TAX COURT OPINION

Case: Michael K. & June C. Hambrick
Docket Number: 9260-00
Judge: Gerber
Opinion Type: reported
Filed: 04/22/2002
Pages: 6

. RECORDE SMtVICE . CAL STAT. .(S. T. GE_ 118 T.C. No. 20 UNITED STATES TAX COURT MICHAEL K. AND JUNE C. HAMBRICK, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 9260-00. Filed April 22, 2002. Ps filed for a ch. 11 reorganization in R filed a proof of claim setting forth The Ps did not object to the tax liabilities set bankruptcy. income tax liabilities for 3 taxable years. bankruptcy court ordered Ps to file returns. After the returns were filed, R made amendments to his proof of claim. forth in R's claim, and the bankruptcy court confirmed the plan of reorganization without deciding the merits of Ps' court's confirmation of the plan, R determined income tax deficiencies and additions to tax for the same 3 taxable years. The deficiencies, if appr.oved, would result in tax liabilities exceeding those already claimed by R in the bankruptcy. estopped from determining deficiencies for the same tax years already claimed in Ps' bankruptcy reorganization. tax liabilities. Following the bankruptcy Ps contend that R is SERVED APR 2 2 2002 - 3 - 17, 1996, respondent filed a proof of claim in petitioners' bankruptcy proceeding. Respondent's claim consisted of estimated liabilities because petitioners had not filed tax returns. On June 16, 1997, the bankruptcy court compelled petitioners to file Federal income tax returns for their 1993, 1994, and 1995 tax years. The returns were to be filed within 3 years of the date of petitioners' bankruptcy petition. On the basis of the tax liability petitioners reported, respondent filed his first, second, and third amendments to the proof of claim on or about December 16, 1997, March 10, 1998, and February 9, 1999, respectively. On February 9, 1999, respondent's unsecured priority claims were as follows: Year Tax Due Interest to Bankruptcy Petition Date Unsecured Priority Claims 1993 1994 1995 1996 $41,517 2,163 1 2,191 $9,123.09 258.80 -0- -0- At the same time, respondent's unsecured general claims totaled $20,090. On October 5, 1999, petitioners' Fourth Amended Plan of Reorganization was confirmed by the bankruptcy court. On or about June 5, 2000, respondent mailed a statutory notice of deficiency to petitioners determining income tax deficiencies and additions to tax for their 1993, 1994, and 1995 tax years. The deficiencies, if approved, would result in the following - 5 - on September 1, 2000, resulting in our jurisdiction to redetermine the deficiencies determined in the notice. See generally secs. 6211 through 6214. At any time during this proceeding, petitioners could have moved the bankruptcy court to reopen their bankruptcy proceeding in order to adjudicate the proposed deficiency. See sec. 6871(c). If petitioners' bankruptcy proceeding was to be reopened, 11 U.S.C. sec. 505 (2000) would permit the bankruptcy court to: determine the amount or legality of any tax, any fine or penalty relating to a tax, or any addition to tax, whether or not previously assessed, whether or not paid, and whether or not contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction. Because petitioners did not seek to reopen their bankruptcy proceeding, we continue to have jurisdiction over the deficiencies respondent determined. II. Motion for Partial Summary Judgment Summary judgment is an appropriate means by which to resolve legal issues where the pleadings, admissions, and other materials, including affidavits, demonstrate that no genuine issue exists as to any material fact and a decision may be rendered as a matter of law. Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th Cir. 1994). Summary judgment is a procedure used to expedite litigation, but it is not a substitute for trial where factual - 7 - parties; prior judgment by a court of competent jurisdiction; final judgment on the merits; and the same cause of action. In re A.H. Robins Co., 880 F.2d 694 (4th Cir. 1989); Republic Supply Co. v. Shoaf, 815 F.2d 1046 (5th Cir. 1987). In a substantially similar case to the case we consider, the Court of Appeals for the Tenth Circuit addressed the issue of whether the Commissioner is precluded by res judicata or equitably estopped from assessing deficiencies in connection with tax liabilities already claimed in and allowed in lesser amounts in a confirmed plan of reorganization. In re DePaolo, 45 F.3d 373 (10th Cir. 1995). In that case, the debtor filed for bankruptcy, and the Commissioner filed a proof of claim and amendments to the proof of claim which set forth the debtor's tax liability for the tax years 1984 through 1987. The Commissioner did not object to the debtor's plan of reorganization, which was confirmed by the bankruptcy court in 1988. The debtor began making payments on his tax liability pursuant to the plan, and in October 1989, the bankruptcy court issued an order closing the bankruptcy proceedings. Thereafter, the Commissioner audited the debtor's 1986 tax return and, as a result of the audit, issued a notice of deficiency determining that the debtor owed an additional $12,000 in income tax and additions to tax of $2,024. The debtor moved to reopen the bankruptcy proceedings, seeking a declaratory judgment to determine the scope and effect of the t _ 9 _ taxes under the Bankruptcy Code.' avoid payment of This is an express congressional policy judgment that [In re DePaolo, supra at 376 we are bound to follow." (quoting Grynberg v. United States, 986 F.2d 367, 371 . (10th Cir. 1993) 794 F.2d 584, 585 (11th Cir. 1986))); omitted.] (quoting United States v. Gurwitch, fn. ref. The facts of this case and the facts in In re DePaolo, supra, are substantially similar. Here, the claims respondent filed in petitioners' bankruptcy were for the type of debts described in 11 U.S.C. sec. 523. The only factual difference of any significance between the case we consider and In re DePaolo, supra, is that petitioners chose to file a petition in the Tax Court rather than moving to reopen the bankruptcy proceeding. That distinction does not make a difference with respect to the issue we consider here. In Fla. Peach Corp. v. Commissioner, 90 T.C. 678 (1988), we held that a taxpayer was precluded from relitigating tax liabilities that the bankruptcy court had allowed. In Fla. Peach Corp., upon the Commissioner's filing of a proof of claim, the debtor's objection created a need for a hearing under 11 U.S.C. sec. 505 to determine the viability of the underlying tax claim. In the present case, there is no indication that the bankruptcy court inquired into the merits of petitioners' tax liability in the process of confirmation. Petitioners did not object to respondent's proof of claim, and there was no need for an 11 U.S.C. sec. 505 hearing to determine the merits of the - 11 - estoppel may be invoked against the parties and their privies to the prior judgment; (4) the parties must actually have litigated the issues, and the resolution of these issues must have been essential to the prior decision; and, (5) the controlling facts and applicable legal rules must remain unchanged from those in the prior litigation. Here, petitioners' tax liability was incorporated into their plan for reorganization on the basis of respondent's uncontested proof of claim, which in turn was based on petitioners' tax returns filed during the bankruptcy proceeding. As we discussed above, there is no indication that the merits of petitioners' tax liability were litigated in the bankruptcy proceeding or that the plan was confirmed on the bases of the underlying merits of the tax claims. Because the bankruptcy court did not enter a judgment on the bases of the merits of the tax claim, respondent is not precluded from determining a tax deficiency. See Limited Gaming of Am., Inc. v. Commissioner, T.C. Memo. 2001-273. To reflect the foregoing, An appropriate order will be issued.