17-3622-cv
Diebold Found. v. Comm’r

UNITED STATES COURT OF APPEALS
FOR THE SECO ND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AF TER JANUARY 1, 2007, IS PERM ITTED AND IS GOVERNED BY
FEDERAL RULE OF APPELLATE PROC EDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE
EITHER THE FEDERAL APPEND IX OR AN ELECTRONIC DATAB ASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON
ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United St ates Courthouse, at 40 Foley Square, in the City of New York, on the 15 th day of November, two thousand eighteen.

PRESENT: R EENA R AGGI

, G ERARD E. L YNCH

, C HRISTOPHER F. D RONEY

, Circuit Judges

.

________________________________________________

D IEBOLD F OUNDATION

, I NC

., T RANSFEREE

,

Petitioner-Appellant

,

v. No. 17-3622-cv

C OMMISSIONER OF I NTERNAL R EVENUE
,

Respondent-Appellee

,

________________________________________________

FOR PETITIONER-APPELLANT: A. D UANE W EBBER (Phillip J. Taylor, Mireille R. Oldak, on the brief ), Baker & McKenzie LLP, Washington, DC.

FOR RESPONDENT-APPELLEE: C LINT A. C ARPENTER (Gilbert S. Rothenberg, Arthur T. Catterall, on the brief ), for Richard E. Zuckerman, Principal Depu ty Assistant Attorney General, Tax Division, United States Department of Justice, Washington, DC.2 Appeal from a decision of the United States Tax Court (Goeke, J .).

UPON DUE CONSIDERATION, IT IS HEREBY ORDE RED, ADJUDGED,
AND DECREED that the order of the Tax Court is AFFIRMED.

This is the second appeal to us ar ising from Petitioner-Appellant Diebold Foundation, Inc.’s (“Diebold”) challenge to a tax assessment by Respondent-Appellee Commissioner of Internal Revenue (“IRS”). Di ebold now appeals from an August 4, 2017,
decision of the United States Ta x Court in favor of the IRS, holding that Diebold was liable for unpaid income tax for the tax year July 1 through July 2, 1999, in the amount of $33,542,496.29, plus interest.

In our previous decision in this case, we described the complex “Midco” transaction through which a personal holding compa ny, Double-D Ranch (“Double-D”), sold approximately $300 million of its assets, comprising publicly traded securities, real property, and cash. Diebold Found., Inc. v. Comm’r , 736 F.3d 172, 175– 83 (2d Cir. 2013). The value of the non-cash assets had appreciate d significantly during the period Double-D held them, such that an asset sale would have tri ggered a tax liability fo r built-in gains of approximately $81 million. Id . at 176. A “Midco” transac tion was executed to arrange for Double-D and the recipients of the liquidated assets to substan tially avoid this tax liability.
Id . Diebold was one of three foundations which each eventu ally received—from intermediary “Midco” entities—ove r $33 million from the sale. Id . at 181. Because the remaining facts regarding the Midco transac tion are not pertinent for purposes of this appeal, we will otherwise assume the parties’ fa miliarity with those un derlying facts in this

case.

On March 10, 2006, the IRS se nt Double-D a notice of de ficiency in the amount of $97,344,076.80 for its declared tax y ear July 1 through July 2, 1999. 1 “[T]he IRS was unable to find any Double D assets fro m which to collect the liability.” Diebold , 736 F.3d at 181. “Deciding that any a dditional efforts to collect fro m Double D would be futile,” the IRS attempted to collect from Diebold a nd the other foundations as transferees of transferees of a taxpayer whic h owed that income tax. Id . Accordingly, on July 11, 2008,
the IRS sent Diebold a notice of transferee liability for $33,542,4 96.29—one third of Double-D’s liability—for the same short tax y ear. Diebold and the ot her foundations filed a petition in the Tax Court cha llenging the assessment. Initially , “[t]he Tax Court found in favor of the petitioners, holding . . . that Diebol d and the other . . . Foundations were not
liable as transferees of a transferee.” Id . at 182. We vacated that decision and remanded
the case to the Tax Court. Id . at 190.

1 Prior to the transaction at issue here, Double-D’s tax year was set to end on June 30, 2000. After it completed the transaction, however, Double-D filed a co rporate tax return for a short taxable year, ending July 2, 1999.3 On remand, the Tax Court concluded, in an August 15, 2016, me morandum opinion, “that Double-D Ranch was liable for unpaid tax fo r the short tax year e nding July [2,] 1999, the notices of liability were timely issued [a nd] petitioners [includi ng Diebold] are liable
as transferees of a transferee of Double D Ranch.” App’x at 6–26. On October 4, 2016,— seven years after filing its petition with the Tax Court—Diebold file d a motion to dismiss for lack of subject matter jurisdiction, conten ding that the notice of deficiency issued to
Double-D and the notice of tran sferee liability issu ed to Diebold stated the incorrect tax

year. Id . at 27. The Tax Court denied the motion on J une 6, 2017, and it entered a final
decision in the IRS’s favor on August 4, 2017. Di ebold timely appealed.

On appeal, Diebold argues that the Tax Co urt lacked subject matter jurisdiction
because the IRS’s notice to Diebold of transfer ee liability stated an incorrect end date for the July 1, 1999, taxable year (attributed to Diebold as Double- D’s transferee). Rather than ending July 2, 1999—as Double-D had itself claimed based on purpor ted stock transfers— Diebold contends the tax y ear ended June 30, 2000, based on the Commissioner’s
recharacterization of those transact ions as assets transfers.

“We review de novo the Tax Court’s legal conclusions and for clear error its factual findings.” Chai v. Comm’r , 851 F.3d 190, 204 (2d Cir. 2017 ). “In particular, we owe no deference to the Tax Court’s statutory interpreta tions, its relationship to us being that of a district court to a court of appeals, not that of an administrative agency to a court of appeals.” Id. (internal citations, alterations, and quotation marks omitted).

26 U.S.C. § 6212(a) “authorizes the Secretar y of the Treasury or [the Secretary’s] delegate to send a taxpayer a notice of deficiency if the Secretary ‘determines that there is a deficiency in respect of any tax imposed.’” Andrew Crispo Gallery, Inc. v. Comm’r , 16 F.3d 1336, 1340 (2d Cir. 1994) (quoting § 6212(a)). “Section 6213(a) provides in part that ‘the taxpayer may file a petition with the Tax Court for a redete rmination of the deficiency’ and ‘[t]he Tax Court shall have no jurisdiction to enjoin an y action or proceeding under this subsection unless a timely petition for a re determination of the deficiency has been
filed.’” Id . (quoting 26 U.S.C. § 6213(a)) (alteration in original).

The essential requirements for a valid notice of transferee liability are the same as for a notice of deficiency (together, “notice”). See 26 U.S.C. § 6901(a) (stating that, subject to delineated exceptions, transferee liabilities “shall . . . be . . . collected in the same manner and subject to the same provisions and limitations as in the case of the taxes . . . to which the liabilities were incurred”). A notice must, “at a minimum[,] . . . identify the taxpayer,
indicate that the Commissioner has made a dete rmination of deficien cy [or liability], and specify the taxable year and amount” owed. 2 O’Rourke v. United States , 587 F.3d 537,

2 As the IRS observes, our decisions, and those of our si ster circuits, which have stated that the notice must include the taxable year, appear to have either pre-da ted or not explicitly reconciled that requirement with 26 U.S.C. § 7522(a), which was enacted in 1988. See Estate of Yaeger v. Comm’r , 889 F.2d 29, 35 (2d Cir. 1989) (stating the taxable-year requirement and collecti ng decisions from sister circuits). Section 7522(a)4 541 (2d Cir. 2009) (quoting Andrew Crispo Gallery , 16 F.3d at 1340). “The notice is only to advise the person who is to pay . . . that the Commissioner means to assess him; anything that does this unequivocally is good enough . . . .” Id . (quoting Olsen v. Helvering , 88 F.2d 650, 651 (2d Cir. 1937)) (internal qu otation marks and alteration omitted). And so, we have rejected, for example, the argument that the amount of the deficiency or liability stated
in the notice must match the final assessment. See O’Rourke , 587 F.3d at 541 (citing Olsen

, 88 F.2d at 651).

The Fifth Circuit has explained the re asoning behind this standard. In Stevens v.
Comm’r , 709 F.2d 12, 13 (5th Cir. 1983), that c ourt rejected the argument that the Tax
Court’s merits determination that no defi ciency existed meant that the notice was insufficient to confer jurisdicti on upon the Tax Court. Accordin g to the Fifth Circuit, “[i]t
is not the existence of a deficiency but the Commissioner’s determination of a deficiency that provides a predicate for Tax Court jurisdiction.” Id . (internal quotation marks and citation omitted) (emphasis in original). “Tha t seems obvious,” the Fifth Circuit stated, because “the very purpose of th e Tax Court is to adj udicate contests to deficiency notices.
If the existence of an er ror in the determination giving rise to the notice deprived the [Tax] Court of jurisdiction, [it] would la ck power to perform its function.” Id

. We agree, and
we are aware of no other circuit that ha s come to a different conclusion.

Here, Diebold contends that, pursuant to the Tax Code and certain Treasury Regulations, the IRS issued a not ice with the incorrect taxable year and that this rendered the notice invalid. It is undisputed, howeve r, that prior to sending Diebold a notice, the
IRS determined that Double-D ha d a deficiency for its declared short tax year of July 1, 1999, to Ju ly 2, 1999, 3 for which Diebold had transferee liability, that the notice identified Diebold as the taxpayer, and that it stated an amount and taxable year. See O’Rourke , 587
F.3d at 541.

There is also no dispute that Diebold unders tood that the IRS soug ht to assess it for taxes owed by Double-D for its claimed taxable year beginning July 1, 1999 and ending on July 2, 1999. The rationale for noticing a ta x deficiency—Double-D’s mischaracterization of an assets transfer as a stock transfer—may have raised questions as to whether DoubleD had also mischaracterized its July 1, 1999, ta x year as a short year ending July 2, 1999, rather than a normal year ending twelve m onths later on June 30, 2000. As with the
substantive correctness of the amount stated on a notice, however, we see no reason why,

states that a notice must identify, inter alia , the amount of tax due, interest, and penalties. Id . It does not
state that the notice must include the taxa ble year underlying the determination. Id . However, some other provisions, such as 26 U.S.C. § 6214(b), arguably appear to contemplate that the notice state a taxable year. Estate of Yaeger , 889 F.2d at 35, also suggested that due process may require stating the taxable year. Id

. (citing Planned Invs., Inc. v. United States , 881 F.2d 340, 344 (6th Cir. 1989)). We need not decide this issue because the IRS has not argued that a notice need not include the taxable year.

3 As mentioned above, Double-D itself had filed a tax return for a short tax year ending July 2, 1999.5 in these circumstances, where Diebold was no t misled as to the basis for the noticed deficiency, the taxable year stat ed on a notice must be complete ly correct in order to give the Tax Court jurisdiction. 4 We are here satisfied that th e notice issued to Diebold was sufficient to “unequivocally” notify Diebold that “the Commissione r mean[t] to assess” it for a portion of the Double-D deficiency for its claimed tax year begi nning July 1, 1999.
Olsen , 88 F.2d at 651. And so, th e notice was sufficient to conf er subject matter jurisdiction upon the Tax Court in this case.

Diebold’s reliance on certain Ta x Court cases is misplaced. Diebold relies primarily

on Century Data Systems

, Inc. v. Comm’r , 80 T.C. 529 (1983). In Century Data Systems

, the Tax Court dismissed for lack of subject matter jurisdiction a taxpayer’s challenge to a
tax assessment because the IRS st ated the substantively incorrect tax year on the deficiency
notice. Id . at 535–37. The Tax Court stated that “under [26 U.S.C.] section 6214(b) . . . , the Tax Court simply has no jurisdiction to de termine a deficiency for any taxable year other than a taxpayer’s correct taxable year.” Id . at 535.

The Tax Court’s reading of section 6214(b) in that decision appears to be incorrect. That provision provides as follows:

The Tax Court in redetermining a deficiency of income tax for any taxable year . . . shall consid er such facts with relation to the taxes for other years . . . as may be necessary correctly to
redetermine the amount of such deficiency, but in so doing shall have no jurisdiction to de termine whether or not the tax for any other year . . . has b een overpaid or underpaid.

§ 6214(b). Read together with section 6213(a ), section 6214(b) provid es that the Tax Court has jurisdiction over only the IRS’s particul ar determination that forms the basis for a notice. And so, based on only th e notice for the taxable year July 1 to July 2, 1999, in this case, the Tax Court could not have reached a judgment as to (for example) Diebold’s 2008– 09 taxable year. But the Tax Court in Century Data Systems , 80 T.C. at 535, had no basis to read into section 6214(b) a “correctness” requirement for the taxable year stated in a
notice. 5 Here, the IRS determined and gave notice of a liab ility of approximately $33 million for the tax year ended July 2, 1999, and that is the only year for which the Tax

4 Indeed, the Tax Court also recently held that even an ambiguous deficiency notice did not defeat the Tax Court’s jurisdiction because it was sufficient that the Commissioner actually made a deficiency determination and “the taxpayer was not misled by the . . . notice.” United States v. Dees, 148 T.C. 1, 6 (2017); see also id . at 15, 19 (Ashford, J. , concurring) (stating that “juris diction depends on the issuance of a notice . . . , it does not depending on the notice’s cont ent,” and explaining that “nothing in either section 6212 or 6214 . . . specifically requires a notice of defici ency to include the amount or correct taxable year of a deficiency”).

5 We give no deference to the Tax C ourt’s statutory interpretations. Chai , 851 F.3d at 204.6 Court redetermined whether tax had been overpaid or underpai d. This was sufficient to comply with s ection 6214(b).

Diebold also cites the Tax Court’s decision in Columbia River Orchards, Inc. v.
Comm’r , 15 T.C. 253, 260–61 (1950). But ra ther than support Diebold’s position,
Columbia River Orchards is consistent with the correct re ading of section 6214(b). There, the taxpayer challenged an IRS determination fo r the taxable year January 1 through July 17, 1943. Id . at 258. The Tax Court found that the taxable transaction at issue took place after July 17 , 1943. Id . at 261. Thus, “there [was] no de ficiency for the period over which [the Tax Court had] jurisdicti on” and “no deficiency notice fo r the period [after July 17, 1943] during which the income involved was realized.” Id . The IRS attempted to constructively extend (with an amended an swer) the period covered by the notice. Id . The Tax Court rejected the IRS’s view that am ending its pleading coul d grant the Tax Court jurisdiction for a tax year extending past July 17, 1943, because only the deficiency notice itself prescribed the Tax Court’s jurisdiction. Id . The Tax Court accordingly entered judgment on the merits in the taxpayer’s favor. 6 As such, Columbia River Orchards is not helpful to Diebold’s argument.

In its reply brief, Diebold changes course and argues for the first time that the Tax Court was wrong to conclude, on the merits, that Diebold’s Ju ly 1, 1999, tax year ended July 2, 1999. 7 As such, Diebold argues, the Tax Co urt’s decision should be vacated and
remanded with instructions to enter a merits decision in its favor. The parties agree that Diebold raised this issue in the Tax Court, but Diebold did not make the argument in its (56-page) opening brief on app eal. As we have previously explained, “[w]e think it reasonable to . . . oblige[] a la wyer to include his [or her] most cogent arguments in [the] opening brief, upon pain of othe rwise finding them waived. Th us, arguments not raised in an appellant’s opening brief, but on ly in his reply brief, are not properly before an appellate
court even when the same arguments were raised in the trial court.” McCarthy v. S.E.C.

, 406 F.3d 179, 186 (2d Cir. 2005).

6 Diebold contends that the Tax Court in Columbia River Orchards dismissed the case for lack of jurisdiction. However, the decision addressed two consolidated cases, Nos. 20501 and 20502. Columbia
River Orchards , 15 T.C. at 259. The Tax Court dismissed No. 20501 for lack of jurisdiction because the petitioner taxpayer improperly brought that action in the name of a dissolved corporation. Id . By contrast, a decision was entered in the taxpayer’s favor in No. 20502 for the reasons discussed above. Id . at 261.

Diebold also relies on the Tax Court’s decision in Pittsburgh Realty Inv. Trust v. Comm’r , 67 T.C. 260, 281–82 (1976). In Pittsburgh , the Tax Court found that the taxable y ear stated on a notice was substantively incorrect, and it dismissed the actio n for lack of jurisdiction. Id . The Tax Court cited Columbia River
Orchards to support its decision. But, as we have seen, Columbia River Orchards does not support the Tax Court’s application of it in Pittsburgh. And so, Pittsburgh is unpersuasive.

7 In fact, Diebold all but abandons its jurisdictional ar guments in its reply, and only cursorily responds to the IRS’s arguments in this regard.7 Diebold argues that it was entitled to raise th e merits issue for th e first time in its reply brief because the IRS raised the issue in its response. Th at premise is incorrect. The IRS’s response was a direct rebuttal to Di ebold’s argument: Diebold contended that a substantively incorrect tax year on the notice depr ived the Tax Court of subject matter jurisdiction, and the IRS showed why it does not. 8 It so happened, as the IRS explained,
that this was inst ead a merits issue. 9 That the IRS pointed this out did not open the door for Diebold to belatedly make this argument in its reply. 10

Moreover, although we have the discretion to overlook a party’s failure to properly raise an issue on appeal if “necess ary to avoid manifest injustice,” Baker v. Dorfman , 239 F.3d 415, 420 (2d Cir. 2000) (i nternal quotation marks omitted); see McCarthy , 406 F.3d at 186, no such injustice would result here. Diebold is “represented by sophisticated counsel,” was aware enough of th e argument to make it in the Tax Court, and “had ample opportunity . . . to pursue the argument” on appe al, yet, “[f]or [its] own reasons . . . opted
not to do so.” See Motorola Cred it Corp. v. Uzan , 509 F.3d 74, 88 ( 2d Cir. 2007) (finding no manifest injustice in cons idering appellants’ argument waived). What is more, to consider the argument would prejudice the IR S, which was justified in focusing its response on the arguments Diebold chose to make on appeal. Accordingly, the argument
is deemed waived.

The Tax Court therefore properly granted ju dgment in favor of the IRS. We have considered Diebold’s remaining arguments and conclude they are without merit. Accordingly, the order of the Tax Court is AFFIRMED.

FOR THE COURT:
Catherine O = Hagan Wolfe, Clerk of Court

8 Diebold also contends that the IRS waived this ar gument by not making it in its (successful) defense of Diebold’s motion to dismiss in the Tax Court. But Diebold does not provide any authority for the proposition that an appellee is limited to making the same responses to the oppo sing party’s arguments as it made in the trial court. Rather, Diebold cites only to a decision applying the familiar principle that an appellant may waive arguments by failing to timely raise them. See Mhany Mgmt., Inc. v. Cty. of Nassau

, 819 F.3d 581, 615 (2d Cir. 2016).

9 The IRS also devoted a short portion of its response brie f to argue, in the alternative, that the taxable year in the notice was substantively correct and so the Ta x Court had subject matter jurisdiction even if the notice was required to state the correct year.

10 To the extent Diebold might argue that a merits ar gument was subsumed within its jurisdiction argument, and even assuming, arguendo , that this contention has some basis, we have stated that “it is not our obligation”—nor that of an appellee—“to ferret out” arguments “hidden between the lines of [a] brief.” McCarthy , 406 F.3d at 186. “That, after all, is the purpose of briefing.” Id

.