1998-181.
In this case, for mitigation to apply, we would have to
reopen the 1987 tax year in order to carry back the 1990 NOL.
However, respondent determined a deficiency for the 1995 tax
year, not the 1987 tax year. Although petitioner petitioned this
Court for a review of both the 1995 and 1987 tax years, this
Court granted respondent’s motion to dismiss the 1987 tax year
for lack of jurisdiction. Accordingly, we have jurisdiction only
to redetermine the 1995 tax year. Since the mitigation
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provisions do not apply to 1995, we lack jurisdiction to
redetermine petitioner’s income tax liability for 1987. See sec.
6214(b); Farmer v. Commissioner, supra.
In the alternative, petitioner argues that he is entitled to
relief from the error under the theory of equitable recoupment.
The Court of Appeals for the Ninth Circuit, the circuit in which
an appeal in this case would lie if this case were appealable,
has held that the Tax Court has the authority to apply equitable
recoupment in cases subject to the Tax Court’s jurisdiction.
Estate of Branson v. Commissioner, 264 F.3d 904, 919 (9th Cir.
2001), affg. 113 T.C. 6 (1999).
Equitable recoupment may apply in certain circumstances to
overcome the bar of the statute of limitations. “[A] claim of
equitable recoupment will lie only where the Government has taxed
a single transaction, item, or taxable event under two
inconsistent theories.” United States v. Dalm, 494 U.S. 596, 605
n.5 (1990). Here, there are no inconsistent theories of taxation
involved. “If an NOL is claimed in the wrong year, it is not
allowable, and that is respondent’s consistent position.” Farmer
v. Commissioner, supra. Accordingly, there is no basis for
petitioner’s equitable recoupment claim.
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Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent.