T.C. Memo. 2010-221
UNITED STATES TAX COURT
WALTER OLIVER MELVIN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 5273-08, 609-09. Filed October 12, 2010.
Walter Oliver Melvin, pro se.
Michael J. Gabor, for respondent.
MEMORANDUM OPINION
COHEN, Judge: In these consolidated cases, respondent
determined deficiencies in income tax and penalties for 2005 and
2006 as follows:
Accuracy-Related Penalties
Year Deficiency Sec. 6662(a) and (b)(1)
2005 $4,475 $895
2006 $1,500 $300
- 2 -
After a concession by petitioner, the issues for decision are:
(1) Whether petitioner is estopped under the doctrine of
collateral estoppel from litigating the validity of the alimony
deductions he claimed for the years in issue; and (2) whether he
is liable for the penalties under section 6662. All section
references are to the Internal Revenue Code in effect for the
years in issue, and all Rule references are to the Tax Court
Rules of Practice and Procedure.
Background
All of the facts have been stipulated, and the stipulated
facts are incorporated as our findings by this reference.
Petitioner resided in Florida at the time he filed his petition.
Petitioner was married to Barbara A. Melvin until they
divorced in 1985. During the marriage, petitioner was a
practicing attorney. On May 8, 1985, the General Court of
Justice, Cumberland County, North Carolina, issued a judgment of
divorce which ordered petitioner, among other things, to pay his
former wife $500 a month, or $6,000 a year in “permanent
alimony.” Consequently, the court required petitioner to
transfer significant property and funds to meet his obligation
under the order. He did not, however, transfer any money or
property to his former wife in 2005 or 2006.
On each of his 2005 and 2006 Federal income tax returns,
petitioner claimed a $6,000 deduction under section 215 for
- 3 -
alimony. The Internal Revenue Service (IRS) sent petitioner a
notice of deficiency for 2005 on January 18, 2008, and for 2006
on October 14, 2008. The notices: (1) Determined a deficiency
for each of the years in issue because of improper alimony
deductions; and (2) imposed accuracy-related penalties under
section 6662(a). The statutory notice for 2005 also determined a
deficiency for home mortgage interest deductions petitioner
claimed which he has since conceded were improper.
Petitioner previously brought a case in this Court disputing
the IRS’ determination that the alimony deduction he claimed on
his 2003 Federal income tax return was erroneous. Melvin v.
Commissioner, T.C. Memo. 2008-115 (Melvin I), affd. 303 Fed.
Appx. 791 (11th Cir. 2008). In that case, this Court ruled in
favor of the IRS because the plain language of section 215 limits
alimony deductions to payments made during the taxable year. Id.
The Court of Appeals for the Eleventh Circuit affirmed our
decision.
Discussion
Petitioner contests respondent’s determination that he is
not permitted a deduction for alimony in 2005 or 2006. The
transfers made by way of the State court judgment in prior years
are the only bases petitioner has offered for those deductions.
Respondent contends, among other things, that petitioner’s
argument is precluded by collateral estoppel.
- 4 -
Collateral Estoppel
Once an issue has been litigated, collateral estoppel may
apply. In Monahan v. Commissioner, 109 T.C. 235, 240 (1997), we
stated:
The doctrine of issue preclusion, or collateral
estoppel, provides that, once an issue of fact or law
is “actually and necessarily determined by a court of
competent jurisdiction, that determination is
conclusive in subsequent suits based on a different
cause of action involving a party to the prior
litigation.” Montana v. United States, 440 U.S. 147,
153 (1979) (citing Parklane Hosiery Co. v. Shore, 439
U.S. 322, 326 n.5 (1979)). * * *
Under the doctrine of collateral estoppel, (1) the issue to be
decided in the second case must be identical in all respects to
the issue decided in the first case, (2) a court of competent
jurisdiction must have rendered a final judgment in the first
case, (3) a party may invoke the doctrine only against parties to
the first case or those in privity with them, (4) the parties
must have actually litigated the issue and the resolution of the
issue must have been essential to the prior decision, and (5) the
controlling facts and legal principles must remain unchanged.
See Hi-Q Pers., Inc. v. Commissioner, 132 T.C. 279, 289 (2009);
Peck v. Commissioner, 90 T.C. 162, 166-167 (1988), affd. 904 F.2d
525 (9th Cir. 1990).
Respondent argues that petitioner should be estopped under
the doctrine of collateral estoppel from asserting that the
alimony deductions he claimed in 2005 and 2006 were proper
- 5 -
because this Court already adjudicated the issue for petitioner’s
2003 tax year. Although each tax year is a separate cause of
action, collateral estoppel may still apply to preclude a
taxpayer from relitigating identical issues for multiple years.
See Peck v. Commissioner, supra at 165-166; Berry v.
Commissioner, T.C. Memo. 1990-646.
Petitioner contends that he is not attempting to relitigate
the same issue from Melvin I but offers no coherent argument to
support this assertion. He does not dispute that he fully
litigated the validity of the alimony deduction he claimed in
2003 under identical circumstances and admits that there has been
no change in law or facts to justify a different outcome. He
remains a resident of Florida, so appellate venue is unchanged.
Petitioner merely continues to assert the correctness of his
interpretation of the law, relying exclusively on Hawkins v.
Commissioner, 86 F.3d 982 (10th Cir. 1996) (involving the
question of whether a marital settlement agreement incorporated
into a divorce decree constituted a qualified domestic order),
revg. 102 T.C. 61 (1994). In Melvin I, this Court already held
that case to be inapplicable to these facts. A party’s
disagreement with a court’s reasoning does not bar the
application of collateral estoppel. Sydnes v. Commissioner, 74
T.C. 864, 869 (1980), affd. 647 F.2d 813 (8th Cir. 1981).
- 6 -
Collateral estoppel bars petitioner from relitigating the
deductibility of alimony paid in years other than those before
the Court. Although we need not consider the merits of his
arguments, he is not entitled to an alimony deduction in 2005 or
2006 for the reasons stated in Melvin I.
Section 6662 Accuracy-Related Penalties
Petitioner contests the imposition of accuracy-related
penalties for the tax years in issue. Section 6662(a) and (b)(1)
imposes a 20-percent accuracy-related penalty on any underpayment
of Federal income tax attributable to a taxpayer’s negligence or
disregard of rules or regulations. Section 6662(c) defines
negligence as including any failure to make a reasonable attempt
to comply with the provisions of the Internal Revenue Code and
defines disregard as any careless, reckless, or intentional
disregard. Disregard of rules or regulations is careless if the
taxpayer does not exercise reasonable diligence to determine the
correctness of a tax return position that is contrary to the rule
or regulation. Sec. 1.6662-3(b)(2), Income Tax Regs.
Under section 7491(c), the Commissioner bears the burden of
production with regard to penalties and must come forward with
sufficient evidence indicating that it is appropriate to impose
penalties. See Higbee v. Commissioner, 116 T.C. 438, 446 (2001).
However, once the Commissioner has met the burden of production,
the burden of proof remains with the taxpayer, including the
- 7 -
burden of proving that the penalties are inappropriate because of
reasonable cause or substantial authority. See Rule 142(a);
Higbee v. Commissioner, supra at 446-447.
Respondent has met the burden of production. The plain
language of section 215 expressly limits alimony deductions to
payments made during the taxable year. See, e.g., Melvin v.
Commissioner, 303 Fed. Appx. 791 (11th Cir. 2008). Respondent
has shown that petitioner improperly claimed alimony deductions
based exclusively on transfers he made in prior years, contrary
to any reasonable interpretation of the statute.
The accuracy-related penalty under section 6662(a) is not
imposed with respect to any portion of the underpayment as to
which the taxpayer acted with reasonable cause and in good faith.
Sec. 6664(c)(1); Higbee v. Commissioner, supra at 448. The
decision as to whether a taxpayer acted with reasonable cause and
in good faith is made on a case-by-case basis, taking into
account all of the pertinent facts and circumstances. See sec.
1.6664-4(b)(1), Income Tax Regs. “Circumstances that may
indicate reasonable cause and good faith include an honest
misunderstanding of fact or law that is reasonable in light of
all of the facts and circumstances, including the experience,
knowledge, and education of the taxpayer.” Id.
Petitioner does not separately address the penalty issue.
He simply pursues the same arguments previously rejected. The
- 8 -
authorities petitioner relies on are entirely irrelevant and
could not reasonably be considered to support his argument.
Educated as an attorney, petitioner should have recognized that
his claimed deductions were contrary to the express terms of
section 215. Petitioner has not met his burden of demonstrating
reasonable cause or good faith for the underpayment, and we
sustain respondent’s determination on this issue.
We have considered the other arguments of the parties, and
they either are without merit or need not be addressed in view of
our resolution of the issues. For the reasons explained above,
Decisions will be entered
for respondent.