149 T.C. No. 16
UNITED STATES TAX COURT
GEORGE SCHUSSEL, TRANSFEREE OF DRIFTWOOD MASSACHUSETTS
BUSINESS TRUST, f.k.a. DIGITAL CONSULTING, INC., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 30639-15. Filed October 5, 2017.
P petitioned the Court for redetermination of his liability as a
transferee under I.R.C. sec. 6901(a), but now moves that we dismiss
his petition with prejudice.
Held: Because a taxpayer’s liability as a transferee is
“assessed, paid, and collected in the same manner and subject to the
same provisions and limitations” as a deficiency in tax, sec. 6901(a),
a dismissal of a petition for redetermination of transferee liability, just
like a dismissal of a petition for redetermination of a deficiency, for
any reason other than lack of jurisdiction requires that we enter a
decision as to the amount of the liability. Estate of Ming v.
Commissioner, 62 T.C. 519 (1974), followed.
Held, further, the Court will deny P’s motion to dismiss,
ordering the parties to submit an agreed stipulated decision document.
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Francis J. DiMento, for petitioner.
Carina J. Campobasso, for respondent.
OPINION
ASHFORD, Judge: This transferee liability case is before the Court on
petitioner’s motion to dismiss his case with prejudice. As explained below, we
will deny petitioner’s motion.
Background
The following facts are derived from the parties’ pleadings and motion
papers. Petitioner states in his petition that his “State of legal residence [is] now
Florida”.1
On September 15, 2015, respondent issued a notice of liability to petitioner
as the transferee of the assets of Driftwood Massachusetts Business Trust,
formerly known as Digital Consulting, Inc. (Driftwood), in the amount of
$6,881,291 for Driftwood’s unpaid liabilities for income tax, penalties, and
interest for the taxable years ended December 31, 1988, 1991, and 1992. On
1
Respondent in his answer denies this allegation for lack of knowledge.
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December 8, 2015, petitioner timely petitioned this Court for redetermination of
the liability.
This case was calendared for trial at the session of the Court commencing
November 28, 2016, in Boston, Massachusetts. When the case was called from
that calendar, counsel for the parties appeared and counsel for petitioner filed with
the Court a motion to dismiss with prejudice. As the reason therefor, petitioner
stated in his motion that the parties had “reached an accord and satisfaction with
respect to all claims before the Court; said accord being part of a comprehensive
settlement that includes claims not before the Court”. Petitioner further stated,
citing our Opinion in Wagner v. Commissioner, 118 T.C. 330, 332-333 (2002),
that “[i]nasmuch as this is a case only of transferee liability”, he is not seeking
redetermination of a deficiency and therefore section 7459(d) is inapposite, and
that respondent “will not suffer clear legal prejudice” from the dismissal of this
case with prejudice.2 We took petitioner’s motion under advisement.
At our request, respondent filed a response to petitioner’s motion on
December 28, 2016. Therein he stated that the petition cannot be dismissed with
or without prejudice, expressing the view that, pursuant to sections 6901(a) and
2
Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect for the relevant years, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
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7459(d) and the logic of Estate of Ming v. Commissioner, 62 T.C. 519 (1974),
either petitioner must agree to a stipulated decision or the Court must enter an
order and decision as to the amount of the transferee liability.
Petitioner filed a reply on January 27, 2017, contending that Estate of Ming
is distinguishable from this case and reiterating that section 7459(d) is
inapplicable.
Discussion
Section 7459(d) provides:
SEC. 7459(d). Effect of Decision Dismissing Petition.--If a
petition for redetermination of a deficiency has been filed by the
taxpayer, a decision of the Tax Court dismissing the proceeding shall
be considered as its decision that the deficiency is the amount deter-
mined by the Secretary. An order specifying such amount shall be
entered in the records of the Tax Court unless the Tax Court cannot
determine such amount from the record in this proceeding, or unless
the dismissal is for lack of jurisdiction.
In Estate of Ming, the taxpayers moved this Court to allow them to
withdraw their petition without prejudice in a deficiency proceeding, presumably
so that they could refile their lawsuit in District Court and present the issues to a
jury. We held that, in the light of section 7459(d), a taxpayer who petitions this
Court under section 6213 for redetermination of a deficiency may not withdraw
his petition in order to avoid the entry of a decision. Estate of Ming v.
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Commissioner, 62 T.C. at 522-523. Accordingly, we denied the taxpayers’ motion
to withdraw their petition without prejudice.
In Wagner, we found our holding in Estate of Ming to be inapplicable and
held that the taxpayers could dismiss (i.e., withdraw) their petition filed pursuant
to sections 6320(c) and 6330(d) for review of a notice of determination approving
a notice of Federal tax lien placed on their property. In so holding we observed:
Section 7459(d) applies specifically to a petition that is filed for a
redetermination of a deficiency and makes no mention of a petition
that is filed under section 6320(c) to review a collection action.
Section 6320 was added to the Code as part of the Internal Revenue
Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec.
3401, 112 Stat. 685, 746, and that act made no amendment to section
7459(d) * * * . Nor do we know of any provision in the Code that
would require us, upon dismissal of a collection action filed under
section 6320(c), to enter a decision for the Commissioner consistent
with the underlying notice of determination. * * *
Wagner v. Commissioner, 118 T.C. at 332. We also noted that dismissal of the
taxpayers’ petition was supported by rule 41(a)(2) of the Federal Rules of Civil
Procedure, which allows for dismissal of a plaintiff’s action after the defendant
has served a motion for summary judgment, in the sound discretion of the court.3
Id. at 332-333. We properly looked to that rule (and caselaw interpreting that rule)
3
The taxpayers in Wagner v. Commissioner, 118 T.C. 330, 330-331 (2002),
moved the Court to dismiss their case without prejudice after having been served
with the Commissioner’s answer and the Commissioner’s motion for summary
judgment.
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for additional guidance because there was no controlling Tax Court Rule, see Rule
1(b); Wagner v. Commissioner, 118 T.C. at 332-333, and in doing so, we
acknowledged that a court should grant dismissal under rule 41(a)(2) “unless the
defendant will suffer clear legal prejudice, other than the mere prospect of a
subsequent lawsuit, as a result”, Wagner v. Commissioner, 118 T.C. at 333
(quoting McCants v. Ford Motor Co., 781 F.2d 855, 856-857 (11th Cir. 1986)).
We concluded, after weighing the relevant equities, that the Commissioner would
suffer no clear legal prejudice “in maintaining the subject collection action against
petitioners as if the instant proceeding had never been commenced.” Id. at 334.
More recently this Court extended the principles of Wagner to two other
types of nondeficiency cases--to cases brought under section 7623(b)(4) to review
the Commissioner’s determination denying a claim for a whistleblower award, see
Jacobson v. Commissioner, 148 T.C. ___ (Feb. 8, 2017), and to “stand alone”
cases brought under section 6015(e)(1) to review the Commissioner’s final
determination denying relief from joint and several liability, see Davidson v.
Commissioner, 144 T.C. 273 (2015).4 Accordingly, the Court in those cases and
4
In Davidson v. Commissioner, 144 T.C. 273 (2015), we also specifically
distinguished Ventrano v. Commissioner, 116 T.C. 272, 280 (2001), because it
was not a “stand alone” sec. 6015 case; the taxpayer in Ventrano invoked our
jurisdiction to review her claim for sec. 6015 relief by raising that matter as an
(continued...)
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pursuant to the principles found in rule 41(a)(2) of the Federal Rules of Civil
Procedure decided to grant the taxpayers’ motions to withdraw their petitions and
have their cases dismissed.
Whether the principles of Estate of Ming or instead the principles of
Wagner, Davidson, and Jacobson apply with equal force to transferee liability
cases like the instant case is a question this Court has not previously answered. To
do so, we must interpret the statute establishing the Commissioner’s authority to
assert transferee liability, section 6901. That section provides:
SEC. 6901. TRANSFERRED ASSETS.
(a) Method of Collection.--The amounts of the following
liabilities shall, except as hereinafter in this section provided, be
assessed, paid, and collected in the same manner and subject to the
same provisions and limitations as in the case of the taxes with
respect to which the liabilities were incurred:
(1) Income, estate, and gift taxes.--
(A) Transferees.--The liability, at law or in
equity, of a transferee of property--
(i) of a taxpayer in the case of a tax
imposed by subtitle A (relating to income
taxes),
4
(...continued)
affirmative defense in a petition she timely filed for redetermination of a
deficiency under sec. 6213.
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(ii) of a decedent in the case of a tax
imposed by chapter 11 (relating to estate taxes), or
(iii) of a donor in the case of a tax imposed
by chapter 12 (relating to gift taxes),
in respect of the tax imposed by subtitle A or B.
* * * * * * *
(b) Liability.--Any liability referred to in subsection (a) may be
either as to the amount of tax shown on a return or as to any
deficiency or underpayment of any tax.
* * * * * * *
(f) Suspension of Running of Period of Limitations.--The
running of the period of limitations upon the assessment of the
liability of a transferee or fiduciary shall, after the mailing to the
transferee or fiduciary of the notice provided for in section 6212
(relating to income, estate, and gift taxes), be suspended for the
period during which the Secretary is prohibited from making the
assessment in respect of the liability of the transferee or fiduciary
(and, in any event, if a proceeding in respect of the liability is placed
on the docket of the Tax Court, until the decision of the Tax Court
becomes final), and for 60 days thereafter.
In 1957 the Secretary promulgated final regulations under section 6901. See T.D.
6246, 1957-2 C.B. (Part 1) 876. These regulations (titled “Procedure in the case of
transferred assets”) currently appear in virtually the same form as section
301.6901-1(a) through (f), Proced. & Admin. Regs. Section 301.6901-1(a),
Proced. & Admin. Regs., provides that regardless of the nature of a transferee’s
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liability under section 6901(a)(1) (i.e., whether it is for income, estate, or gift tax
self-assessed by the taxpayer-transferor or a deficiency in income, estate, or gift
tax determined by the Commissioner), it shall be “assessed” against the transferee
“and paid and collected in the same manner and subject to the same provisions and
limitations as in the case of a deficiency in the tax with respect to which such
liability is incurred”.5 Sec. 301.6901-1(a)(1), Proced. & Admin. Regs. (emphasis
added). Paragraph (a) of the regulation further provides that in the case of
transferee liability for the income, estate or gift tax of the taxpayer-transferor, the
Internal Revenue Code provisions made applicable by section 6901(a) include
those relating to “the filing of a petition with the Tax Court of the United States
and the filing of a petition for review of the Tax Court’s decision.” Sec.
301.6901-1(a)(3)(iv), Proced. & Admin. Regs.
Contrary to petitioner’s assertion, these statutory and regulatory provisions
make clear that transferee liability cases like the instant case are akin not to
collection actions under sections 6230(c) and 6330(d) but rather to deficiency
5
Although transferee liability for tax not imposed by subtitle A or B of the
Internal Revenue Code under sec. 6901(a)(2) is not an issue in this case, we note
that the regulations use meaningfully different terms to specify the procedures for
assessing and collecting liabilities under that section. See sec. 301.6901-1(a)(2),
Proced. & Admin. Regs. (specifically excluding the phrase “a deficiency in”
relative to the above-quoted provision).
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cases under section 6213 and should be treated procedurally by the Court in the
same manner as deficiency cases. Indeed, historically this is what we have done.
See Kellogg v. Commissioner, 88 T.C. 167, 175 (1987) (citing section
301.6901-1(a)(3), Proced. & Admin. Regs., and finding that (1) “pursuant to
section 6213(a) a transferee may petition our Court for a redetermination of his
transferee liability only after a notice of transferee liability authorized by section
6901 has been determinated and is issued under the provisions of section 6212”
and (2) “[a]s in the case of a notice of deficiency, the requisite content of a notice
of transferee liability is not prescribed by statute or regulations”); Looper v.
Commissioner, 73 T.C. 690, 692 n.3 (1980) (“Although sec. 6213(a) is couched in
terms of notice of deficiency, sec. 6901(a) indicates that it applies to a notice of
transferee liability as well.”); Dillman v. Commissioner, 64 T.C. 797, 800 (1975)
(finding that the effect of section 6901 “is to require the Commissioner, before
assessing transferee liability for income tax, to issue to the transferee a notice of
transferee liability just as he must mail to a taxpayer a notice of deficiency before
assessing additional income tax”); see also Phillips v. Commissioner, 42 F.2d 177
(2d Cir. 1930) (finding that section 6901 evinces “a clear intention to give a
transferee the same right as a taxpayer in respect to seeking a review of a proposed
assessment by appeal to the Board of Tax Appeals and to * * * [this] court”), aff’g
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15 B.T.A. 1218 (1929), aff’d, 283 U.S. 589 (1931).6 Accordingly, the principles
of Estate of Ming should apply with equal force to the instant transferee liability
case.
Petitioner’s argument that Estate of Ming is distinguishable because the
taxpayers there sought a dismissal without prejudice whereas he is seeking a
dismissal with prejudice is unconvincing. As we indicated in Estate of Ming, the
fact that the taxpayers denominated their motion a motion to dismiss without
prejudice was effectively meaningless because, pursuant to section 6512(a), the
“mere filing” of their valid petition in this Court vested this Court with exclusive
jurisdiction for the taxable years as to which the petition was filed and the
statutory period in which the taxpayers could have filed another petition in this
Court had expired. Estate of Ming v. Commissioner, 62 T.C. at 522. The same
can be said of this case; were we to dismiss petitioner’s petition under any terms, it
would effectively be with prejudice. Thus, we find no effective distinction
6
Petitioner correctly acknowledges in his reply that sec. 6901 extends the
procedures under which income, estate, and gift taxes are “assessed, paid, and
collected” to a transferee’s liability but errs by suggesting that the deficiency
procedures are not among these; on the contrary, the Internal Revenue Code places
the deficiency procedures squarely among those that the Commissioner must
follow in order to assess income, estate, and gift taxes. See Dees v.
Commissioner, 148 T.C. ___, ___ (slip op. at 26) (Feb. 2, 2017) (Ashford, J.,
concurring).
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between his motion to dismiss and the motion to dismiss we denied in Estate of
Ming.
Finally, also ill-conceived is petitioner’s contention that because we are not
privy to the parties’ comprehensive settlement and therefore cannot glean from the
record the agreed amount of his transferee liability, we are relieved of having to
enter an order and decision specifying the amount of the liability (as is provided in
section 7459(d)). The amount of petitioner’s liability, albeit as determined by
respondent, is very clear from the record as it is stated in respondent’s notice of
liability, which is attached to petitioner’s petition. Because the parties have
apparently agreed on a different amount for which petitioner is liable, it is
incumbent upon them to stipulate a decision reflecting that amount.
Accordingly, we hold that, in accordance with the principles of Estate of
Ming and pursuant to section 6901(a), a petition seeking redetermination of
transferee liability, just like a petition seeking redetermination of a deficiency,
cannot be dismissed, with or without prejudice, without entry of a decision as to
the amount of the liability. We therefore will deny petitioner’s motion to dismiss
and require the parties to submit a stipulated decision reflecting the terms of their
settlement to the extent necessary to resolve this case.
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To reflect the foregoing,
An appropriate order will be issued.