Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-15-02329/USCOURTS-ca8-15-02329-0/pdf.json

Parties Involved:
Commissioner of Internal Revenue
Appellee
Karen G. Thompson
Appellant
Randall J. Thompson
Appellant

Document Text:

United States Court of Appeals

For the Eighth Circuit

___________________________

No. 15-2329

___________________________

Randall J. Thompson, &; Karen G. Thompson

lllllllllllllllllllllAppellants

v.

Commissioner of Internal Revenue

lllllllllllllllllllllAppellee

____________

Appeal from the United States Tax Court

____________

 Submitted: January 12, 2016

 Filed: May 3, 2016 

____________

Before WOLLMAN, MELLOY, and COLLOTON, Circuit Judges.

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WOLLMAN, Circuit Judge.

Randall and Karen Thompson appeal from an order of the United States Tax

Court1

 that dismissed for lack of jurisdiction their petition challenging the Internal

Revenue Service’s (IRS) assessment of a penalty with respect to their 2001 joint tax

return. We affirm. 

1

The Honorable Robert A. Wherry, United States Tax Court Judge.

Appellate Case: 15-2329 Page: 1 Date Filed: 05/03/2016 Entry ID: 4394638 
This is the third appeal brought to challenge adjustments made by the IRS to

2001 tax returns filed by the Thompsons and a related partnership. See RJT Invs. X

v. Comm’r, 491 F.3d 732 (8th Cir. 2007) (partnership-level proceeding); Thompson

v. Comm’r, 729 F.3d 869 (8th Cir. 2013) (partner-level proceeding). We relate only

those general facts necessary to resolution of the jurisdictional issue presented here. 

In 2001, Randall Thompson (Thompson) formed a partnership, RJT

Investments X, LLC (RJT), which he then used in an illegal tax-shelter transaction to

offset capital gains of approximately $21.5 million that otherwise would have been

taxable on his 2001 joint tax return. The IRS conducted an audit of RJT’s 2001

partnership tax return and determined that RJT was a sham, that it lacked economic

substance, and that it was formed so that Thompson could use the overstated basis he

claimed in his RJT partnership interest to offset the $21 million in capital gains. RJT

Invs. X, 491 F.3d at 735; Thompson, 729 F.3d at 871. The IRS disallowed all

deductions and losses reported by RJT on its 2001 partnership return. It also

determined that a 40-percent accuracy-related penalty for gross misstatement of

partnership basis would be applied to any underpayment of tax by RJT partners

resulting from the adjustments made to the RJT partnership return. RJT and

Thompson challenged these adjustments in a partnership-level proceeding before the

Tax Court, but the adjustments, including imposition of the penalty, were affirmed by

the Tax Court and by this court on appeal. RJT Invs. X, 491 F.3d at 738. 

After the RJT partnership-level proceeding became final, the IRS initiated a

partner-level proceeding to determine the resulting effects of the partnership

adjustments on the Thompsons’ 2001 joint tax return. Because the IRS had previously

determined that RJT was a sham and must be disregarded for tax purposes, it further

determined that Thompson’s basis in his RJT partnership interest was zero and that

he could not use his basis in that interest to offset the $21 million capital gain reported

on his 2001 joint tax return. In addition to the tax assessed on this capital gain, the

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Appellate Case: 15-2329 Page: 2 Date Filed: 05/03/2016 Entry ID: 4394638 
IRS imposed the 40-percent accuracy-related penalty it had previously determined

was applicable in the RJT partnership-level proceeding. 

The Thompsons filed a petition in the Tax Court to challenge both the tax

deficiency and the penalty. The IRS moved to dismiss the petition for lack of

jurisdiction, arguing that the Thompsons were not entitled to a prepayment hearing

before the Tax Court but were instead required to pay both the tax deficiency and the

penalty in full before they could challenge the adjustments in a tax-refund proceeding.

The Tax Court granted the IRS’s motion to dismiss the petition for lack of

jurisdiction. The Thompsons appealed to this court, and we reversed as to the Tax

Court’s jurisdiction over the tax deficiency. We observed that, although RJT was a

sham partnership, it did “not necessarily follow . . . that Thompson’s entire purported

basis” in RJT was overstated. Thompson, 729 F.3d at 873. Because the determination

of Thompson’s basis in his RJT partnership interest “must be determined at the partner

level,” we concluded that the Tax Court had jurisdiction in a partner-level proceeding

to determine Thompson’s basis and to consider his challenge to any tax deficiency

resulting from that determination. Id.

With respect to the Tax Court’s jurisdiction over the penalty issue, however, we

affirmed the Tax Court’s dismissal for lack of jurisdiction based on an express

abandonment of the issue by the Thompsons. In their brief, the Thompsons stated: 

[T]he taxpayers are too late with this argument. The taxpayers agree that

they cannot here collaterally attack the jurisdiction of the Tax Court over

penalties in this case [i.e., the partner-level proceeding to adjust the tax

and penalty applicable to the Thompsons’ 2001 joint tax return]. The

earlier Tax Court Decision in [the] RJT [partnership-level proceeding]

is res judicata on the applicability of penalties here. . . . The decision of

the Tax Court dismissing this [partner-level proceeding] for lack of

jurisdiction should be reversed as to jurisdiction over the deficiency

determination. 

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J.A. 212. In addition to this direct concession, the Thompsons’ request for relief on

appeal was limited to a “revers[al] as to jurisdiction over the [tax-]deficiency

determination.” Id.

Relying on this express abandonment of any challenge to the penalty, we

concluded that the question of the Tax Court’s jurisdiction over the penalty issue was

moot:

As to the Tax Court’s jurisdiction over the penalties, the Thompsons

concede “that they cannot here collaterally attack the jurisdiction of the

Tax Court” because “[t]he earlier Tax Court Decision in [the] RJT

[partnership-level proceeding] is res judicata on the applicability of

penalties here.” Accordingly, this issue is moot.

Thompson, 729 F.3d at 872 n.3 (citation omitted). We then remanded the case to the

Tax Court for proceedings consistent with our opinion. 

On remand, the parties stipulated to the amount of the tax deficiency, but the

Thompsons again attempted to argue that the Tax Court had jurisdiction over the

penalty issue. The IRS moved for entry of a decision limited to the stipulated tax

deficiency, asserting that the Thompsons had abandoned any challenge to the Tax

Court’s jurisdiction over the penalty issue and that revisiting that issue would exceed

the scope of this court’s mandate on remand. 

The Tax Court agreed with the IRS, concluding that its decision in the RJT

partnership-level proceeding had resolved the penalty issue—a decision that had

become final and had acquired preclusive effect. The Tax Court specifically noted

that the Thompsons had conceded in their appeal to this court that the penalty issue

had been resolved by the final judgment in the RJT partnership-level proceeding and

was not subject to collateral attack in the partner-level proceeding. The Tax Court

concluded that the penalty could be “directly assessed” against the Thompsons under

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Appellate Case: 15-2329 Page: 4 Date Filed: 05/03/2016 Entry ID: 4394638 
I.R.C. §§ 6225(a)(2) and 6230(a)(1) and that they could raise any defenses they might

have against assessment of the penalty only in a “postpayment refund suit” under

I.R.C. § 6230(c)(1)(C). Thompson v. Comm’r, 108 T.C.M. 104, at *3 (2014). The

Tax Court accordingly granted the IRS’s motion to dismiss the penalty dispute for

lack of jurisdiction, a determination that we review de novo. See Thompson, 729 F.3d

at 872. 

The IRS contends that the Thompsons are prohibited from challenging the Tax

Court’s jurisdiction over the penalty issue under the law-of-the-case doctrine, which

“prevents relitigation of a settled issue in a case and requires that courts follow

decisions made in earlier proceedings to insure uniformity of decisions, protect the

expectations of the parties[,] and promote judicial economy.” Klein v. Arkoma Prod.

Co., 73 F.3d 779, 784 (8th Cir.1996). Thus, when a case has been decided by an

appellate court and remanded for further proceedings, every question decided by the

appellate court, whether expressly or by necessary implication, is finally settled and

determined, and the court on remand is bound by the decree and must carry it into

execution according to the mandate. See id. at 784-85; see also Lamb Eng’g &

Constr. Co. v. Ne. Pub. Power Dist., 145 F.3d 996, 998 (8th Cir.1998) (“Under the

law of the case doctrine, the district court was bound on remand to obey the Eighth

Circuit’s mandate and not to re-examine issues already settled by our prior panel

opinion.”). “[T]he doctrine posits that when a court decides upon a rule of law, that

decision should continue to govern the same issues in subsequent stages in the same

case.” Gander Mountain Co. v. Cabela’s, Inc., 540 F.3d 827, 830 (8th Cir. 2008)

(citation omitted). Although a court should not reopen issues already decided, if a

prior decision “is clearly erroneous and would work a manifest injustice,” reopening

may be appropriate. Wong v. Wells Fargo Bank, N.A., 789 F.3d 889, 898 (8th Cir.)

(citation omitted), cert. denied, 136 S. Ct. 507 (2015). 

As noted above, the Thompsons expressly withdrew their challenge to the Tax

Court’s jurisdiction over the IRS’s penalty determination in an earlier stage of this

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Appellate Case: 15-2329 Page: 5 Date Filed: 05/03/2016 Entry ID: 4394638 
partner-level litigation. The penalty issue thus became moot, Thompson, 729 F.3d at

872 n.3, and the Tax Court’s initial holding that it lacked jurisdiction over the penalty

became the law of the case. The Tax Court properly declined to revisit the issue on

remand. See In re Raynor, 617 F.3d 1065, 1068 (8th Cir. 2010) (“We have held that

when an appellate court remands a case . . . all issues decided by the appellate court

become the law of the case.” (alterations and citations omitted)). And given the fact

that the Thompsons expressly disclaimed this argument in their earlier appeal, no

manifest injustice would occur by holding them to that concession. See Wong, 789

F.3d at 898. 

Nevertheless, the Thompsons now contend that they did not concede the

“individual” penalty issue in their earlier appeal. They argue that they conceded only

that the Tax Court’s penalty determination against RJT in the partnership-level

proceeding was res judicata such that they could not make a collateral attack on that

partnership determination in this partner-level proceeding. We disagree with this

characterization of the Thompsons’ earlier concession, for the Thompsons in their first

appeal in this partner-level proceeding expressly and unconditionally conceded the

penalty issue as it affected their 2001 joint tax return. See J.A. 212. In sum, we reject

the Thompsons’ attempt to revisit their argument regarding the Tax Court’s

jurisdiction over the penalty assessed on their 2001 joint tax return. The Tax Court

did not err by dismissing the penalty issue for lack of jurisdiction. 

The judgment is affirmed. 

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Appellate Case: 15-2329 Page: 6 Date Filed: 05/03/2016 Entry ID: 4394638