T.C. Memo. 2006-220
UNITED STATES TAX COURT
NELSON I. AND ESTHER S. GOODMAN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 21917-04L. Filed October 23, 2006.
Martin D. Tropper, for petitioners.
Alex Shlivko, for respondent.
MEMORANDUM OPINION
DEAN, Special Trial Judge: This case is before the Court
on respondent's motion for summary judgment filed pursuant to
Rule 121. Rule references are to the Tax Court Rules of Practice
and Procedure. Section references are to the Internal Revenue
Code of 1986 as amended. The motion arises in the context of a
petition filed in response to a Notice of Determination
- 2 -
Concerning Collection Action(s) Under Section 6320 and/or 6330
that respondent sent to petitioners. At the time the petition
was filed, petitioners resided in Lawrence, New York.
Background
Origin of the Tax Liability
Petitioners timely filed their Federal income tax return for
1995 without remittance. The tax shown on the return was
assessed, and notice and demand was issued. The tax was paid on
October 16, 1997.
The return was subsequently examined, and a deficiency in
income tax was proposed. One of the issues in the examination
was the treatment of certain stock as section 1244 stock. Martin
D. Tropper (Mr. Tropper), pursuant to a power of attorney, was
petitioners’ representative in the administrative proceedings.
Mr. Tropper was not, at the time, admitted to practice before the
United States Tax Court.
Petitioners could not reach an agreement with the
Commissioner on the proposed deficiency, and a statutory notice
of deficiency was issued. Petitioners filed pro sese a petition
with the Tax Court at docket No. 1262-01S for redetermination of
the deficiency for 1995. Petitioners signed on February 10,
2002, a stipulated decision document in which they agreed: (1)
To a deficiency of $26,955.75, (2) that they had no liability for
the section 6662 accuracy-related penalty, and (3) that “interest
- 3 -
will be assessed as provided by law on the deficiency”. The
decision was entered by the Court on February 25, 2002, and the
assessment was made on July 22, 2002.
Administrative Activity
Notice and demand was issued for the deficiency assessment
followed by several additional notices of tax due. Receiving no
response or payment, respondent sent to petitioners Letter 1058,
Final Notice of Intent to Levy and Notice of Your Right to a
Hearing.
Petitioners filed a timely Form 12153, Request for a
Collection Due Process Hearing. Attached to the Form 12153 was a
statement that petitioners had not agreed to pay any interest
because “there was still a question whether the Internal Revenue
Service was entitled to” the deficiency. According to the
statement, petitioners agreed to pay “$26,927.67”,1 in essence,
only because an Internal Revenue Agent told them that they “could
work out an affordable payment schedule.” The statement cites as
petitioners’ objective in the section 6330 hearing the
presentation to Appeals of “documentation with the view to
discharge of the original assessed balance.”
The Appeals officer who conducted the hearing informed
petitioners that because the underlying tax liability had been
1
The actual amount to which the parties agreed was
$26,955.75.
- 4 -
litigated, it could not be the subject of the hearing. He also
informed them that because a “collection information statement”
and proposal to pay the tax were not presented, there were no
collection alternatives available.
Petition
A letter with an attached document titled “NOTICE OF
PETITION” was received by the Court on November 15, 2004,
regarding the notice of determination received by petitioners.
The letter was signed by Mr. Tropper, who was still not admitted
to practice before the Tax Court. Petitioners subsequently filed
pro sese an amended petition in which they asserted that the
issue is “whether a proper deduction was taken under section 1244
of the IRS Code for my taxable year 1995.”
Discussion
Respondent reasons that since the only issue that
petitioners raise questions the existence and amount of the
underlying tax liability, he is entitled to a ruling in his favor
as a matter of law.
All of petitioners’ arguments are addressed to their
deficiency proceeding or to the preceding or succeeding
administrative events.
Standard for Granting Summary Judgment
The standard for granting a motion for summary judgment
under Rule 121 is stated in the Rule as follows:
- 5 -
A decision shall * * * be rendered if the pleadings,
answers to interrogatories, depositions, admissions,
and any other acceptable materials, together with the
affidavits, if any, show that there is no genuine issue
as to any material fact and that a decision may be
rendered as a matter of law. * * * [Rule 121(b).]
The moving party has the burden of showing the absence of a
genuine issue as to any material fact. See Espinoza v.
Commissioner, 78 T.C. 412, 416 (1982) (and cases cited therein).
The evidence of the nonmovant is to be considered in the
light most favorable to him, and all justifiable inferences are
to be drawn in his favor. Adickes v. S.H. Kress & Co., 398 U.S.
144, 158-159 (1970). There is, however, no issue for trial
unless there is sufficient evidence for the finder of fact to
find in favor of the nonmoving party. First Natl. Bank v. Cities
Serv. Co., 391 U.S. 253, 288-289 (1968). The nonmovant’s
evidence must be more than merely colorable. Dombrowski v.
Eastland, 387 U.S. 82, 84 (1967) (per curiam). If the
nonmovant’s evidence is not significantly probative, summary
judgment may be granted. First Natl. Bank v. Cities Serv. Co.,
supra at 290.
Respondent argues that as a matter of law petitioners’
argument concerning whether stock was section 1244 stock was a
potential issue in the prior Tax Court litigation and is
precluded from litigation in this case due to statutory and
caselaw principles. The Court agrees with respondent.
- 6 -
Res Judicata - Claim Preclusion
Petitioners are precluded by operation of the judicial
doctrine of res judicata from contesting their income tax
deficiency for 1995. The Supreme Court in Commissioner v.
Sunnen, 333 U.S. 591, 597 (1948), summarized res judicata, also
known as claim preclusion, as follows:
The rule provides that when a court of competent
jurisdiction has entered a final judgment on the merits of a
cause of action, the parties to the suit and their privies
are thereafter bound “not only as to every matter which was
offered and received to sustain or defeat the claim or
demand, but as to any other admissible matter which might
have been offered for that purpose.” Cromwell v. County of
Sac, 94 U.S. 351, 352. The judgment puts an end to the
cause of action, which cannot again be brought into
litigation between the parties upon any ground whatever,
absent fraud or some other factor invalidating the judgment.
* * *
As to the application of the doctrine in the context of tax
litigation the Court stated in Sunnen:
Income taxes are levied on an annual basis. Each year is the
origin of a new liability and of a separate cause of action.
Thus if a claim of liability or non-liability relating to a
particular tax year is litigated, a judgment on the merits
is res judicata as to any subsequent proceeding involving
the same claim and the same tax year. * * * [Id. at 598.]
As a general rule, where the Tax Court has entered a
decision for a taxable year, both the taxpayer and the
Commissioner (with certain exceptions) are barred from reopening
that year. Hemmings v. Commissioner, 104 T.C. 221, 233 (1995).
It has also been held that “the Tax Court’s jurisdiction, once it
- 7 -
attaches, extends to the entire subject of the correct tax for
the particular year.” Erickson v. United States, 159 Ct. Cl.
202, 309 F.2d 760, 767 (1962).
An agreed or stipulated judgment is a judgment on the merits
for purposes of res judicata. Baker v. IRS, 74 F.3d 906, 910
(9th Cir. 1996); accord Erickson v. United States, supra at 768;
Krueger v. Commissioner, 48 T.C. 824, 828-829 (1967); see also
United States v. Intl. Bldg. Co., 345 U.S. 502, 503-506 (1953)
(upholding res judicata effect of stipulated Tax Court
decisions).
Respondent issued to petitioners a notice of deficiency for
1995. Petitioners petitioned for redetermination, and the case
was concluded without trial by entry of a stipulated decision on
February 25, 2002. Petitioners, however, argue that res judicata
does not apply because petitioner, Nelson Goodman, “believed that
Petitioner would be entitled to a hearing by the IRS
notwithstanding submissions to the Tax Court”. Petitioners also
allege that they were misled by an agent of respondent into
thinking that the deficiency was open for further consideration;
essentially they are asserting an estoppel against respondent.
Petitioners have provided no authority for the proposition that
mistake or estoppel is an exception to the application of res
judicata.
- 8 -
Because the decision in petitioners’ deficiency case was not
appealed and has since become final, res judicata precludes
petitioners from now disputing the validity of the underlying
liability in this collection action.
The Court concludes that the circumstances of this case meet
the prerequisites for application of res judicata and that
petitioners are precluded under the doctrine from challenging
their underlying liability in this proceeding. See Newstat v.
Commissioner, T.C. Memo. 2004-208.
Statutory Preclusion Under Section 6330
Res judicata is not the only rule of law precluding
petitioners from contesting their deficiency here. Section
6330(c)(2)(B) also precludes them from relitigating the
underlying tax liability in this case. A taxpayer may present at
a section 6330 hearing challenges to the existence or amount of
the underlying tax liability “if the person did not receive any
statutory notice of deficiency for such tax liability”. Sec.
6330(c)(2)(B).
That petitioners received a notice of deficiency for 1995 is
not in dispute. Because petitioners received the notice and
contested the deficiency before the Court, they cannot challenge
the underlying liability in this section 6330 proceeding and are
therefore, as a matter of law, precluded from raising the issue.
- 9 -
Respondent’s Direct Communication With Petitioners
Petitioners’ attorney, in petitioners’ objection to
respondent’s motion, complains that respondent’s counsel served
the motion for summary judgment directly on petitioners without
providing him with a copy or notice of the motion. The issue,
along with similar complaints he raised at the hearing, is
irrelevant to a decision on the motion for summary judgment, and
is also inappropriate. Mr. Tropper did not enter his appearance
in this case until December 28, 2005; petitioners were pro sese
until that time. The motion for summary judgment was filed
November 10, 2005. By Court Rule, papers and documents are
generally served on the parties unless there is counsel of
record. Rule 21(a) and (b)(2); see also Rule 24(b).
Conclusion
Petitioners have failed to show that there is a genuine
issue of material fact for trial, and respondent’s motion for
summary judgment will be granted.
An appropriate order and
decision will be entered granting
respondent’s motion for summary
judgment.