In Uncategorized on 12/13/2012 at 17:45

Or, Scar Tissue

That’s the question for Karl E. Cross, in 2012 T.C. Memo. 344, filed 12/13/12, and Judge Jacobs gives him and his seasoned attorney Mitch an answer they don’t like.

We all know that a Notice of Deficiency is the ticket to Tax Court. Karl E. got Letter 531-T, at the top of which and in capital letters is written “NOTICE OF DEFICIENCY”, for the year in question. The items disallowed giving rise to the deficiency are erroneous, as the computation apparently came from IRS’ RTVUE synopsis of the return as filed, rather than the document itself.

The IRS’ RTVUEr apparently transcribed items incorrectly, ascribed a tax shelter to Karl E. that he wasn’t part of for the year at issue, and thereby caused Mitch to stipulate to bind Karl E. to the outcome of cases having nothing to do with Karl E.’s tax situation for the year at issue, and Mitch alleges IRS knew this all along.

Mitch claims no jurisdiction, as the Notice of Deficiency was so deficient as to be no notice at all. In other words, no ticket.

No, says Judge Jacobs. “It is well settled that no particular form is required for the notice of deficiency to be valid. The Court of Appeals for the Eleventh Circuit, the court to which this case is appealable barring  a stipulation to the contrary, has held that the notice will be treated as valid if the Commissioner demonstrates that ‘the IRS has determined that a deficiency exists for a particular year and specif[ies] the amount of the deficiency’.” 2012 T. C. Memo. 344, at pp. 11-12 (Citations omitted).

Besides, Mitch’s arguments go to the accuracy of the determination, not the fact that there is a determination. The one case to the contrary, Scar v. Com’r., 814 F.2d 1363 (9th Cir. 1987), rev’g 81 T.C. 855 (1983), involves a statement in that notice that the tax return itself was not examined, ascribed to the Scar taxpayer a tax shelter with which Scar had never had a relationship (unlike Karl E., who had been in the tax shelter referred to in the Notice of Deficiency in the past), and assessed tax at the top marginal rate without consulting the Code. Ninth Circuit held that was not a notice.

Here, however, though there may be factual inaccuracies, “(W)e disagree with the position taken by petitioner’s counsel. His arguments in both the motion to dismiss and the supplemental motion are arguments as to the correctness of respondent’s determinations in the notice of deficiency, not the validity of the notice of deficiency. Consequently, these arguments do not support the position he takes because our jurisdiction in this matter does not hinge on the correctness (or incorrectness) of respondent’s determinations in the notice of deficiency.” 2012 T. C. Memo. 344, at p. 15.

Judge Jacobs: “The facts in this matter are readily distinguishable from those in Scar. In this matter, the notice of deficiency specifically addresses petitioner’s income tax return. Unlike the notice in Scar, here the notice of deficiency does not state that the income tax is being determined at the maximum rate simply to protect the Government’s interest. It does not refer to a tax shelter with which petitioner had no relationship. Nor does the notice of deficiency indicate that petitioner’s tax return (or the transcript thereof) was never examined. In sum, we cannot say that the notice of deficiency reveals on its face that respondent failed to determine a deficiency.” 2012 T. C. Memo. 344, at p. 17.

Mitch tries to argue that the Notice of Deficiency should follow the pleading requirements of the Federal Rules of Civil Procedure. No authority for that, says Judge Jacobs; at most, the Notice of Deficiency, like a complaint, sets out the basis of a claim and confers jurisdiction on the Court, but that’s all.

Finally, Mitch’s claim he was hoodwinked into signing onto a determination in cases having nothing to do with the year at issue gets short shrift from Judge Jacobs. Mitch “is a longtime member of the Tax Court bar, is an experienced attorney, and was formerly an attorney in the Commissioner’s Office of Chief Counsel. We are skeptical that he could be induced to consent to such an important agreement by respondent’s counsel without any supporting materials to justify its signing. But we need not make a  determination with respect to [Mitch’s] allegations. Even if true, they would not affect our analysis regarding the validity of the notice of deficiency.” 2012 T. C. Memo. 344, at p. 19, footnote 7, second paragraph).

So Tax Court has jurisdiction, and Mitch can try to get out of the stipulation, and get Karl E. out of the deficiency.

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