HIROTOSHI YAMAMOTO, PETITIONER V. UNITED STATES OF AMERICA

   No. 86-709

   In the Supreme Court of the United States

   October Term, 1986

   On Petition for a Writ of Certiorari to the United States Court of
Appeals for the Federal Circuit

   Memorandum for the United States in Opposition

   Petitioner contends that the Claims Court erred in dismissing, on
grounds of res judicata, his refund suit that sought to challenge the
minimum tax liability imposed upon him by a prior final decision of
the Tax Court.

   1. a. Petitioner reported substantial amounts of capital gains on
his income tax returns for 1970 and 1971 without reporting any minimum
tax liability pursuant to 26 U.S.C. (1970 ed.) 56.  The Internal
Revenue Service initially notified petitioner that the minimum tax was
applicable to the determination of his income tax liability because of
the large amount of capital gains.  After final examination of the
returns, however, the IRS concluded that much of the income reported
as capital gains should be recharacterized as ordinary income.  Based
on this conclusion, the Commissioner sent petitioner a notice of
deficiency asserting deficiencies of $5,058 for 1970 and $75,577 for
1971.  Petitioner then petitioned the United States Tax Court for a
redetermination of his tax liabilities for those years.  Pet. App. C2.

   The litigation in the Tax Court focused on the parties' dispute
over the correct tax treatment of petitioner's gain from the transfer
of certain stock.  The court rejected both the Commissioner's
contention that the gain was ordinary income and petitioner's
contention (contrary to the position that he had taken on his returns)
that the gain was nonrecognition income under Section 351 of the Code.
 /1/ Instead, the Tax Court concluded that the gain was taxable as
capital gain, as originally reported by petitioner on his tax returns.
 Yamamoto v. Commissioner, 73 T.C. 946 (1980), aff'd, 672 F.2d 924
(9th Cir. 1982).  See Pet. App. C2.

   In order to "reflect * * * the effect of these conclusions (and
various concessions by the parties) on asserted liabilities for
minimum tax," the Tax Court stated that its decision would be entered
under Tax Court Rule 155, which allows each party to submit its own
computation of the resultant deficiency.  73 T.C. at 962.  The
Commissioner filed proposed computations showing a tax deficiency for
1970 in the amount of $3,042 and for 1971 in the amount of $23,854.
Both computations reflected petitioner's liability for the minimum
tax.  Petitioner neither objected to the Commissioner's proposed
computations nor filed any proposed computations of his own.  The Tax
Court entered its decision in the amounts submitted by the
Commissioner.  The court of appeals affirmed the Tax Court's decision.
 Pet. App. C2-C3.  /2/

   b. After paying the tax assessed in accordance with the Tax Court's
decision, together with accrued penalties and interest, petitioner
filed suit for a refund in the United States Claims Court, disputing
the imposition of minimum tax liability.  The Claims Court originally
dismissed the suit for failure to file an administrative refund claim.
 Petitioner then filed a refund claim with the IRS, which was denied,
and returned to the Claims Court in the instant action.  Pet. App. C3.

   The Claims Court granted the government's motion for summary
judgment and dismissed petitioner's complaint, holding that the
doctrine of res judicata barred petitioner from litigating his claims
because his income tax liabilities for 1970 and 1971 had been the
subject of a prior Tax Court decision that had become final.  Pet.
App. C1-C7;  9 Cl. Ct. 207.  The court of appeals affirmed in a
one-line decision on the basis of the Claims Court's opinion (Pet.
App. D;  795 F.2d 1018).

   2. Petitioner contends (Pet. 3-4) that the Tax Court's decision as
to his income tax liability for the tax years in question does not
preclude relitigation of the minimum tax component of that liability
in the instant refund suit.  This contention apparently is based (1)
on the fact that the Commissioner did not issue a new notice of
deficiency addressed to the minimum tax question after the Tax Court
held that the gain from the stock transaction should be treated as
capital gain;  and (2) on the assertion that petitioner did not
receive judicial review of his minimum-tax arguments.  This contention
is wholly without merit.

   When petitioner filed his Tax Court petition for redetermination of
the deficiencies asserted in the notice of deficiency sent to him for
1970 and 1971, the Tax Court acquired exclusive jurisdiction to
redetermine the correct amount of any deficiency or overpayment for
those tax years.  See I.R.C. Sections 6214 and 6512.  The Commissioner
thereupon was barred from sending petitioner further notices of
deficiency for the periods at issue.  See I.R.C. Section 6212(c).
Pursuant to Section 6214 and Rule 155 of its Rules, the Tax Court
redetermined petitioner's income tax deficiencies for 1970 and 1971,
and it included in the computation of those deficiencies the
minimum-tax liability occasioned by petitioner's receipt of capital
gains.  /3/ The fact that petitioner, for whatever reason, did not
challenge the minimum-tax aspect of the Tax Court's decision in that
court or on direct appeal provides no basis for avoiding the res
judicata effect of the Tax Court's decision.  See Commissioner v.
Sunnen, 333 U.S. 591, 597 (1948).  /4/

   Petitioner's reliance (Pet. 4) on Thompson v. United States, 430
F.2d 388 (5th Cir. 1970), cert. denied, 401 U.S. 940 (1971), is
entirely misplaced.  That case involved different tax years from those
involved in the prior litigation, and hence it was quite clear that
the first litigation had no res judicata effect that could bar the
later suite.  It is well established that each tax year is a separate
cause of action.  Thus, a final Tax Court decision with respect to
liability for a given year, under basic res judicata principles, bars
further litigation as to that tax year, with respect both to issues
that were actually raised and to issues that could have been presented
but were not.  See Commissioner v. Sunnen, 333 U.S. at 598-599.

   It is therefore respectfully submitted that the petition for a writ
of certiorari should be denied.

   CHARLES FRIED

      Solicitor General

DECEMBER 1986

   /1/ Unless otherwise noted, all statutory references are to the
Internal Revenue Code (26 U.S.C.), as amended (the Code or I.R.C.).

   /2/ Petitioner challenged on appeal only the Tax Court's ruling
that his gain on the transfer of stock had to be recognized.  He did
not challenge the Tax Court's acceptance of the Rule 155 computation
submitted by the Commissioner.

   /3/ It is well established that minimum-tax liability is part of
the income tax.  See, e.g., Trainer v. United States, 800 F.2d 1086
(Fed. Cir. 1986), petition for cert. pending, No. 86-904;  Ward v.
United States, 695 F.2d 1351, 1355 (10th Cir. 1982);  Graff v.
Commissioner, 74 T.C. 743, 765 (1980) aff'd, 673 F.2d 784 (5th Cir.
1982).  See also United States v. Darusmont, 449 U.S. 292 (1981).

   /4/ In addition to holding correctly that the instant suit was
barred by res judicata, the Claims Court went on to note that
petitioner "had advance notice of the minimum tax issue" and that "the
Tax Court's procedures (were) entirely appropriate in the instant
case" (Pet. App. C6).  Thus, there can be no suggestion that
petitioner is the victim of some procedural trap for the unwary.  He
had every opportunity to raise his minimum-tax contentions at the
appropriate time in the appropriate forum, and there is no reason to
provide him now with the opportunity to institute a new round of
litigation involving closed tax years.