P filed a corporate tax return for 2001 reporting a net operating loss (NOL). P then requested tentative refunds for 1999 and 2000 from the NOL carryback into those years, pursuant to
a notice of determination to proceed with collection. In his CDP hearing and this case, P did not attempt to prove the merits of the 2001 NOL but rather contends that, under the doctrine of res judicata, the March 3, 2006, decision in the original deficiency case bars R from contending that P owes more tax for 1999 and 2000. R contends that he properly assessed the taxes against P pursuant to
Held: Res judicata does not bar P from claiming NOL carrybacks to 1999 and 2000, despite the prior deficiency case involving those years, because the statutory scheme for NOL carrybacks includes
Held, further, res judicata does not bar R from recapturing P's tentative refunds for 1999 and 2000, despite the prior deficiency *27 case involving those years, because of the statutory scheme for NOL carrybacks, in which tentative refunds under
*88 OPNION
GUSTAFSON, Judge: This case is an appeal by petitioner Ron Lykins, Inc. (RLI), under
The parties' primary contentions focus on the doctrine of res judicata. Therefore, the dispositive issue is whether RLI's favorable decision *28 in a prior deficiency case --
The facts are derived from the parties' stipulations of March 18, 2008 (as amended January 5, 2009), and those stipulations are incorporated herein by this reference.
RLI is currently an S corporation, see
For the years 1999 and 2000, RLI filed its Forms 1120, U.S. Corporation Income Tax Return, reporting taxable income and a tax liability for each year that was satisfied by quarterly estimated tax payments. For the year 2001, however, RLI filed a Form 1120 reporting a net operating loss (NOL) of about $ 135,000. RLI filed that 2001 Form 1120 in June 2002; and on November 5, 2002, it filed a Form 1139, Corporation Application *29 for Tentative Refund, in order to carry that 2001 loss back to the years 1999 and 2000 (pursuant to
However, while the IRS personnel responsible for the tentative refunds had been processing RLI's Form 1139, IRS examination personnel were examining RLI's returns for 1999 and 2000. On February 6, 2003 -- less than 2 months after RLI had received tentative refunds for 1999 and 2000 -- the IRS issued to RLI, for those very same years, a statutory notice of deficiency (pursuant to
RLI filed a timely petition in this Court on May 6, 2003, which commenced docket No. 6795-03. *30 The petition stated in part, in paragraph 4:
I disagree with the deficiency for the following reasons: * * * 4) Form 1139 to claim an NOL deduction of $ 135,748 was filed on, or about, November 5, 2002, for the years 1999 and 2000.
Thus, although RLI had already received the 1999 and 2000 refunds resulting from the 2001 NOL carryback, RLI initially believed that the 2001 NOL was relevant to its 1999-2000 deficiency case. Thereafter, at least as early as March 1, 2004, respondent requested that RLI "substantiate the deductions on the 2001 return" so as to verify RLI's entitlement to the NOL carryback to 1999 and 2000, the years in the deficiency case. Respondent's litigating attorneys were aware of the dispute about the tentative refunds allowing the NOL carryback. In March 2004 the Court granted a continuance upon the parties' joint representation that they "currently are not able to stipulate the amount of any loss in taxable year 2001 to which the petitioner is entitled." By letter dated August 4, 2004, an Appeals officer offered RLI a conference at which the IRS Office of Appeals would consider "the allowance of the net operating loss deduction (NOLD) carryback to 1999 and 2000." *31 Thereafter correspondence was exchanged between RLI and the Office of Appeals on the subject of the NOL. 2In pretrial activity throughout 2004, the parties explicitly disputed whether the NOL was properly included in the deficiency case, with RLI eventually contending that it was not in the case and respondent contending that it was in the case. By December 2004, the Appeals officer who was considering the matter determined that the 2001 NOL should be disallowed. However, respondent did not amend the answer or assert an increased deficiency to take account of this development.
*91 Rather, on January 18, 2005, RLI moved for *32 leave to file an amendment to its petition 3*33 in docket No. 6795-03. The motion explained that the reference in the original petition to the carryback of the 2001 NOL "was inadvertent and unnecessary as to why the Petitioner disagreed with the Notice of Deficiency", and it requested that the "petition be amended to strike (eliminate) the statement from the petition". The attachment to the motion restated the original petition verbatim, except that it omitted the original reference to the NOL (i.e., in paragraph 4, the subparagraph "4) Form 1139 to claim an NOL deduction of $ 135,748 was filed on, or about, November 5, 2002, for the years 1999 and 2000") by excluding subparagraph "4)" of the original petition in its entirety. RLI's motion was granted on January 24, 2005, and its amendment to paragraph 4 of the petition was filed.
On February 1, 2005, the parties and the Court held a telephone pretrial conference in which respondent's counsel stated respondent's position that res judicata would thereafter bar RLI from litigating the NOL, and RLI stated its position that there would have to be another trial on the NOL issue. As respondent's brief explains, the Court did not decide the res judicata issue but made "sure that petitioner understood the respondent's position." RLI's understanding was that its amendment had "eliminate[d] the NOL" from consideration in the deficiency case.
Notwithstanding the amendment that had been made to the petition, respondent did not move to amend the answer. 4 As a result, respondent's answer remained silent as to the 2001 NOL and its having been carried back to 1999 and 2000, the tax years at issue in the deficiency case. Respondent never alleged in the answer (and never moved to amend the answer to allege) that, as a result of the refunds, the deficiencies were greater than had been determined in the notice of deficiency. Nor did respondent ever ask the Court to hold *92 that the tentative carryback was excepted from the effect of the Court's decision. *34 5*35
On February 17, 2005, at the one-day trial of RLI's deficiency case (docket No. 6795-03), neither party put on any evidence as to the 2001 NOL or the carrybacks to 1999 and 2000. After the trial concluded, the case remained pending and awaiting decision for slightly more than a year. The Court then issued an opinion --
On March 8, 2005 -- i.e., two and a half weeks after the trial for years 1999 and 2000 in docket No. 6795-03 but a year before the Court's entry of its decision -- the IRS made summary assessments against RLI for 1999 and 2000, pursuant to
RLI did not pay the amounts that the IRS demanded, and on October 8, 2005, the IRS issued to RLI, pursuant to
First, RLI argued that the summary assessment and the levy were the result of bad faith and the desire for revenge on the part of the IRS. The hearing officer dismissed RLI's allegation of a bad-faith or revenge assessment after reviewing the case file. According to the attachment to the notice of determination, "the administrative case file * * * show[s] that Appeals first began considering the NOL issue as early as 10/27/2003 * * *. The meeting between [IRS attorney] Mr. Neubeck, Mr. Lykins and Appeals Officer Jones took place well after this." Moreover, the hearing officer did not find RLI's allegation against Mr. Neubeck, even if true, "to be materially relevant to the tax issues in [RLI's] case."
Second, RLI proposed to dispute its underlying liabilities for the 1999 and 2000 tax by showing that it was entitled to the carryback of its 2001 NOL to 1999 and 2000. RLI did not undertake to prove that it actually realized a loss in 2001; rather, RLI argued that it was entitled to the carrybacks because (i) the IRS had accepted without dispute RLI's *38 return for 2001 showing the NOL and had issued the refunds resulting from the carryback of that NOL, and (ii) the period of limitations for assessments for 2001 had expired, so that the IRS could make no further adjustments to 2001. The Office of Appeals declined to consider RLI's challenge to the underlying liabilities for 1999 and 2000 because it concluded that in 2004 RLI had had a prior "opportunity", see
Third -- and most significant here -- after the Tax Court's decision in docket No. 6795-03 was entered on March 3, 2006, RLI raised in the CDP hearing (by letters of March 8 and September 11, 2006) the then -- "new issue" that the IRS should not proceed with the levy because the Tax Court's decision "that there is no deficiency in tax due from the petitioner for its 1999 or 2000 tax years" barred the IRS from asserting any other liabilities for those years.
*94 On April 10, 2007, the Office of Appeals rejected RLI's arguments and issued a Notice of Determination Concerning Collection Action(s) Under
On May 7, 2007, RLI timely petitioned this Court to review that notice of determination. RLI's petition raised five issues:
1. The statute of limitation had expired for 2001 and IRS had not issued an Intent to Levy (IRC
2. A valid statutory Notice of Deficiency, or 90-day letter, was not issued for these tax assessments, or denial of NOL.
3. The additional tax assessments were pursued solely under a bad-faith revenge motive of IRS Counsel * * *.
4. On 3/3/06 a US Tax Court Decision (No. 6795-03): was entered ". . . that there is no deficiency in tax due from petitioner for its 1999 or 2000 tax years." Thus, the doctrine Res Judicata applies, and the 1999, and 2000 tax years are closed to further IRS challenges.
5. IRS was not authorized, in this case, to make changes to the taxpayer's account (
The parties stipulated the facts and submitted the case for decision without a trial under
If a taxpayer fails to pay any Federal income tax liability after notice and demand,
At that so-called CDP hearing, the taxpayer may raise issues relevant to the proposed collection of tax: Pursuant to
From the information presented at that CDP hearing, the Appeals officer must make a determination whether the proposed levy action may proceed. The Appeals officer is required to take into consideration: (1) "verification from the Secretary that the requirements of any applicable law and administrative procedure have been met", see
If the Office of Appeals then issues a notice of determination to proceed with the proposed levy, the taxpayer may appeal *43 the determination to this Court within 30 days, as RLI has done, and we now "have jurisdiction with respect to such matter".
Respondent does not dispute RLI's right to contend in the CDP hearing and in this case that res judicata bars collection of the tentative refunds. We assume that this contention is a challenge to underlying liability under
In March 2005 the IRS summarily assessed each tentative refund amount "as if it were due to a mathematical or clerical error", as permitted by
However, RLI disputes the validity of the March 2005 summary assessment on two grounds: (1) failure to issue notices of deficiency, and (2) the absence of a mathematical error. Although RLI raised neither of these arguments in its CDP hearing, a challenge to the verification requirement of
RLI's petition asserts: "2. A valid statutory Notice of Deficiency, or 90-day letter, was not issued for these tax assessments, or denial of NOL." It is well settled that the IRS has three remedies to recover an "abatement, credit, refund, or other payment" erroneously allowed under
In RLI's case the IRS chose, pursuant to
RLI argues, however, that the notices failed to include any explanatory information as to the basis *48 for the IRS's actions as is required by
With respect to RLI's complaint that no notice of deficiency was issued for the disallowance of the NOL in the loss year itself, RLI is correct that, as far as our record shows, the IRS *99 never formally disallowed the NOL in 2001 or issued any notice of deficiency for 2001 in that regard. While it may not be intuitive to some taxpayers, the IRS does have the authority to disallow an NOL carryback in a year to which the NOL was carried back without issuing any notice of adjustment for the year in which the NOL was generated. It is well settled that the IRS and the courts may recompute *49 taxable income from one year -- even a closed year -- in order to determine tax liability in another year. See
RLI's petition also asserts: "5. IRS was not authorized, in this case, to make changes to the taxpayer's account (
We find no defect in the verification by the Office of Appeals, under
A. Res Judicata Precludes Relitigation of "claims"; and Collateral Estoppel Precludes Relitigation of "issues".
Res judicata and the related doctrine of collateral estoppel "have the dual purpose of protecting litigants from the burden of relitigating an identical issue and of promoting judicial economy by preventing unnecessary or redundant litigation."
[W]hen 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." * * *
* * * * * * *
* * * 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. * * *
Collateral estoppel, or issue preclusion, prevents the relitigation of an identical issue, even in connection with a *101 different claim or cause of action. Unlike res judicata, which binds the parties as to any matter that "might have been offered", whether or not that matter was actually litigated, collateral estoppel applies only to issues that were actually litigated in the first suit. The rule of collateral estoppel provides that "[w]hen an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or *53 a different claim." 1
Under res judicata, a final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action. * * * Under collateral estoppel, once a court has decided an issue of fact or law necessary to its judgment, that decision may preclude relitigation of the issue in a suit on a different cause of action * * *.
B. Collateral Estoppel Does Not Apply Here.
Respondent briefly invokes the doctrine of collateral estoppel in support of his position; 11 but the doctrine has no application here. In arguing against the prior case's decision having any preclusive effect against the collection of the carryback refunds, respondent points out that "the court did not rule on whether the tentative refunds for 1999 and 2000 were proper in the deficiency proceeding". And respondent is correct in so stating. The merits of the 2001 NOL were not "actually litigated" in the prior deficiency case for tax years 1999 and 2000. Because *54 the 2001 NOL was not "actually litigated", neither party would be barred under collateral estoppel from litigating the 2001 NOL in this case.
C. Res Judicata Bars Neither Party to This Case.
For the following reasons, we hold that, even assuming that either party could have litigated the NOL in the prior deficiency case, neither RLI nor respondent is now barred by *102 res judicata from disputing the 2001 NOL carryback and its tax effect upon the 1999 and 2000 liabilities.
1. Deficiency Jurisdiction Extends to "the entire subject matter of the correct tax".
When RLI filed its petition in docket No. 6795-03, the Tax Court acquired jurisdiction, pursuant to
the term "deficiency" means the amount by which the tax imposed by subtitle A * * * exceeds the excess of --
(1) the sum of
(A) *55 the amount shown as the tax by the taxpayer upon his return, if a return was made by the taxpayer and an amount was shown as the tax by the taxpayer thereon, plus
(B) the amounts previously assessed (or collected without assessment) as a deficiency, over --
(2) the amount of rebates, as defined in subsection (b)(2), made. [Emphasis added.]
That is, the equation for calculating a deficiency begins with "the tax imposed", i.e., the taxpayer's actual liability. It follows, then, that once a petition is properly filed, the Tax Court has jurisdiction to adjudicate not only the particular adjustments in the statutory notice of deficiency but also both the IRS's claim of a greater deficiency than is stated in the notice, see2. The NOL Carrybacks Could Have Been Litigated in the Prior Deficiency Case.
Respondent could have litigated the 1999 and 2000 carryback refunds in the deficiency case. The IRS issued the refunds in December 2002 and then 7 weeks later issued a notice of deficiency that failed to take those recent refunds into account. The IRS was put on notice of this failure in May 2003 when RLI commenced *58 that deficiency case by filing a petition that explicitly mentioned its prior filing of the Form 1139. The issue of the NOL carryback was a subject of frequent discussion in pretrial proceedings, and respondent's litigators knew before the February 2005 trial of docket No. 6795-03 that respondent wanted to retrieve those refunds.
RLI did mention the NOL from 2001 in its petition in docket No. 6795-03, but the Court later granted it leave to amend the *59 petition to delete that reference, and RLI never undertook to prove the NOL or to validate the carrybacks. Like respondent, we assume 15 that RLI could have pressed in docket No. 6795-03 its position as to its actual tax liabilities in 1999 and 2000 -- "the tax imposed" -- taking into account the asserted NOL carrybacks from 2001 and could have asked the Court to rule on the validity of those carrybacks in redetermining RLI's deficiencies, as defined in
Rather, RLI does seem to have attempted to invoke the IRS's allowance of the refunds as if those refunds estopped the IRS from later reconsidering and disallowing the NOL. 16*61 If that was RLI's belief, then it was mistaken. See
Apparently because of its erroneous belief about the supposed binding effect of the tentative refunds, RLI never undertook in the prior deficiency case to substantiate its 2001 loss and to prove the validity of the carrybacks; and it moved to amend its petition to delete any reference to the NOL. The Court granted *62 that motion, and the parties never litigated the carrybacks in the deficiency case.
We thus assume that either party could have raised the 2001 NOL in the prior case -- a circumstance that would implicate res judicata -- but we find that, for the following reasons, res judicata does not apply here.
3. The NOL Carrybacks Were Not Litigated, but Neither Party Is Bound by Res Judicata.
The doctrine of res judicata does admit exceptions, and we now explain the exception to res judicata that applies in this case. As the Restatement instructs:
When any of the following circumstances exists, the general rule * * * does not apply to extinguish the claim, and part or all of the claim subsists as a possible basis for a second action by the plaintiff against the defendant:
* * * * * * *
(d) The judgment in the first action was plainly inconsistent with the fair and equitable implementation of a statutory or constitutional scheme, or it is the sense of the scheme that the plaintiff should be permitted to split his claim * * *.
1*106 a. RLI Is Not Bound.
Respondent contends, "Because the petitioner permitted the Court to render a final judgment in the deficiency proceeding without considering the merits of the NOL claim, it should be precluded from raising that issue in this proceeding". But assuming RLI could have used its deficiency case to litigate the NOL, the question is whether RLI must have used the deficiency case. The answer is no. The Code includes exceptions to the operation of res judicata, 18 and one of them applies here.
(i) In general. -- If the allowance of a credit or refund of an overpayment of tax attributable to a net operating loss carryback * * * is otherwise prevented by the operation of any law or rule of law * * *, such credit or refund may be allowed or made, if claim therefor is filed within the period provided in subparagraph (A) of this paragraph.
* * * * * * *
(iii) Determination by courts to be conclusive.-In the case of any such claim for credit or refund or any such application for a tentative carryback adjustment, the determination by any court, including the Tax Court, in any proceeding in which the decision of the court has become final, shall be conclusive except with respect to --
(I) the net operating loss deduction and the effect of such deduction * * *. [Emphasis added.]
That is, underRespondent's position essentially ignores the taxpayer prerogative that is embodied in
b. Respondent Is Not Bound.
Thus, *69 these three sections --
In recognition of the fact that, due to the short period of time allowed [generally 90 days], the Commissioner necessarily will act upon an application for a tentative carry-back adjustment only after a very limited examination, subsection (c) of
It is this constellation of provisions --
One effect of
Likewise, we do not hold simply that
except in the case of fraud, and except as provided in
For that reason, we need not revisit our holding in
We hold today that RLI is not barred by res judicata from contending that it incurred a net operating loss in 2001 and contending that it is entitled for 1999 and 2000 to NOL carryback deductions. RLI had hoped to establish that entitlement simply by showing that the IRS was barred by res judicata from disputing the carrybacks. RLI was entitled under
The Office of Appeals determined that RLI was not entitled in its CDP hearing to "challenge liability" by proving the NOL carrybacks, because it had had a prior opportunity, during the pendency of its prior deficiency case, to present to Appeals the issue of its 2001 NOL and the carrybacks to 1999 and 2000. In its petition in this case, RLI did not dispute that aspect of the determination. As a result, if RLI ever had any contention that the Office of Appeals abused its discretion in the CDP hearing by declining to address the actual merits of RLI's 2001 loss, that contention has been conceded, see
Although its reasoning on the doctrine of res judicata was in error, the Office of Appeals did not abuse its discretion in determining to proceed with a levy to collect the summary assessments by which it recaptured the 1999 and 2000 NOL carrybacks.
To reflect the foregoing,
Decision *78 will be entered for respondent.
Footnotes
1. Except as otherwise noted, all section references are to the Internal Revenue Code (Code) (26 U.S.C.), and all Rule references are to the Tax Court Rules of Practice and Procedure.↩
2. In addition to the August 4, 2004, letter from Appeals Officer Jones to RLI stating that Appeals was considering the validity of the NOL, the correspondence regarding the NOL included a November 2, 2004, letter from RLI to Appeals Officer Jones where in RLI provided Appeals with some substantiation for the NOL; a November 8, 2004, letter from Appeals Officer Jones to RLI requesting more substantiation from RLI; and a December 7, 2004, letter from RLI to Appeals Officer Jones where in RLI stated its refusal to provide any further documentation to substantiate the NOL.↩
3. The motion, filed by RLI pro se, was styled "Motion for Leave to File Amended Answer", and it asked the Court to file an attached "Amended Answer" (because it was "in answer to the Notice of Deficiency"); but the relief the motion requested pertained to the petition, not the answer. The Court filed it as a "Motion for Leave", granted the motion, and filed the "Amended Answer" as a "Reply".
4. But see IRS Field Service Advisory (May 9, 1997) (warning IRS attorneys that "the Service may not be able to collect a summarily assessed deficiency once the Tax Court redetermines unrelated deficiencies").↩
5. Cf.
Nestle Holdings, Inc. v. Commissioner, T.C. Memo 2000-374">T.C. Memo 2000-374 (the parties stipulated that "the decision of the Court would not serve as res judicata" as to tentative carryback refunds); 1Restatement Judgments 2d, sec. 26(1) (1982) ("When any of the following circumstances exists, the general rule of section 24 does not apply to extinguish the claim, and part or all of the claim subsists as a possible basis for a second action by the plaintiff against the defendant: (a) The parties have agreed in terms or in effect that the plaintiff may split his claim, or the defendant has acquiesced therein; or (b) The court in the first action has expressly reserved the plaintiff's right to maintain the second action"); IRS Field Service Advisory (July 14, 1997) ("The decision and computation should specify which carrybacks were not at issue in the Tax Court proceeding. It should also provide that if those carrybacks are placed at issue in a later proceeding, petitioner will not assert the defense of res judicata or contest the ability of the Commissioner to make an assessment underI.R.C. section 6213(b)(3)↩ ").6. The record contains only the first page of the final notice of intent to levy issued to RLI on October 8, 2005. While this page does not contain the amount of unpaid tax as required by
section 6330(a)(3) , it indicates that the amount due is "shown on the back of [the] page." Furthermore, RLI has never asserted that the amounts due were not provided and in a letter dated October 26, 2005, submitted in response to the notice of intent to levy, RLI clearly lists the amounts due for 1999 and 2000. Therefore, we are satisfied that a proper Final Notice of Intent to Levy and Notice of Your Right to a Hearing was issued to RLI for 1999 and 2000.7. The
Rule 122 stipulation does not include facts to support these contentions -- the statute of limitations argument and the bad-faith/revenge argument -- and RLI failed to present or argue these matters on brief. As a result, we find these arguments to have been abandoned in this litigation. SeeRule 149(b) ;Nicklaus v. Commissioner, 117 T.C. 117">117 T.C. 117 , 120 n.4 (2001);Rybak v. Commissioner, 91 T.C. 524">91 T.C. 524 , 566 n.19 (1988);Cerone v. Commissioner, 87 T.C. 1">87 T.C. 1 , 2 n.1 (1986);Rockwell Intl. Corp. v. Commissioner, 77 T.C. 780">77 T.C. 780 , 837 (1981), affd.694 F.2d 60">694 F.2d 60↩ (3d Cir. 1982).8. When a taxpayer alleges that the IRS is barred from collecting his Federal income tax, e.g., because of the expiration of the period of limitations on collection, we review that matter as a challenge to the underlying liability. See
Boyd v. Commissioner, 117 T.C. 127">117 T.C. 127 , 130↩ (2001).9. RLI's right under
section 6330(c)(2)(B) to challenge its underlying liability on the grounds of res judicata, which RLI never had a prior opportunity to assert before Appeals, is distinct from RLI's right (or lack of right) to challenge its underlying liability on the merits (i.e., by proving the 2001 NOL and its carrybacks to 1999 and 2000), which issue RLI did have a prior opportunity to raise before Appeals. See infra↩ p. 41.10. However, pursuant to
Rev. Rul. 88-88, 2 C.B. 354">1988-2 C.B. 354 , 355, the "Service may not mail a second notice of deficiency to the taxpayer with respect to the amount attributable to disallowance of the carryback [where] * * * a notice of deficiency for amounts unrelated to the carryback had previously been mailed and the taxpayer had petitioned the Tax Court for a redetermination of that deficiency." See alsoMidland Mortgage Co. v. Commissioner, 73 T.C. 902↩ (1980) .11. Respondent argues that "petitioner is barred by the doctrines of res judicata and/or collateral estoppel↩" (emphasis added), but his principal contention appears to be res judicata, presumably because it is clear that the 2001 NOL was not "actually litigated" in the prior case.
12. See also
Cornick v. Commissioner, T.C. Memo 1985-513">T.C. Memo. 1985-513 ("Judicial economy requires that all issues raised in a case be tried and settled in one proceeding; this has long been our policy. Cf.Estate of Baumgardner v. Commissioner, 85 T.C. [445] (filed Sept. 11, 1985) [estate tax];Markwardt v. Commissioner, 64 T.C. 989">64 T.C. 989 , 998 (1975) (where we denied taxpayer's request for a second trial when he attempted to raise a new issue not raised at the first trial);Robin Haft Trust v. Commissioner, 62 T.C. 145">62 T.C. 145 , 147 (1974) * * *. When we are presented with a case over which we have jurisdiction and in which we possess the necessary and usual powers to resolve the dispute, we must consider all the issues raised by the case. SeeKluger v. Commissioner, 83 T.C. 309">83 T.C. 309 , 314 (1984)");Powerstein v. Commissioner, 99 T.C. 466">99 T.C. 466 , 472-473 (1992);Rosenberg v. Commissioner, T.C. Memo. 1985-514↩ .13. See
Russell v. United States, 592 F.2d 1069">592 F.2d 1069 , 1072 (9th Cir. 1979) ("There can be no question that when the taxpayer petitioned the Tax Court to redetermine the asserted deficiency, the Tax Court acquired jurisdiction to decide the entire gamut of possible issues that controlled the determination of the amount of tax liability for the year in question" (emphasis added));Erickson v. United States, 159 Ct. Cl. 202">159 Ct. Cl. 202 , 309 F.2d 760">309 F.2d 760, 767 (1962) ("the Tax Court's jurisdiction, once it attaches, extends to the entire subject of the correct tax for the particular year. The cause of action then before the court encompassed all phases of the taxpayer's income tax↩ for 1942" (emphasis added; fn. ref. omitted)).14.
Rule 41(a) provides that leave to amend pleadings "shall be given freely when justice so requires." Cf.Fed. R. Civ. P. 15(a)(2)↩ (to the same effect).15. Respondent did not dispute that RLI had the option to bring the NOL carrybacks into docket No. 6795-03 but rather insisted that it had brought them into the case. Because we hold that RLI is not bound by res judicata in any event, we do not need to resolve the question whether, before summary assessment had been made and paid, there was any impediment to RLI's pleading the carrybacks.↩
16. As respondent put it in his brief: "The petitioner believed the NOL issue should be removed [from the petition in the deficiency case] * * * because the respondent accepted the petitioner's 2001 corporate income tax return and issued the refunds on December 16, 2002. The petitioner considered the acceptance of the return and issuance of the refunds as evidence that the respondent had previously, and permanently, allowed the NOL and the carrybacks."
17. See
Zarnow v. Commissioner, 48 T.C. 213">48 T.C. 213 , 215 (1967) ("if the respondent allows an adjustment [undersection 6411 ] which he later determines was in error, he may subsequently correct such error"). The difference between the filing of a claim for a tentative refund on Form 1139, seesec. 6411 , versus the filing of a formal refund claim on Form 1120X, seesecs. 6401-6402 ,6501 ,7422(a)↩ , is explained in the Instructions for Form 1139. See also Saltzman, IRS Procedural Forms and Analysis, pars. 5.06 and 5.10 (2001).18. For an exception not relevant here, see, e.g.,
sec. 6015(g)(2)↩ ("(2) Res Judicata -- * * * if a decision of a court in any prior proceeding for the same taxable year has become final, such decision shall be conclusive except" etc.).19. See
Mar Monte Corp. v. United States, 503 F.2d 254">503 F.2d 254 , 257 (9th Cir. 1974);Birch Ranch & Oil Co. v. Commissioner, 1948 Tax Ct. Memo LEXIS 230">1948 Tax Ct. Memo LEXIS 230 a Memorandum Opinion of this Court dated Mar. 24, 1948 (res judicata is a "rule of law" that was intended to be overridden by sec. 322(g), the predecessor statute tosec. 6511(d)(2)(B)(i) ); see alsoWiltse v. Commissioner, 51 T.C. 632">51 T.C. 632 , 633↩ (1969) ("res judicata is * * * a settled rule of law").20. By way of analogy, when the IRS duly mails a statutory notice of deficiency and the taxpayer does not file a petition in the Tax Court to commence a deficiency case, the IRS properly assesses the tax pursuant to
section 6213(c) . However, if the taxpayer did not actually receive the notice and therefore did not have an opportunity to file a deficiency case, the taxpayer will be entitled to challenge the liability in a CDP case when the IRS attempts to collect the tax. SeeKuykendall v. Commissioner, 129 T.C. 77">129 T.C. 77 , 80 (2007). In that CDP context, the taxpayer will not be limited to attempting to show that the assessment was procedurally invalid; he is not forced to pay the assessment and make his liability challenge in a later refund suit. Rather, the CDP provisions allow him to make a postassessment, prepayment challenge to liability.21. A CDP petitioner is limited to making challenges to liability for which he did not have a prior opportunity. See
sec. 6330(c)(2)(B)↩ . In part IV below we show that, under this rule, RLI is entitled to press its res judicata claim but is not entitled to attempt to prove the fact of the 2001 loss and the validity of the carrybacks to 1999 and 2000.22.
Section 6212(c)(1) provides in pertinent part: "If the Secretary has mailed to the taxpayer a notice of deficiency as provided in subsection (a), and the taxpayer files a petition with the Tax Court within the time prescribed insection 6213(a) , the Secretary shall have no right to determine any additional deficiency of income tax for the same taxable year, * * * except as provided in * * *section 6213(b)(1)↩ (relating to mathematical or clerical errors)".23.
Section 6213(g)(2) provides, insubparagraphs (A) through (M) , a wide variety of circumstances that constitute "mathematical or clerical" errors. In addition, other circumstances are treated as if they were mathematical or clerical errors, pursuant tosections 1400S(d)(5)(C) ,6034A(c)(3) ,6037(c)(3) ,6201(a)(3) ,6227(c)(1) ,6241(b) ,6428(f)(1) , and6429(d)(1)↩ .24.
Section 6213(b)(3) provides that "the Secretary * * * may assess without regard to the provisions of paragraph↩ (2) the amount of the excess as a deficiency". (Emphasis added.)25. The U. S. Court of Appeals for the Eighth Circuit reached the same result that we reach today in
Jefferson Smurfit Corp. v. United States, 439 F.3d 448">439 F.3d 448 (8th Cir. 2006), overrulingBradley v. United States, , 77 A.F.T.R.2d (RIA) 1255">77 A.F.T.R.2d (RIA) 1255 , 96-1 U.S. Tax Cas. (CCH) P 50195">96-1 U.S. Tax Cas. (CCH) P50195 (D. Minn. 1996), affd. without published opinion106 F.3d 405">106 F.3d 405 (8th Cir. 1997). Like the Court of Appeals for the Third Circuit's opinion inZackim v. Commissioner, 887 F.2d 455">887 F.2d 455 (3d Cir. 1989), revg.91 T.C. 1001">91 T.C. 1001 (1988), Jefferson Smurfit appears to rely on broad grounds: "By excluding fraud from the general bar against successive deficiencies in26 U.S.C. section 6212(c)(1) , 'Congress dealt explicitly with the policy of finality, and plainly excepted claims of fraud from the general policy."439 F.3d at 453 (quotingZackim v. Commissioner, supra at 458-459 ). We do not decide whether there is a broad exception to res judicata in any circumstance in which additional deficiency determinations are permitted bysection 6212(c)(1) . Rather, we decide this case on the narrower basis of the statutory scheme insections 6411 ,6212(c)(1) ,6213(b)(3) , and6511(d)(2)(B)↩ that is applicable only to tentative refunds and that excepts the operation of res judicata in that specific circumstance.