T.C. Summary Opinion 2003-63

UNITED STATES TAX COURT

FRANK R. SANCHEZ, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 4075-01S. Filed May 28, 2003.

Frank R. Sanchez, pro se.

David C. Holtz, for respondent.

GOLDBERG, Special Trial Judge: This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed. The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority. Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the year at issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.
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Respondent determined a deficiency of $2,019 and an addition

to tax of $504.75 pursuant to section 6651(a) in petitioner’s

Federal income tax for the taxable year 1995.

This case was submitted fully stipulated pursuant to Rule

122. The stipulation of facts and the attached exhibits are

incorporated herein by this reference. At the time the petition

was filed, petitioner lived in Long Beach, California.

In the notice of deficiency, respondent determined that

petitioner: (1) Was not entitled to a claimed $23,039 net

operating loss (NOL) deduction; (2) was not entitled to deduct a

total of $2,990 of subcontractor expense claimed on four separate

Schedules C, Profit or Loss From Business; (3) was entitled to a

$40 deduction in arriving at adjusted gross income for one-half

of the increased self-employment tax resulting from the

disallowed Schedules C expenses; and (4) was subject to an

addition to tax pursuant to section 6651(a) for failure to file

his 1995 tax return by the prescribed due date.

Petitioner filed his petition with this Court requesting a

redetermination of the 1995 and 1987 tax years. Respondent

subsequently filed a Motion to Dismiss for Lack of Jurisdiction

and Strike as to the Taxable Year 1987. By order, on August 6,

2001, this Court granted respondent’s motion dismissing the 1987

taxable year for lack of jurisdiction because no notice of

deficiency was issued for that taxable year. However, the order
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stated that, pursuant to section 6214(b), the Court may take into

account facts pertaining to 1987 to correctly redetermine the tax

for the taxable year 1995.

In the stipulation of facts, petitioner conceded that for

the 1995 tax year: (1) He was not entitled to the $23,039 NOL

deduction claimed; (2) he was not entitled to the $2,990 of

claimed Schedules C expenses; and (3) he was liable for the

addition to tax of $504.75 pursuant to section 6651(a).

The parties stipulated that all issues not specifically

addressed in the stipulation of facts would be resolved in

accordance with the notice of deficiency. Accordingly, although

not specifically addressed in the stipulation of facts,

petitioner is allowed the $40 deduction for one-half of the

increased self-employment tax resulting from the disallowance of

Schedules C expenses claimed on his 1995 tax return.

The only remaining issues for decision are: (1) Whether

petitioner is entitled to an adjustment pursuant to sections 1311

through 1314 to reflect a carryback of a 1990 tax year NOL to the

tax year 1987; and (2) in the alternative, whether petitioner is

entitled to equitable recoupment relief related to the carryback

of a 1990 tax year NOL to the tax year 1987.

Petitioner claimed, on his 1995 tax return, a $23,039 NOL

carryforward deduction generated in 1990. Instead of a carryback

of the NOL generated in 1990 to the 1987 tax year as allowed
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pursuant to section 172(b)(1)(A)(i), petitioner claimed the 1990

NOL as a carryforward deduction only. However, in his 1990 tax

return, petitioner failed to make the election to waive the

carryback provision required to forgo the carryback. See sec.

172(b)(3). By failing to make this election with his 1990 tax

return, petitioner is not entitled to the $23,039 NOL deduction

generated in 1990 and claimed on his 1995 tax return, as he has

conceded.

After being informed of the error, petitioner, on July 13,

2001, filed an amended tax return for the 1987 tax year claiming

a refund attributable to the 1990 error of failing to carryback

the NOL to 1987. However, respondent determined that the period

of limitations for filing the 1987 amended tax return to claim a

refund attributable to the 1990 NOL carryback had expired on

October 15, 1994. Thus, respondent denied the 1987 refund claim.

Petitioner contends that the mitigation provisions of

sections 1311 through 1314 apply because (1) respondent’s

determination to disallow the NOL deduction claimed on the 1995

tax return, and (2) respondent’s refusal to correct the error by

allowing the NOL carryback to 1987, constitute a double

disallowance of a deduction pursuant to section 1312(4).

The mitigation provisions, sections 1311 through 1314, were

designed to palliate the effect of the period of limitations in

certain meticulously and narrowly defined situations. Bradford
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v. Commissioner, 34 T.C. 1051, 1054 (1960). In those situations,

the mitigation provisions preclude the Commissioner or a taxpayer

from taking a position that is inconsistent with an earlier

year’s position and then seeking refuge behind the period of

limitations that otherwise prevents an adjustment to the earlier

year. S. Rept. 1567, 75th Cong., 3d Sess. (1938), 1939-1 C.B.

(Part 2) 779, 815. If the requirements allowing mitigation are

met, a year closed by the statute of limitations can be reopened

for the limited purposes of the mitigation sections. Farmer v.

Commissioner, T.C. Memo. 1998-327.

The mitigation provisions were drafted with great precision

and care. Bolten v. Commissioner, 95 T.C. 397, 403 (1990). The

relief available under the mitigation provisions is limited, and

the statutory provisions do not purport to permit the correction

of all errors and inequities. Fong v. Commissioner, T.C. Memo.

1998-181.

In this case, for mitigation to apply, we would have to

reopen the 1987 tax year in order to carry back the 1990 NOL. 

However, respondent determined a deficiency for the 1995 tax

year, not the 1987 tax year. Although petitioner petitioned this

Court for a review of both the 1995 and 1987 tax years, this

Court granted respondent’s motion to dismiss the 1987 tax year

for lack of jurisdiction. Accordingly, we have jurisdiction only

to redetermine the 1995 tax year. Since the mitigation
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provisions do not apply to 1995, we lack jurisdiction to

redetermine petitioner’s income tax liability for 1987. See sec.

6214(b); Farmer v. Commissioner, supra.

In the alternative, petitioner argues that he is entitled to

relief from the error under the theory of equitable recoupment. 

The Court of Appeals for the Ninth Circuit, the circuit in which

an appeal in this case would lie if this case were appealable,

has held that the Tax Court has the authority to apply equitable

recoupment in cases subject to the Tax Court’s jurisdiction. 

Estate of Branson v. Commissioner, 264 F.3d 904, 919 (9th Cir.

2001), affg. 113 T.C. 6 (1999).

Equitable recoupment may apply in certain circumstances to

overcome the bar of the statute of limitations. “[A] claim of

equitable recoupment will lie only where the Government has taxed

a single transaction, item, or taxable event under two

inconsistent theories.” United States v. Dalm, 494 U.S. 596, 605

n.5 (1990). Here, there are no inconsistent theories of taxation

involved. “If an NOL is claimed in the wrong year, it is not

allowable, and that is respondent’s consistent position.” Farmer

v. Commissioner, supra. Accordingly, there is no basis for

petitioner’s equitable recoupment claim.
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Reviewed and adopted as the report of the Small Tax Case

Division.

Decision will be entered

for respondent.